CCK board split over telcos’ appeal to lower licence fees

The board of the Communications Commission of Kenya (CCK) is split over the appeal by mobile telecommunication firms to be exempted from paying licence fees at the current rates due to their reduced earnings.

The government led by its representative, Information permanent secretary (PS) Bitange Ndemo, is in favour of the exemption while the CCK acting director-general, Francis Wangusi, is opposed to fees reduction on fears the commission will slide into deficit.

Besides Dr Ndemo and Mr Wangusi, other CCK directors are Joseph Kinyua (PS Treasury), Francis Kimemia (PS Internal security), John Omo (the company secretary), Philip Okundi (chairman) and five others drawn from the private sector.

The bulk of directors drawn from government tend to side with Dr Ndemo with votes from others likely to be the decisive factor should exemption petition be put to the ballot.

The operators, through their lobby—the Kenya Telecom Network Operators (KTNO)— appealed to the Information ministry to lower frequency rates from July last year, a year earlier than scheduled.

CCK lowered frequency licence fees by 41 per cent in December, to take effect from July 1 this year —meaning that the operators are expected to pay the old rates up to June 2012.

Mr Wangusi said the lower fees will not be backdated and asked operators to be innovative to grow their earnings.

“What I can say is that the board is the only one that can make a decision on this matter and not anybody else and I don’t see it taking that route,” said Mr Wangusi in reference to the December 19 petition the operators had sent to Dr Ndemo.

Mr Wangusi told the operators that they should have addressed the petition to CCK which is in charge of setting industry fees.

But Dr Ndemo said the government is looking into the operators’ proposal with a view of accommodating their request.

“We will look at the proposal positively, since it has some aspects that can spearhead faster Internet penetration,” said Dr Ndemo.
This is the latest split between the regulator and Dr Ndemo with the first one being the call by Safaricom and Telkom Kenya to freeze the Mobile Termination Rates (MTR)—fees that telecoms operators charge their rivals for handling their calls.

The permanent secretary supported the freeze on grounds that it will deny the operators room to cut their tariffs and deepen the price wars, but CCK was opposed to the move.

The MTR rates were later put on hold for a period of one year by President Mwai Kibaki.

The operators reckon that they will make savings of Sh1 billion from the exemption which they say will cushion their earnings that have been eroded by a price war that has more than halved tariffs since August 2010.

The CCK argues that the move will set it back Sh2 billion and slow down its efforts to regulate the fast-changing telecom sector.
“Suppose the regulator had not slashed the fees what would they have done to improve their earnings?” said Mr Wangusi.

“The operators need to get more innovative and instead avoid this capitalistic tendency of always seeking government’s rescue and more so when we have just lowered the rates,” he said. CCK says its revenues for the year ended June 2011 stood at Sh4.4 billion compared to Sh1.6 billion with the about 81 per cent of its income coming from the contested frequency fees.

This has left it with a surplus of Sh2.8 billion—which the operators say is a signal that the regulator is overcharging them.

This will be the latest in a series of differences between the regulator and the operators including the implementation of the new competition laws, the review of interconnection rates, mobile number portability and the switching off of fake handsets.

Kenya’s call rates came down by more than 50 per cent in August 2010 after Safaricom’s rival, Airtel, halved its charges to Sh3 with the drop in MTR to Sh2.21 from Sh4.42.

Safaricom and Telkom Kenya made similar cuts, but warned the low tariffs were risking future investments.

Safaricom’s half-year earnings that dropped 47.4 per cent to Sh4 billion—the first drop since it opened shop in 1999. Airtel, Yu and Orange remain in the red.

“Whilst we are extremely appreciative of these efforts (lowering the fees), we believe that it would be beneficial to have an earlier implementation date in order to curb the cost challenges,” read a December 19 petition by the operators to Dr Ndemo. Safaricom has been paying more than Sh2.5 billion annually on the frequency charges while Telkom Kenya and Essar’s Yu each pay Sh1 billion and Sh400 million.

The operators reckon they can use the savings accrued from backdated charges to roll out services in rural areas where the government has been eager to take the Internet.

“In consideration of the Government’s favourable response to this proposal from the industry, it is the undertaking of our members that 10 per cent of the financial stimulus will be directly applied to the ongoing initiatives in Northern Kenya,” the operators said in their petition.
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