Technology

Airtel faces off with Safaricom over network fees

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Mr Shivan Bhargava at a past event. File

Airtel Kenya has accused Safaricom of seeking to profit from the current mobile termination rates and weaken the smaller operators.

The managing director of Airtel Kenya Shivan Bhargava Tuesday said that Safaricom intends to use a higher termination rate — the amount of money an operator pays rivals if its subscribers call another network — as a revenue stream rather than a cost recovery tool.

The Communications Commission of Kenya (CCK) is planning to cut the termination rate to Sh1.44 per minute in July from the current Sh2.21, but Safaricom reckons that the cut will allow it to recover the cost of receiving and terminating calls received from other networks.

“We are not going to pay for inefficiency of another operator and we are asking CCK to lower the MTR come July the way it has already indicated,” said Mr Bhargava in an interview with the Business Daily.

“The high interconnection rates have only benefited one operator which is Safaricom and who does not want to let it go because it is a revenue stream to them.”

Safaricom does not disclose its interconnection revenues, but analysts reckon that it earns more than Sh5 billion from connecting and receiving its rivals calls.

The rebuke from Airtel comes a day after Safaricom moved to court seeking to recover close to half a billion shillings from its key rival for non-payment of termination of termination fees since October together with penalties.

Airtel had warned earlier warned that the current interconnection charges would delay its return to profitability, adding that it is paying about 40 per cent of its revenues to rivals for connecting calls to their networks.

“The current market shareholding means that large share of calls made by our subscribers go to the leading mobile operator, while very few calls originate from the network to ours,” said Mr Bhargava.

Fresh study

Safaricom says the current termination rates are based on an outdated model and asked CCK to carry out a fresh study that will reflect the cost of doing business in Kenya’s voice market in line with Uganda and Tanzania.

Uganda charges a termination rate equivalent to Kenya’s Sh4.50 per minute while Tanzania’s rates are at Sh5.75.

“Artificially low termination rates do not allow operators to fully recover the cost of receiving and terminating calls received from other networks and this significantly impacts the network receiving the largest number of cross-network calls such as Safaricom,” Safaricom argued

Safaricom remains dominant with 67.7 per cent of Kenya’s mobile phone subscribers. Airtel has 15.7 per cent, Orange 10.4 per cent while Yu trails with 6.2 per cent.

The CCK data showed that Airtel subscribers made 429 million minutes calls in the three months to December to rival’s network compared to 427 million minutes within the network, mainly due to the dominance of Safaricom.

This means that Airtel subscribers more calls to rivals than within their network, leaving it with a bill of Sh948 million with bulk owed to Safaricom

In contrast, Safaricom is estimated to have generated about Sh19.6 billion from the 4.9 million calls that its subscribers made within its network in the quarter to December. It paid about Sh501 million to its rivals as interconnection charges.

(Read: Safaricom tariff rise reduces industry's voice traffic)

This has seen Safaricom emerge as the biggest beneficiary of the revenues generated from interconnection charges. Safaricom is estimated to have generated about Sh18.3 billion from the 6.1 million calls that its subscribers made within its network in the quarter to September. It paid about Sh350 million to its rivals as interconnection charges. The interconnection charges have fallen from Sh4.42 in June 2009 to Sh2.21 in July 2011 and were to fall to Sh1.40 this June but President Mwai Kibaki froze the rates for one year following intense lobbying from Safaricom and Orange.

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