The charges dropped to Sh2.21 in July from Sh4.42 in July 2009. Photo/FREDRICK ONYANGO
Safaricom and Telkom Kenya have lost their bid to stop the reduction of mobile telephony interconnection charges in June, setting the stage for a further fall in calling rates.
Interconnection charge —which operators pay rival networks for handling their calls—is set to drop from Sh2.21 per minute to Sh1.44 in July and Sh1.25 in July 2012, giving the operators room to further reduce their per minute voice charges.
In February, Telkom Kenya and Safaricom asked the government to put on hold for two years the annual reduction of interconnection charges that started in 2006, arguing that it would intensify the ongoing price war and hurt the operators’ profits, jeopardise job security and slow new investments in the local telecom arena.
This prompted the Prime Minister’s office to form a task force that will determine whether to hold off revising the charges or let the revisal run as earlier set by the Communications Commission of Kenya (CCK). The taskforce returned a verdict that charges should run their course.
“Nothing has changed and mobile termination rates were done through consultation and they shall remain as such,” said Charles Njoroge, Director-General, CCK.
He added that the downward fall in the connection charges does imply that calling rates will fall adding that tariffs are mainly influenced by market forces.
The government’s verdict is a blow to Telkom Kenya—the operators of the Orange network—and Safaricom who, unlike their rivals Airtel and Essar, have criticised the free fall in airtime prices, made possible by the fall in interconnection charges.
The charges dropped to Sh2.21 in July from Sh4.42 in July 2009, giving Airtel room to set off a vicious price war in Kenya’s voice market that has seen tariffs fall by more than 50 per cent since August, cutting subscribers’ monthly budget for airtime by half.
The interconnection charge has come down from Sh6.28 in July 2007 to Sh2.21 last July and was set to drop to Sh1.44 this year and Sh0.99 in 2013.
The reduction of the interconnection fee was informed by the need to reduce the cost of calls across networks, which had remained as high as Sh25 in 2007, compared to Sh12 for calls within the same network.
This made it difficult for the small operators to gain market share from Safaricom, whose stake was about 83 per cent and who effectively used the high cross-network charges to win subscribers and discourage subscribers from switching networks.
Presently, the difference between on and off-net charges has narrowed to between one and two shillings—a pointer that the reduction of the interconnection charges over the next two years could level the charges.
For instance, Airtel charges one shilling for calls within its network and Sh3 for calls headed to rival networks and the firm has previously said it would cut its rates further as it races to build a wider customers base that would deliver profits in the long term.
But Orange and Safaricom reckon that market environments in which prices sink below the current levels could hurt profits.
Safaricom believes the rock bottom could wipe out up to 26 billion shillings in revenue this year.
Market share
“Telkom Kenya is not opposed to reduction in mobile termination rates over time but we are strongly opposed to the very steep reduction anticipated from 2011- 2013,” Telkom Kenya chief executive officer Mickhael Ghossein told the Business Daily in February.
The cut-throat telecoms price wars are slowly changing the market structure, with Airtel and Orange benefitting the most.
Latest CCK data shows that Safaricom’s market share dropped to 75.9 per cent from 80.7 per cent, but it gained 473,979 subscribers in the four months to October.
Essar’s share dropped from 7.4 per cent to 6.7 while its rivals Airtel and Orange grew their shares from 9.1 per cent to 13.5 per cent and 2.7 per cent to 4 per cent respectively.
