Safaricom clashes with CCK over call termination rates
Communications Commission of Kenya offices along Waiyaki Way in Nairobi. FILE
The Communications Commission of Kenya has rejected appeals by Safaricom and Telkom Kenya for an increase in termination charges — the amount an operator pays rivals if its subscribers call another network.
The regulator says the appeals by the two firms will hinder competition in the mobile telephony market, a position that was supported by Airtel and Essar, opening a new battlefront in the voice segment.
Telkom has asked the CCK to increase the termination rates to Sh4.42 per minute from the current Sh2.21 while Safaricom maintained in a note to the regulator that the present rates do not reflect the cost of doing business.
However, Airtel says it’s paying about 40 per cent of its revenues to rivals for connecting calls to their networks and that its return to profitability could delay should the rates not be review downwards from July.
On Wednesday, CCK threw its weight behind Airtel saying it will push for a downward review of the interconnection rates this year— to give room for the operators to further cut calling rates. This would in effect hurt the earnings of Safaricom that earns hundreds of millions of shillings from termination fees.
“We are not going to negotiate with any operator to have the rates revised upwards or conduct another study. As a commission we want the rate to go as low as zero shillings so as to increase competition in the sector,” said Francis Wangusi, the acting director-general of the CCK.
“The interconnection rate does not affect what they charge their subscribers, they can raise the retail tariffs if they want but they fear a rebuttal from their subscribers who can opt for other affordable networks, to me they are simply looking for a reason to justify an increase,” Mr Wangusi added.
The interconnection charges have fallen from Sh4.42 in June 2009 to Sh2.21 in July 2010 and were to drop to Sh1.40 last June but President Mwai Kibaki froze the rates for one year following intense lobbying from Safaricom and Orange.
The operators fear that a further fall will give players room to cut prices further and worsen the ongoing price war – which has slashed the industry’s earnings. On presidential order, the regulator says it is currently doing a study to establish the economic impact of the current rate and whose outcome will determine whether it will uphold the existing rate or lower it further.
Safaricom says the current termination rates are based on an outdated model and asked CCK to carry out a fresh study that will reflect the cost of doing business in Kenya’s voice market. “We believe CCK’s rigid implementation of an extremely low MTR that does not reflect market costs could cripple the industry,” says Nzioka Waita, the corporate affairs director at Safaricom.
Safaricom dominates the market with 67.7 per cent of the industry’s subscribers, Airtel has 15.7 per cent, Orange (10.4 per cent) and Yu trails with 6.2 per cent. This has seen Safaricom emerge as the biggest beneficiary of the revenues generated from interconnection charges.
“Artificially low termination rates do not allow operators to fully recover the cost of receiving and terminating calls received from other networks and this significantly impacts the network receiving the largest number of cross-network calls such as Safaricom.”
It is estimated that Airtel paid Sh591 million in interconnection charges to its rivals in the quarter ended September of the Sh1.4 billion it earned.
“The current market shareholding means that large share of calls made by our subscribers go to the leading mobile operator, while very few calls originate from the network to ours,” said Shivan Bhargava, the Airtel chief operating officer, adding that Airtel cannot absorb the current rates for a longer period.
