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MTN manages interconnect cuts

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Second mobile operator MTN seems to be keeping a cool head regarding the reduction of mobile call termination rates (MTRs), which has been knocking its main competitor, Vodacom.

South African mobile operators voluntarily cut interconnect rates from March last year, dropping the price from R1.25 per minute to 89c. At the beginning of the month, rates dropped again to 73c per minute at peak and 65c during off-peak times.

Next year, rates will drop to 56c per minute and then to 52c. By March 2013, wholesale mobile terminations rates will drop to 40c, regardless of the time the call is made.

Speaking this morning at MTN's financial results for the year ending 31 December, outgoing CEO Phuthuma Nhleko said interconnect revenue decreased by 13% on the back of the MTR cuts in March last year.

He pointed out, however, that this amounted to a revenue loss of 10% for its South African operation.

MTN's Nigerian operation is also going through a regulatory-induced reduction in MTRs, which saw the peak rate drop from 11.4 Naira to 8.2 Naira.

But MTN reported a net interconnect margin increase from 28% to 32%. Nhleko explained that higher on-net traffic offset some of the interconnect rate decline. He pointed out that SA's prepaid on-net traffic improved to 61%, while Nigeria's total on-net traffic increased to 83%.

Nhleko explained that this in turn led to a revenue margin expansion from 28% in the previous year to 32%.

As long as on-net traffic remains stable, Nhleku is confident that further reductions in MTRs will again lead to margin expansion.

Meanwhile, Vodacom has been vocal about its losses, reporting R418 million in lost services revenue in the three months to December, as a result of lower call termination rates. This figure is just more than half the cost to its income in the first half of the year.

Vodacom CFO Rob Shuter previously said the revenue drop is expected to be between R800 million and R900 million a year, until the final rate of 40c a minute is in place in 2013.

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