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UPDATE 2-S.Africa delays mobile call rate cut after court challenge

* Regulator plans to halve mobile termination rates

* To delay introduction to May 1 from March 1

* Move follows court challenge by mobile operator MTN

(Recasts with regulatory delay)

CAPE TOWN, Feb 14 (Reuters) - South Africa's telecoms regulator is delaying by two months a plan to cut fees that mobile operators charge rivals for using their networks, allowing it time to respond to a court challenge from Africa's biggest mobile operator.

The Independent Communications Authority of South Africa (ICASA) had planned to cut in half so-called "mobile termination rates" at the start of March, but has moved that to May 1.

MTN Group on Friday filed papers asking Johannesburg's South Gauteng High Court to review ICASA's decision to halve the rate to 20 South African cents per minute per call. The rate would be reduced further to 10 cents by March 2016.

"MTN has given us until the 18th to file answering papers. We can't do that because of the timelines. It is too close," ICASA spokesman Paseka Maleka told Reuters.

"We therefore decided to extend the implementation date from 1 March to 1 May and give ourselves more time to respond," he added.

Paseka said MTN's application was complex, comprising some 399 pages, with the court expected to hear the matter in two weeks on Feb. 25, giving it little time to respond.

South Africa has taken a more aggressive approach to regulating the cost of communication in Africa's largest economy, where the cost of making calls has prevented foreign investment, the communications minister said.

The regulator says the cut in mobile termination rates (MTR)will improve competition, but big operators argue they have invested most in networks and the reduced rates would benefit smaller rivals such as Telkom SA and unlisted Cell C.

"MTN believes that the decline in mobile termination rates (MTRs) must be driven by a fair process and appropriate costing study ensuring MTRs are reflective of the costs incurred by all players in the market, including smaller players," the mobile operator said in a statement.

Vodacom Group, another leading mobile operator and South African subsidiary of Britain's Vodafone Plc, has said the move could cost it as much as 1 billion rand ($91 million) in 2015.

It is also expected to begin its own legal challenge of the decision.

The small players have applauded the cuts saying they have been paying huge amounts of money to bigger operators because the bulk of their customers' calls are to Vodacom and MTN users, which have more than 56 million customers between them.

($1 = 10.9883 South African rand)

(Additional reporting by Helen Nyambura; Editing by Mark Potter)