Safaricom’s new charges end season of low call costs
Safaricom chief executive Bob Collymore. File
The rock bottom call costs that Kenyans have enjoyed since August last year are expected to come to an end in the next three months as Airtel and Telkom Kenya follow in Safaricom’s footsteps with higher calling tariffs.
Safaricom on Friday made good its earlier promise to raise calling tariffs, reversing the call cost trend for the first time in the 11- year history of mobile telephony in Kenya. The telecoms market leader increased the cost of calls originating and terminating within its own network by 30 per cent and those ending in rival networks by 25 per cent.
“This is the first time in Safaricom’s 11-year history that we have had to effect a price increase on retail voice tariffs,” said Mr Bob Collymore, the Safaricom chief executive, as he announced the new tariffs. Mr Collymore said Safaricom’s operation costs had continued to escalate month-on-month “to unsustainable levels in the context of the operating environment.”
The new tariffs have left those making international calls with the heaviest burden. Safaricom more than tripled the cost of calling to key destinations such US, Canada and India.
The three countries combined constitute more than 60 per cent of all international calls that Kenyans make every month. Airtel, which recently made call cost increases in a number of markets, said it was studying the pricing shifts and would make a decision in the coming weeks — a signal that it could review its low cost business model in search of profits. Telkom Kenya, which owns the Orange brand, welcomed Safaricom’s move and promised to make similar increments to cut losses it has suffered in the wake of a vicious price war that cut calling rates by more than half last year.
“It is a good step that Orange is studying and hopes to follow,” Mr Mickael Ghossein, the CEO of Telkom Kenya, said. “This will be done in one to three weeks time,” added Mr Ghossein without disclosing the exact margins of the planned tariff increments. Mobile phone operators say the increase in voice call tariffs are meant to cover the steep rise in operational costs.
Mr Collymore blamed expensive energy and weak shilling—which has lost more than 20 per cent of its value since January, for the steep rise in the cost of imported network materials and ultimately operational costs.
Some analysts however said the price increments also offer telecoms operators a window to boost sales and profits that have been grossly affected by the recent price wars. Safaricom reported Sh13.1 billion in net profits in March, a 13.2 per cent drop from Sh15.1 billion the previous year.
Safaricom subscribers are now paying one shilling more than they did for calls lasting one minute. Calls within Safaricom network are now being billed at the rate of Sh4 per minute up from Sh3 per minute last month while call that originate from the Safaricom network and end with rival are now being charged at the rate of Sh5 per minute.
The cost of data services and text messages remained unchanged. Calls to the United States, Canada and India are now being charged at the rate of Sh10 a minute while calls to other East African countries will now cost Sh18 up from Sh15.
The new charges have left Safaricom as the most expensive operator in the local voice segment. Rival Airtel charges Sh3 across all networks while Telkom Kenya’s Orange charges Sh1 per minute for on-net calls and Sh4 for off-net. Analysts said the tariff increments could lift Safaricom’s second half earnings even as they warned that its impact on the operator’s full year results could be diluted by the less robust performance in the half year ended September.
“Going forward it will boost Safaricom’s earnings, but it’s a pointer that first half performance was not impressive,” said Mr Erick Musau, an analyst at Standard Investment Bank, adding that the news could fresh impetus to the mobile operators stock at the NSE. Its share dropped to Sh2.95 on Friday from Thursday’s close of Sh3, and has shed more than 25 per cent in the past three months on its bleak earnings outlook and bearish Nairobi bourse.
Kenya’s call rates came down by more than 50 per cent in August last year after Safaricom’s rival, Airtel, halved its call rates to Sh3 with the drop in Mobile Termination Rates — the fee that telecoms operators charge each other for calls terminated on their rivals network to Sh2.21 from Sh4.42.
That move saw Safaricom’s market share drop to 69.9 per cent from 75.9 per cent last year as rivals Airtel and Orange increased their stake to 15.2 per cent from 13.5 per cent and to 8.5 per cent from 4.0 per cent, respectively. Safaricom and Telkom’s Kenya Orange followed suit with similar cuts, but loudly protested that the low tariffs were risking future investments in the industry and sought the President’s intervention.
“We are watching industry developments very keenly will announce if we deem it necessary to review our tariffs,” said a press notice from Airtel Kenya Friday.
