Safaricom to lose Sh1.5bn in new tariff deal

Safaricom CEO Peter Ndegwa. PHOTO | POOL

Safaricom stands to lose an estimated Sh1.5 billion annually after it reached an agreement with the Communications Authority of Kenya to cut mobile termination rates (MTR) from the current Sh0.99 per minute to Sh0.58 per minute.

MTRs are the charges levied by a mobile service provider on other operators for terminating their voice calls on its grid.

Safaricom is the major beneficiary of the MTRs due to its leading market share in the voice business, with the telco recording a net gain of Sh3.8 billion from its rivals Airtel Kenya, Telkom Kenya, and Equitel in the year ended June 2021 under the current tariff.

The new proposed rate, to be effected for one year starting this month, will cut Safaricom’s net income from the charges 41 percent to about Sh2.2 billion while rivals will save on what they have been paying to the Nairobi Securities Exchange-listed firm.

Safaricom’s earnings from the charges were to fall by a much steeper margin based on the earlier move by CA to cut MTR to Sh0.12 per minute effective at the beginning of this year.

CA’s announcement was challenged by Safaricom at the Communications and Multimedia Appeals Tribunal which was due to determine the matter on Friday before the parties reached a middle ground and filed consent.

“That the [tribunal] forebear its decision expected to be delivered on August 5, 2022,” the consent, which sought to have the matter certified as settled read.

“That the authority [CA] rescinds its decision contained in determination No. 3 of 2021 in its entirety. That the current mobile termination rate and fixed termination rate (FTR) be revised from Sh0.99 to an interim rate of Sh0.58.”

Other parties with an interest in the matter including Telkom Kenya have supported the settlement agreement, which averted a potentially adverse decision for Safaricom or the regulator.

The tribunal could have backed CA’s decision, cutting Safaricom’s earnings from MTR by about 88 percent.

The tribunal could have also sided with Safaricom, protecting its current income from the charges.

The telco, which has a 67.8 percent market share in the voice market, had told the tribunal that the regulator should have used a cost-based study to inform its decision rather than the benchmarking methodology it relied on.

As part of the settlement, the parties agreed that CA will now conduct a new cost study and will implement a new MTR and FTR based on the findings.

Most calls are now made on mobile telephony networks and the reduction of the tariff to Sh0.58 per minute could give the telcos headroom to further reduce calling charges.

Telcos, alongside other businesses, are, however, facing inflationary pressure which reduces their appetite to engage in a new round of price wars.

The rivals have been offering standard calling rates per minute besides several promotions and bundled offerings featuring calls, SMS, and mobile data.

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