Safaricom takes Airtel to court over Sh0.5 billion debt

Leading mobile network operator Safaricom has moved to court seeking to recover close to half a billion shillings from its rivals for non-payment of termination fees since October together with penalties.

Safaricom is demanding close to half a billion shillings from Airtel and about Sh150 million from Essar for non-payment of termination fees — the amount of money an operator pays rivals if its subscribers call another network — since October.

It’s also seeking that the operators pay it interests and collection fees for delayed payment, arguing that the dues are hurting its cash flow. 

The interest is pegged on the average base rate that currently stands at 20.34 per cent and Safaricom hopes the penalty will act as a deterrent for delayed payments.  

“What Safaricom is telling its rivals is that they can hold on to its debt as long they wish, but at a cost and the cost are the penalties,” said a lawyer who is familiar with the suit and wished not to be named.

For a start, Safaricom is demanding Sh4 million from Airtel for the late payment of termination charges covering July and August, which stood at Sh173 million.

Safaricom through Havi and Company Advocates is accusing Airtel of breaching the July 2002 interconnection agreement for the provision of telecommunications services to their respective customers. Airtel has not responded to the suit.

The agreement states that operators must prepare a billing statement and tax invoice for interconnection charges and forward the same to the other party within two weeks of every month.

The termination rate—which currently stands at Sh2.21 a minute—is emerging as a big issue in Kenya’s mobile telephony market and has split the board of the telecommunication regulator on whether it should be reduced or not.

Mr Francis Wangusi, the acting CCK director, said last Wednesday that the termination rate will drop to Sh1.44 per minute in July from the current Sh2.21, but Information permanent secretary Bitange Ndemo, also a director, is opposed to it.

READ: CCK board split over 35 pc termination fee cut

Safaricom says the current termination rates are based on an outdated model and asked CCK to carry out a fresh study that will reflect the cost of doing business in Kenya’s voice market in line with Uganda and Tanzania.

Its rivals, Airtel and Essar are pushing for a 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.

Airtel had warned earlier warned that the current interconnection charges would delay its return to profitability, adding that it is paying about 40 per cent of its revenues to rivals for connecting calls to their networks.

“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,” said Shivan Bhargava, the managing director of Airtel Kenya on Thursday.

Safaricom remains dominant with 66.7 per cent of Kenya’s mobile phone subscribers. Airtel has 15.2 per cent, Orange 10.3 per cent while Yu trails with 7.9 per cent.

Data from the Communications Commission of Kenya (CCK) showed that Airtel subscribers made 429 million minutes calls in the three months to December to rival’s network compared to 427 million minutes within the network, mainly due to the dominance of Safaricom.

This means that Airtel subscribers made more calls to rivals than within their network, leaving it with a bill of Sh948 million with bulk owed to Safaricom.

In contrast, Safaricom is estimated to have generated about Sh19.6 billion from the 4.9 million calls that its subscribers made within its network in the quarter to December. It paid about Sh501 million to its rivals as interconnection charges.

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.