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Safaricom pricing power revealed in tariff battle

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Safaricom Limited's headquarters on April 24, 2017. PHOTO | DIANA NGILA | NMG

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Summary

  • MTRs are the charges levied by a mobile service provider on other telecommunications service providers for terminating calls on its network.
  • Safaricom argues that the reduction of the charge, which was to take effect at the start of this year, ignores the cost of doing business in the telecommunications industry.
  • Safaricom’s leading market share has seen it charge its rivals more than it pays out to them, leaving it in a net profitable position.

Safaricom #ticker:SCOM has a huge pricing power in voice services, making it difficult for rivals Airtel Kenya and Telkom Kenya to compete with it, the Communications Authority of Kenya (CA) has said.

The regulator made the disclosure in its response to a case filed by Safaricom at the Communications And Multimedia Appeals Tribunal seeking to stop CA from cutting the mobile termination rate (MTR) per minute to Sh0.12 from Sh0.99.

MTRs are the charges levied by a mobile service provider on other telecommunications service providers for terminating calls on its network.

Safaricom argues that the reduction of the charge, which was to take effect at the start of this year, ignores the cost of doing business in the telecommunications industry.

The regulator responded by stating that the leading telco has the lowest cost of operations, allowing it to run promotions at prices below the MTR and which its rivals are not in a position to match.

“In fact, in the years 2020 and 2021, the appellant (Safaricom) successfully ran a number of promotions and special offers targeting voice services where the effective discounted rate per minute for both on-net and off-net calls is as low as Sh0.2,” CA said in its submission.

“Where the appellant prices its call rates below the Sh0.99 termination rate, it would be impossible for competitors to viably replicate such offers, given that they face the termination rate as a marginal cost.”

The regulator added that it considers Safaricom’s ability to offer rates as low as Sh0.2 per minute an indication that the telco’s cost of production is much lower than Sh0.99, the rate prior to the contested revision.

Safaricom has been running promotions and special offers that has seen it price its per-minute voice services at a range of between Sh0.2 and Sh1, according to an analysis by the regulator.

In the telco’s “Stori Ibambe 500 percent bonus” promotion, for instance, subscribers paid an effective rate of Sh0.2 per minute in the offer that ran between October 12, 2021, and January 9, 2022.

A customer, for example, got 150 minutes’ worth of talk time for Sh30. The fight over the contested MTR cut has divided players in the telecommunications sector based on who stands to lose or benefit from the decision.

Safaricom’s leading market share has seen it charge its rivals more than it pays out to them, leaving it in a net profitable position.

The regulator argues that Safaricom can absorb the 87.9 percent loss of revenue running into billions of shillings per annum.

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