Safaricom cries foul over rivals’ Sh4 uniform rate
A customer makes a call. Three mobile phone operators are seeking to charge uniform calling rates of Sh4 to reduce competition among themselves, a move that Safaricom has criticised. File
Safaricom’s rivals are seeking to introduce a uniform minimum calling rate of Sh4 within their networks to cut losses caused by the price war that has gripped the mobile telephony market.
The Communication Commission of Kenya (CCK) Tuesday said the three operators — Telkom Kenya, Airtel and Essar — have approached it with the intention of introducing the floor rate and that they are currently working on a memorandum of understanding.
Besides increasing their revenues, the move will limit the price war among the three operators—who have seen their on net tariff drop to Sh2 per minute from Sh6 in 2010.
“The three operators have approached us and we cannot say no to their proposal. We will only come in if we notice that they are colluding to exploit the end users, but they are within the law,” said CCK’s acting director general Francis Wangusi in an interview with the Business Daily. The move is likely to invite talk of uncompetitive business practice with Safaricom saying it amounts to formation of a cartel and the authority should step in.
“This is uncompetitive business conduct,” said Nzioka Waita, the corporate affairs director at Safaricom. “It amounts to cartel-like behaviour for the operators to set floor retail prices since the law only allows the operators to negotiate the interconnection rate,” he said.
But CCK said the law only allows it to regulate the wholesale prices or interconnection rates— the amount an operator pays rivals if its subscribers call another network.
Mickael Ghossein, Telkom’s Kenya chief executive officer said the current tariffs are not sustainable and that the three operators have proposed a floor price of Sh4 for calls within their networks.
“The current rates are not sustainable and the only way to come out of this is to have minimum calling rates to avoid further destroying the voice market value,” said Mr Ghossein. If the three operators reach an agreement, mobile subscribers who have for the past two and half years enjoyed lower voice charges will have to pay more for the service. It will also for the first time see operators Essar and Airtel agree with Safaricom that the current tariffs are unsustainable.
Orange currently charges Sh2 for calls within its network and Sh4 to its rivals. Both Airtel and Yu are charging Sh3 within and out of their network.
Safaricom charges Sh4 within its network and Sh5 to other networks—and it revised its charges by about 25 per cent in October after reporting a drop in profits for the six months to September. Safaricom maintains that a “realistic” termination rate should be the basis under which retail tariffs are set.
The interconnection charges have fallen from Sh4.42 in June 2009 to Sh2.21 in July 2010 and were to drop to Sh1.40 last June, but President Mwai Kibaki froze the rates for one year following lobbying from Safaricom and Orange.
The downward review of the interconnection rates this year is what gave the operators room to cut their tariffs by more than half in August 2010 that pushed the three operators into losses and saw Safaricom report a rare drop in profit.
Safaricom reported a 47.4 per cent drop in profit to Sh4 billion for the six months ended September while Telkom Kenya made a loss of Sh18.2 billion after making sales of Sh9.2 billion.
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.
Uganda charges a termination rate of the equivalent of Sh4.50 per minute while Tanzania rates are at Sh5.75.
Airtel has been pushing for lower termination rates, arguing that it’s paying Safaricom a huge chunk of its revenues. It is estimated that Airtel paid Sh591 million in interconnection charges to its rivals in the quarter ended September of the Sh1.4 billion it earned.
