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Inside Safaricom offers that rattled regulator, rivals

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A man makes a phone call next to a Safaricom logo. PHOTO | PHOEBE OKALL | NMG

Safaricom #ticker:SCOM repeatedly set the prices of its promotions lower than the actual costs of the calling services, harming competitors, its rival Airtel has claimed.

The alleged sustained cutting of prices below that of competitors and below actual costs of services made it hard for Airtel to operate profitably and constituted anti-competitive behaviour, Airtel says.

This is part of the submissions by Airtel before the Communications and Multimedia Appeals Tribunal. Airtel claims Safaricom has abused its market power in its bid to edge out rivals.

The landmark case looks set to test Kenya’s resolve to lower the cost of calls and heighten acrimony between market leader Safaricom and its rivals Airtel and Telkom.

Airtel and Telkom Kenya have thrown their weight behind the Communications Authority of Kenya (CA) in an appeal filed by Safaricom.

Airtel is among operators who are backing a decision by the CA to cut mobile termination rates (MTR) to Sh0.12 per minute from the current Sh0.99 per minute.

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

Airtel and Telkom have criticised Safaricom for seeking to scuttle the recently announced reduction in MTR, accusing the leading telco of only being interested in protecting its revenues from rivals.

To demonstrate the alleged predatory pricing, Airtel for instance cited Safaricom’s ‘Tunukiwa promotion’ which it argued was well below the current cost per minute compared to the cost of MTRs of Sh0.99 per minute.

Under the promotion accessible by dialing *444*2#, Safaricom gave their customers what it called ‘Tunukiwa’ minutes.

The offers made available, Airtel says indicate the effective per minute prices is between Sh0.50 and Sh0.09 which is below the known per minute cost, translating into predatory pricing.

“Safaricom has documented control of over 60 percent of the market and traffic market share and such promotion will clearly increase the already existent club effect and thereby distort the market,” says Airtel managing director PD Sarma.

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.

The Communications Authority has also admitted Airtel’s concerns.

The regulator argues 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 before the contested revision.

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.

“While we have no objection to Safaricom running promotions, our key concern is the nature of promotions and their impact on the sector especially noting the player in question holds substantial market power and dominance,” said Airtel.

“Additionally, and we concur that promotions and offers are discounted in nature and may go below cost, a key item to consider is the magnitude by which the promotions are below cost.”

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 CA has said the cut in MTR will have a positive impact on both consumers and operators, adding the review will reduce the need for consumers to own multiple SIM cards as charges across networks come down.

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

But Safaricom contends that the move to reduce the charges will negatively impact its revenues and profitability and occasion financial loss.

However, both Airtel and Telkom have backed the regulator's decision, saying it will ensure a level-playing field for all while protecting the commercial interests of smaller operators.

They allege that Safaricom benefits from a very high share of on-net traffic.

“This means that for at least 95 percent of its traffic, the revenues are not subject to MTR payments to other operators. Given the size of Safaricom this is a significant financial advantage that ought not to flow from a regulated service,” Airtel says.

“On the other hand, a significant portion of the small operators total traffic is offnet, Airtel 20 percent and Telkom Kenya upto 40 percent subject MTR pay-outs. These operators are therefore at a significant financial disadvantage.”

Following Safaricom's application, the tribunal chaired by Rosemary Kuria has suspended CA's decision on the cuts that were expected to be implemented from the start of this year until the appeal is heard and determined.

A smaller operator tends to pay more in mobile termination rates because its users are likely to spend more time on other networks than its own.

“The payments made by smaller operators to the large operator are in the range of hundreds of millions of Kenya shillings. These amounts are a considerable burden given the overall revenue position of small operators,” says Airtel.

Industry data shows that the rate has been falling gradually from a high of Sh4.42 in 2011 to the just reviewed Sh0.99, which has been in place since 2015, marking a freeze of more than five years amid intense lobbying by some top telcos.

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