The rates that Safaricom charges rivals for terminating calls on its network are to be controlled by the government in a bid to protect the small telecommunications firms.
Under new regulations that seek to bar dominant telcos from making profits from mobile termination rates (MTRs), Safaricom will charge fees to cover only the costs of interconnecting calls from its competitors.
The Kenya Information and Communication (Interconnection) Regulations 2022 set the stage for the Communications Authority of Kenya (CA) to control Safaricom’s rates of interconnecting calls from its rivals given that the telco controls more than 25 percent of mobile services revenues.
MTRs are the charges levied by a mobile service provider on other telecommunications service providers for terminating calls on its network.
A telco becomes dominant under the Kenya Information Communications Act, 1998 if it controls more than 25 percent of the industry revenues or has significant market power that places it at a vantage point against rivals.
But Safaricom’s name must be published in the Kenya Gazette to officially be declared the dominant telco to allow the State to control its MTRs.
Airtel and Telkom Kenya have been on a sustained push for lower MTRs, saying that the current rates continue to hurt their revenues and ability to compete with Safaricom.
“A dominant telecommunications licensee shall adopt the cost-based charges for interconnection as set out by the Authority from time to time,” say the new regulations.
“A dominant telecommunications service licensee shall set charges for interconnection based on an objective criterion, observe the principles of transparency and cost orientation.”
Telcos will be allowed to freely negotiate the MTR charges but the new regulations say that the CA will set lower rates if the dominant telcos fail to strike a deal with the smaller rivals.
Safaricom has surpassed the 25 percent share of revenues according to the latest industry data from the CA.
Telcos made Sh280.1 billion in revenues from the sector, with Safaricom taking 82.4 percent of the voice revenue, 78.4 percent of data, 83.8 percent of SMS and 97 percent of other mobile services.
The dominant telco will also be compelled to show proof that its MTRs are based on actual costs in the latest push to make it cheaper for Airtel and Telkom to terminate calls on Safaricom’s network.
The regulations come at a time Airtel and Telkom Kenya have been pushing the CA to lower the MTRs and also allow them to pay 50 percent less than Safaricom in a bid to protect their revenues.
Airtel disclosed that it pays Safaricom Sh300 million per month or Sh3.6 billion per annum in MTRs, highlighting the adverse effect of the high rates on their businesses.
The CA in December cut the rates from Sh0.99 to Sh0.12 per minute and said Airtel’s proposal would be reviewed in a cost evaluation later on.
The new MTR charges are yet to be effected after Safaricom appealed the tariff review. Hearing of the case was set for last month. The proposed MTR pricing regulations look set to trigger opposition from Safaricom given that the telco has in the past opposed attempts by Airtel for a change in how the rates are charged.
Safaricom recently said that further reduction of the MTR charges would negatively impact its revenues and profitability. But the CA rejected the telco’s argument, saying it had enough buffers to absorb the revenue losses due to market dominance.
A smaller telco tends to pay more in mobile termination rates because its users are likely to spend more time on other networks than its own.
Airtel has also accused Safaricom of cutting prices below those of competitors and below actual costs of services, making it hard for the smaller telcos to operate profitably.
Airtel and Telkom Kenya say that the current mobile termination rates have made it difficult for them to compete against Safaricom.
The CA has in the past said that lower MTR will have a positive impact on both consumers and operators, with the ultimate goal of lowering the cost of making calls across networks.
Airtel unsuccessfully sought to have the CA review the charges structure to allow the small telcos to pay 50 percent less than Safaricom.
Kenya’s proposal mirrors the case in Europe where the small players or new entrants enjoy lower MTR rates for up to four years, which is considered long enough to attain a market share of between 15-20 percent that is considered the minimum efficient scale.
Many countries employ the charges structure referred to as asymmetrical model to assist new entrants to compete against the established or dominant players in the telecommunications industry.