The effect of a reduction in wholesale mobile call termination rates on JSE-listed technology group Altech’s cellphone service provider subsidiary, Altech Autopage Cellular, is likely to be minimal, despite its exposure to the market for least-cost routing (LCR) services.

Altech CEO Craig Venter (pictured) says he expects the bottom-line impact of the reduction in termination rates — the interconnection fees the mobile operators charge each other to carry calls onto their networks — to be no more than R20m.

“I have run the numbers, and the maximum we will be affected by in the next 12 months is R20m, and I think it’s more likely to be R10m,” Venter says.

Autopage Cellular reported an operating profit in the financial year to 28 February 2010 of R296m, or about a third of the group total. It has nearly 1m active subscribers on its books.

“We are only affected in our LCR business and this makes up only a small component of our overall profit,” Venter says.

In LCR, Autopage Cellular is not market leader, he says. “This is one case where I’m glad Autopage wasn’t the number one in the market.”

On 1 March, MTN, Vodacom and Cell C reduced peak-time termination rates from R1,25/minute to 89c. Their regulator, the Independent Communications Authority of SA, wants the rate reduced to 65c/minute in July in both peak and off-peak periods, and has proposed slashing it further, to just 40c/minute, by July 2012.

LCR providers have taken advantage of high interconnection rates to offer corporate clients cheaper on-network calling options. Lower termination rates make their raison d’être less apparent.

Because of slowing growth in the cellular market, Autopage Cellular has retrenched more than 200 employees in the past six months.

Venter says this has resulted in a R53m reduction in expenses, more than offsetting any negative impact flowing from the reduction in termination rates.

Autopage Cellular’s contribution to group profit has declined sharply in recent years as contributions from other parts of Altech have risen.

“Three years ago, Autopage Cellular was the major contributor to the group. That could have meant risk,” Venter says. “Now we have Netstar contributing R254m in operating profit and East Africa contributing R196m.”

For the year, group operating profit climbed 7% on revenue that rose marginally to R9,2bn. Despite a number of deals during the year, the group has R616m in cash, which it plans to use to make further acquisitions.

Venter says Netstar is eyeing an opportunity in Brazil that could see it buy a 51% stake in an established vehicle tracking business in the Latin American country. — Duncan McLeod, TechCentral