Companies

Why Safaricom, Airtel are fighting over call rate cuts

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

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Summary

  • Airtel Networks Kenya has criticised Safaricom for seeking to scuttle the recently announced cut in mobile termination rates (MTR).
  • MTRs are the charges levied by a mobile service provider on other telecommunications service providers for terminating calls in its network.

Airtel Networks Kenya has criticised Safaricom for seeking to scuttle the recently announced cut in mobile termination rates (MTR), accusing the telco of only being interested in protecting its revenues from rivals.

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

The Communications Authority of Kenya (CA) cut the charge to Sh0.12 per minute from the current Sh0.99 per minute after a six-year freeze, drawing legal action from Safaricom that earns the most from MTR due to its large voice market share of 68.9 percent.

Safaricom earns an estimated Sh6.5 billion annually from MTR while paying out Sh2.6 billion to rivals, leaving it in a profitable position while competitors remain in a net losing trade.

Safaricom has filed an appeal at the Communications And Multimedia Appeals Tribunal seeking to quash the regulator’s decision while arguing that the charges should instead rise to reflect the true cost of doing business.

In a stark contrast, Airtel has thrown its weight behind the regulator, arguing that the drop in MTR is long overdue in a spat that has exposed the divergent interests in the telecoms industry, which is determined by market share.

“We believe that any attempt to delay or scuttle the implementation of the MTR will deny consumers the benefits of more affordable calling prices,” Airtel said in a statement.

“This benefit to consumers needs to be protected considering that high mobile termination rates are not meant to be a revenue source for mobile or fixed voice service providers but an enabler for seamless calling which improves consumer access to communication.”

A drop in MTR does not automatically result in lower calling rates but it reduces costs for all operators, giving them headroom to cut consumer call rates if they choose to.

Airtel is set to be the biggest beneficiary of the move to reduce the charge, potentially saving it Sh4.9 billion annually.

The telco paid its rivals Sh5.5 billion in the year ended June, with the bill expected to plunge to an estaimated Sh676 million if the MTR cut goes through. Airtel’s off-net minutes stood at 5.6 billion in the review period.

The company made a loss of Sh5.6 billion in the year ended March 2020, signalling the MTR cut has the potential to help end its loss-making streak.

Safaricom will also save an estimated Sh2.3 billion, with its payout declining from Sh2.6 billion to Sh321 million.

It will, however, see its estimated revenues from termination fees drop from the Sh6.5 billion to just Sh782 million.

The telco will still be in a net profitable position but its income will have dropped by nearly 90 percent to Sh461 million.

Telkom Kenya could save Sh680 million while other smaller rivals like Equitel and Jamii will also save a few millions of shillings.

COST OF DOING BUSINESS

Safaricom is accusing the regulator of ignoring the true cost of doing business and relying on little known benchmarks.

“The appellant appeals against the decision by the respondent (CA) finding that the current mobile and fixed voice termination rate (MTR and FTR) of Sh0.99 implemented by all telecommunications service providers did not reflect the true cost of interconnection,” the company argues in its appeal.

“The appellant appeals against the decision by the respondent finding that the current mobile and fixed voice termination rate (MTR and FTR) of Sh0.99 implemented by all telecommunications service providers prevented operators from offering consumers more affordable and competitive prices and services.”

If the MTR is reduced as communicated by the regulator, it will cut the cost for Safaricom’s rivals and give them the option of further cutting their voice tariffs or boost their margins by keeping the savings.

“The MTR of Sh0.99 per minute has been applied for about seven years whereas it was only intended to apply for one year. The MTR reduction by the CA considers the seven-year delay and is fully aligned with the interests of the consumer,” Airtel said.

Safaricom meanwhile wants the tribunal to stop the regulator’s decision in its entirety through a permanent injunction. The telco argues that the CA relied on a benchmarking methodology as opposed to long-run incremental costing which it argues is the preferred model in determining MTR.