Telkom Kenya rules out following rivals in raising call rates

Telkom Kenya has ruled out following the industry trend that has seen rival mobile phone firms raise tariffs in a bid to move to profitability.

Telkom Kenya CEO Mickael Ghossein said the firm will in the short term maintain its current calling tariffs while monitoring the impact of the recent increases on the industry.

In December, Essar, the operator of the yuMobile brand, and Airtel increased the cost of calling rival firms from their network by 20 per cent to Sh3.60 a minute as they seek to earn more from cross-network calls.

They joined Safaricom which in October 2011 raised its charges by a third, marking the end of a vicious price war that started in August 2010.

“For the time being we will not increase our prices. Meanwhile, we are looking in the coming month to review our positioning after analysing all the competition tariffs,” said Mr Ghossein in an interview with the Business Daily.

Telkom Kenya prices are still higher compared to those of Airtel and Essar Kenya. Safaricom charges Sh4 a minute for both on and off net calls while Orange charges Sh4 a minute across the network and Sh2 a minute within the network.

Airtel has a set of voice tariffs that retail at between Sh1.20 a minute and Sh3 depending on the size of its four call bundles while Essar introduced a charge of Sh1 a minute for calls within its network—scrapping the free calls that have helped it grow its subscriber base over the past year.

The freeze of Telkom calling rates comes in a period when the firm has sunk deeper into losses and increased reliance on shareholders—France Telecom and Kenya government—to sustain its operations through shareholder loans.

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Kenya’s telecoms operators have seen revenues thin out since August 2010 during which the cost of airtime has fallen by more than 50 per cent, halving subscribers’ monthly airtime budget.

Telkom Kenya’s revenues dropped to Sh9.2 billion last year from Sh10 billion in 2010, with its net loss worsening to Sh18 billion from Sh4.3 billion in the same period.

The losses and reduced revenues have negatively impacted its cashflow position, prompting shareholders to pump in more cash and write off debts extended to the telco.

Airtel and Yu raised tariffs in an attempt to make more money from off-net calls, which last year earned Safaricom nearly Sh4 billion. The firms have been paying up to 40 per cent of revenues to Safaricom in connection fee.

For instance, Yu subscribers made 459.5 million minutes of calls in the year to June to rival’s networks—which means it earned Sh363 million from the calls after paying rival networks Sh2.21 a minute from the Sh3 it was paid for handling its calls.

With the current lower termination rate of Sh1.44, Yu will earn Sh716.8 million for the 459.5 million minutes of calls.

READ: Drop in MTR shapes fresh battle for subscribers

Airtel will even earn more since subscribers made 51.7 per cent or 1.5 billion minutes calls in the year to June to rivals’ networks.

This earned it Sh1.18 billion on the older mobile termination rates (MTR), but it stands to grow to Sh2.34 billion under current MTR assuming its subscribers maintain last year’s calling habits.