CA set to cut mobile termination rate fees

Safaricom, Airtel, Telkom Kenya and Equitel are gearing up for a fresh round of price wars after the industry regulator revealed plans to cut the fees that mobile firms pay each other for connecting calls and texts.

The Communications Authority of Kenya plans to carry out a fresh assessment of the prevailing Sh0.99 per minute fee for calls and Sh0.05 per text message — technically referred to as mobile termination rate.

The current rates have been in force since July 2014 and will expire in June next year, meaning a further cut will be a boon to smaller players like Airtel and Telkom as it will be cheaper to make cross-network calls and SMS.

“The authority is still monitoring the prevailing market rates and shall carry out further reviews to determine the best interventions to adopt,” Communications Authority director-general Francis Wangusi said in an interview.

“Lower termination rates give smaller market players an opportunity to lower their prices, enabling them to compete while recovering their costs. Increased competition in turn results in a wider variety of services, better quality and lower prices,” said Mr Wangusi.

In August 2010, Airtel sparked a vicious price war with Safaricom which saw off-net tariffs nose-dive to the current average of four shillings a minute from a high of Sh12 a minute; while on-net calls dropped to three shillings a minute from peaks of seven shillings a minute.

This was after the defunct CCK unveiled a glide path that saw call connection charges drop to the current Sh0.99 per minute from Sh4.42 a minute in 2009 and Sh2.21 in 2010.

The mobile termination rate for text messages fell to the current Sh0.05 per SMS from Sh0.20 in 2011 and Sh0.10 the following year.

Airtel has welcomed the planned review of termination rates and called on the regulator to adopt a strategy where bigger players like Safaricom pay a higher charge for connecting calls to the networks of smaller telcos.

“Airtel supports further cuts in rates. But we wish to see the termination rate restructured so that they are asymmetric, thereby ensuring that the dominant players pay a higher rate for terminating calls to the smaller firms networks,” said Airtel Kenya chief executive Adil El Youssefi.

“It also leads to increased competition by improving the position of smaller firms and, in the long term, this practice benefits end users and the economy,” said Mr Youssefi.

Safaricom, which has previously opposed cuts, declined to comment, saying the matter is a regulatory one.

Telkom Kenya noted: “Interconnection rates are a cost to a firm and whatever can be done to reduce them is most welcome.”

Sharp differences between telcos on further cuts of termination costs forced the Communications Authority in October 2012 to hire the Kenya Institute of Public Policy and Research Analysis to study the impact of lower termination rate.

The study revealed that competition as a result of low rates had a positive impact on all aspects of the economy, including Exchequer revenue, employment creation and affordability of telecommunication services.

Kenya’s four mobile providers — Safaricom, Airtel, Telkom and Equitel — invoice each other quarterly for interconnection charges and work out what is due. Payments are made within 15 days.

Official data shows Safaricom remains dominant, with 24.4 million subscribers or 64.7 per cent of the total, followed by Airtel’s 19.2 per cent market share, Telkom (12.4 per cent) and Equitel (3.7 per cent) as at December 2015.

Data from the Communications Authority shows that Airtel subscribers made 1.3 billion minutes of voice traffic to rival networks compared with Safaricom customers who made 644 million minutes of off-net calls in the six months to December 2015.

This resulted in Airtel incurring a gross termination rate bill of Sh1.3 billion, compared with Safaricom’s Sh638 million for the period under review.

Nine out of every 10 Safaricom voice traffic are on-net, in contrast to Airtel’s 62 per cent.