High cost of calling across networks hurts Airtel’s profit
An Airtel shop in Nairobi. Shivan Bhargava, the Airtel chief operating officer, on Tuesday said the current interconnection rate is hurting its business since it favours operators with more subscribers. Photo/WILLIAM OERI
Airtel has warned that the current interconnection charges would delay its return to profitability, arguing that it is paying about 40 per cent of its revenues to rivals for connecting calls to their networks.
Data from the Communications Commission of Kenya (CCK) showed that Airtel subscribers made 267.4 million minutes calls in the three months to September to its rival’s network compared to 197.6 million minutes within the network, mainly due to the dominance of Safaricom.
This is estimated to have cost Airtel Sh591 million in interconnection charges — the fees that operators pay their rivals for calls terminating in their networks— of the estimated Sh1.4 billion it earned in the quarter.
Interconnection charges in the voice market currently stand at Sh2.21 per minute for the service—which means that Airtel has been paying the amount of Sh3 its charges to rivals led by Safaricom for handling its calls.
Shivan Bhargava, the Airtel chief operating officer, on Tuesday said the current interconnection rate is hurting its business since it favours operators with more subscribers.
“The freeze on the interconnection has impacted on our business substantially and we cannot absorb for long,” said Mr Bhargava in an interview with the Business Daily.
“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.” Safaricom controls 88.7 per cent market share in terms of voice traffic—a pointer that the price war, which halved airtime cost by half since August 2010, has not shifted the players’ stakes.
Airtel’s share stood at 6.55 per cent.
On subscribers, Safaricom remains dominant with 67.7 per cent of the market. Airtel has 15.7 per cent, Orange 10.4 per cent while Yu trails with 6.2 per cent, according to the CCK data.
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.
The twin operators feared that a further fall will give players room to cut prices further and worsen the ongoing price war—which has slashed the industry’s earnings.
The President had asked CCK to commission a study to look into the impact of the current termination rates with a view of creating a schedule. On Tuesday, the acting CCK director-general Francis Wangusi said they are in the process of recruiting a consultant that will do a study.
