Safaricom biggest loser as CCK cuts termination rate
What you need to know:
The downward review in 2010 gave the operators room to cut their tariffs to an average of Sh4 a minute from Sh8. Airtel says it will use the cost savings to upgrade its network which will help deepen mobile phone penetration that has increased to 75.4 per cent from 51.2 per cent in 2010.
Safaricom is the biggest loser following Monday’s decision by the Communications Commission of Kenya to cut the rate mobile phone operators charge each other for interconnecting customers by 34 per cent.
The sector regulator lowered the Mobile Termination Rate (MTR) to Sh1.44 from the current Sh2.21, offering Safaricom rivals relief. Telkom Kenya, Yu, and Airtel have been paying up to 40 per cent of revenues to Safaricom in connection fee.
But the cut is set to have little impact on call tariffs since the telcos have ruled out lower call rates and will instead absorb the cost savings to boost earnings hit by price wars.
Safaricom has been against low termination rate and analysts led by Morgan Stanley said that the company has been the biggest beneficiary from the delay in the MTR cut.
Its rivals, led by Airtel, said that higher rates had hurt their earnings because a significant share of calls head to Safaricom, which remains dominant commanding 80.9 per cent of Kenya’s mobile phone voice traffic.
Airtel has 10.9 per cent, Yu 7.7 per cent, and Telkom Kenya 0.8 per cent.
Mr Francis Wangusi, the CCK director-general, yesterday said the rate would be backdated to July—meaning the operators will either have to revise their invoices or offer credit notes to the sum already settled. “The board approved the new rates today after going through the KIPPRA report that shows the low MTR did not have a negative impact on tax collections, employment in the sector, and on the Nairobi Securities Exchange,” said Mr Wangusi.
“The rates are expected to increase competition and encourage the providers to offer better services.”
The rate fell from Sh4.42 in June 2009 to Sh2.21 in July 2010, and was to drop to Sh1.44 last June before President Kibaki froze it for a year following intense lobbying by Safaricom and Orange. Safaricom earns about Sh4 billion annually for connecting rivals, which is 43 per cent of Telkom Kenya’s 2011 revenues of Sh9.2 billion.
Mr Kibaki placed a further freeze this year and the CCK appears to have been emboldened in its battle by Kippra’s finding which indicated that the 50 per cent drop in MTR rates to Sh2.21 in June 2009 has not affected telecoms operators and the economy negatively.
“By making this decision our board has clearly demonstrated that CCK is not beholden to any political or business interests,’’ said Mr Wangusi on Monday.
Kippra found that lower termination rates have had a positive effect on the revenues of the four telecom operators, their traffic, subscriber numbers as well as mobile penetration.
Market leader Safaricom has, for instance, seen its revenues rise from Sh84 billion in 2010 to Sh94 billion in 2011 and to this year’s Sh107 billion.
The president’s private secretary Nick Wanjohi, who claims to have acted on Mr Kibaki’s instructions, had directed CCK not to effect any further cuts in the MTR until another study of its impact is done and the outcome presented to the president.
The downward review in 2010 gave the operators room to cut their tariffs to an average of Sh4 a minute from Sh8. Airtel says it will use the cost savings to upgrade its network which will help deepen mobile phone penetration that has increased to 75.4 per cent from 51.2 per cent in 2010.
“We are fully behind CCK’s move to continue with the MTR glide path. We will use the cost savings to upgrade our network,” Airtel Kenya managing director Shivan Bhargava said earlier.
