Leave pay provision

The leave pay provision relates to the vested leave pay to which employees are entitled. The provision arises as employees render services that increase their entitlement to future compensated leave. The provision is also utilised when employees, who are entitled to leave pay, leave the employment of the respective companies in the Group.

Bonus provision

The bonus provision consists of a performance-based bonus, which is determined by reference to the overall company performance with regard to a set of predetermined key performance measures. Bonuses are payable annually after the MTN Group annual results have been approved.

Onerous leases provision

The Group recognises a provision for onerous contracts when the expected benefits from the contract are less than the unavoidable costs of meeting the obligations under that contract.

Decommissioning provision

This provision relates to the initial estimate of the costs of dismantling and removing an item of property, plant and equipment and restoring the item and the site on which the item is located. The Group only recognises these decommissioning costs for the proportion of its overall number of sites for which it expects decommissioning to take place.The expected percentage has been based on actual experience in the operation.

* The Group’s present policy is to pay incentives to service providers (“SP”) for the handset upgrades. These upgrades are only payable once the subscriber has completed a 21 month period with the SP since the initial commencement of its contract or previous upgrade and the eligible subscriber has exercised the right to receive an upgrade for a new postpaid contract with minimum terms. The value of the obligation may vary depending on the prevailing business rules at the time of the upgrade. The total number of eligible subscribers who had not yet excercised their right to upgrade at 31 December 2005 was 344 770 (March 2005: 379 000). The estimated contingent liability at 31 December 2005 based on the prevailing business rules on such date amounts to R781 million (March 2005: R1 082 million).
The Group has, however, provided for those upgrades which have been made, and in respect of those it believes have not yet been presented for payment.

** The Group has signed guarantees in favour of Rand Merchant Bank (March 2005: R290 million) for the bridging finance facility granted to Rand Merchant Bank Properties for the development of the second phase of the MTN Innovation Centre.

MTN Network Operator

The granting of a national cellular telecommunication licence placed an obligation on the company to set up a joint economic development plan agreement with the Postmaster General (now ICASA). This agreement was a condition for the commencement of commercial operations in June 1994 and involves a commitment by the company to assist in the development of the South African economy and, in particular, the telecommunications industry. The company has exceeded the obligations imposed in terms of its access to the 900 Mhz by 31 December 2005. In January 2005, MTN was granted the right to maintain and use the 1800 MHz GSM spectrum as well as maintain and operate an UMTS (3G) network under the existing cellular network licence with the provisio that certain additional universal service obligations are met. These include the following:

• To distribute 2,5 million SIM card packages over five years commencing 2005;
• To provide 125 000 mobile phones over five years commencing 2005;
• To provide internet access and terminal equipment (10 per institution) to 140 institutions for people with disabilities over a three-year period commencing 2005; and
• To provide internet access to 5 000 public schools over an eight-year period commencing 2005.

The details of these obligations had not been finalised at period end, and therefore, a quantification of the commitment could not be performed.

Irancell

The investment in Irancell is subject to a number of sovereign, regulatory and commercial risks, which could result in the Group failing to realise full market value for its investment, should it be required to dispose of any portion thereof. In this regard, 21% of Irancell is required to be offered to members of the Iranian public within approximately three years from the date of the licence. Such offering would have a proportional dilutory effect on MTN International (Mauritius) Limited (MTNI(M)’s 49% shareholding, effectively reducing its shareholding by 10,3% to 38,6%. The substantial terms and conditions of this commitment are yet to be finalised.

MTN Zambia

The licence issued by the Zambian Communications Authority (ZCA), a body corporate established under the provisions of the Telecommunications Act Number 23 of 1994 Laws of Zambia, requires that ten percent (10%) of the issued share capital of MTN Zambia be held by the Zambian public. The approval given by the ZCA for the Group’s purchase of 100% of the share equity was on the basis that 10% should be housed in a special purpose vehicle (SPV) for the beneficial ownership of the Zambian public. The transfer to the SPV, already formed, and ultimate placement with the Zambian public is under way.

In accordance with the aforementioned agreement, the sale of shares to the Zambian public should be concluded within 15 to 18 months after the date of approval of the transaction at a price equal to 10% of the purchase consideration by the Group, plus interest from the date of acquisition to the date of disposal.