CCK to slash termination rates by 35 per cent in July
Communications Commission of Kenya offices along Waiyaki Way in Nairobi. FILE
The telecommunications regulator is set to clash with Safaricom after announcing that it will not carry a fresh study to determine mobile termination rates and that it will cut the rate in July to spur competition.
Mr Francis Wangusi, the acting Communication Commission of Kenya (CCK) director, said Wednesday that the termination rate — the amount of money an operator pays rivals if its subscribers call another network — will drop to Sh1.44 per minute from the current Sh2.21.
The rates fell from Sh4.42 in June 2009 to Sh2.21 in July 2010 and were to drop to Sh1.44 last June before President Kibaki froze it for one year following intense lobbying from Safaricom and Orange.
The drop has given operators impetus to cut prices and operators fear that a further fall will worsen the ongoing price wars that have slashed the industry’s earnings and made it difficult to recover the cost of handling out-of-network calls.
“We introduced the MTR (mobile termination rate) to enhance competition. There are some operators who fear competition and do not want us to continue with the current glide path and that is the reason they are asking for another study,” said Mr Wangusi in a phone interview with Business Daily. “We have done a study internally that actually shows the lower rates had positive impact to the larger economy and I am just waiting to get a nod from the CCK board to lower the rates to Sh1.44 in July.” He added that 93 per cent of the operator’s revenue comes from calls within their networks and that lowering the termination rates has very little impact – if any – on the profitability of the operators.
Safaricom says the current termination rates are based on an outdated model and asked CCK to carry out a fresh study that will reflect the cost of doing business in Kenya’s voice market in line with Uganda and Tanzania.
“We have always maintained that the previous cost study was flawed to the extent that the methodology used by CCK was not fit for purpose and produced a result that was inconsistent with the economic realities in Kenya, hence the current slump in the industry,” said Bob Collymore, the CEO of Safaricom’s told the Business Daily in an email response on Thursday.
“CCK should ideally take seriously the call from sector players to carry out a new study based more evenly on International benchmarks as has recently been conducted in Uganda, Tanzania and South Africa.”
Uganda charges a termination rate equivalent to Kenya’s Sh4.50 per minute while Tanzania’s rates are at Sh5.75.
Lower rates
“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.
Its rivals Airtel and Essar are pushing for lower termination rates, arguing that they are paying Safaricom a huge chunk of their revenues since it handles the bulk of the cross network call due to its dominance in the voice market.
This signals that the battle for termination charges is guided by the termination bill and not the fear for a drop in call rates, given that Airtel, Orange and Essar have expressed their intention to review their tariffs upwards to match Safaricom – which increased its prices by 25 per cent in October.
“We will continue to see the decrease of mobile termination rates, which will translate into lower calling rates and which work well with our philosophy of making mobile telephony services more accessible to more Kenyans. We strongly support the CCK,” said Madhur Taneja, the managing of Essar Kenya. Telkom Kenya while supporting lower rates is urging CCK to carry fresh study –a pointer that it’s not comfortable with the cut.
