CCK defies Kibaki on mobile tariff cut

The Communications Commission of Kenya is expected to defy the President by announcing Thursday a cut on the rate mobile phone operators charge each other for interconnecting customers.

Francis Wangusi, the director-general of the CCK, Tuesday told the Business Daily that the board will meet on Thursday to agree on whether to lower the Mobile Termination Rate (MTR) to Sh1.44 or Sh1.60.

President Kibaki issued a fresh directive in August through his private secretary, Prof Nick Wanjohi, that the Ministry of Information should not implement the MTR before a new study on the same is conducted.

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The operators had on May 29 struck a deal that was to see the mobile termination rate fall to Sh1.60 a minute on July 1, from the current Sh2.21, in what was to end the one-year freeze and cut the cost burden on smaller operators.

“The board will be meeting this Thursday to agree on the MTR, it will definitely be lower than the current one as an inception report by KIPPRA indicates that lower rates will significantly contribute positively to the general economy,” said Mr Wangusi Tuesday.

The regulator had contracted government think-tank Kenya Institute for Public Policy Research Analysis to conduct a study on the impact of a lower MTR on the economy and the operator’s finances.

Tuesday, Information ministry PS Bitange Ndemo said that the government was yet to see the KIPRRA report even as Mr Wangusi questioned the authenticity of the presidential directive.

“I don’t think the board will go by that since we don’t think it was a presidential directive, it might have been mischief,” said Mr Wangusi.

“We are going to come up with a decision that should put this matter to rest, we are not going to be influenced by anyone.”

MTR is the fees which mobile operators pay one another for handling calls originating from rival networks. The fee affects the operators’ cost levels and influences pricing of tariffs.

The rate fell from Sh4.42 in June 2009 to Sh2.21 in July 2010, and was to drop to Sh1.44 last June before President Kibaki froze it for a year following intense lobbying by Safaricom and Orange.

The downward review in 2010 gave the operators room to cut their tariffs by more than half, but the telcos have ruled out lower call rates and will instead absorb the cost savings to boost earnings that had been hit by price wars.

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Safaricom has been against low termination rate and analysts led by Morgan Stanley said that the company would be the biggest beneficiary from the delay in the MTR cut.

Its rivals reckon that the status quo will benefit Safaricom and hurt the earnings of the smaller operators whose significant share of calls head to Safaricom, which remains dominant with 65.3 per cent of Kenya’s mobile phone subscribers.

Airtel has 15.3 per cent, Orange 10.6 per cent while yu trails with 8.7 per cent.

“For Airtel, on net minutes are at 40 per cent of total calls. About 60 per cent, a majority of their calls terminate on other networks bearing a significant impact on our margins, and the delivery of our business plan which has been built on the premises of the lower glide path as provided by the CCK,” said Airtel’s managing director Shivan Bhargava.

Safaricom is the only operator that has benefited from the current termination rate.