Economy

CA takes on Safaricom, hints at further cuts in call tariffs

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Safaricom PLC headquarters in Westlands, Nairobi. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • MTRs are the charges levied by a mobile service provider on other telecommunications service providers for terminating calls in its network.
  • The 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.
  • The capping was to start on January 1.

The Communications Authority of Kenya (CA) says the recent cut in mobile termination rates will give smaller telecoms operators a better chance at competing with market leader Safaricom, even as it hinted at a further drop in call tariffs.

The sector regulator says in its response to a petition filed by Safaricom before the Communications and Multimedia Appeals Tribunal that it plans to conduct a more detailed network cost study of mobile termination rates (MTR), suggesting it could consider further review.

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

The 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. The capping was to start on January 1.

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.

The regulator says the revised rates will give small operators greater price flexibility to compete with the market leader- Safaricom and benefit consumers.

“It is our position that due to its size, Safaricom enjoys economies of scale, and their costs are low compared to other small operators. The proposed low termination rate will give small operators greater price flexibility to compete with them,” CA director-general Ezra Chiloba said.

Safaricom sought to quash the regulator’s decision arguing that the charges should instead rise to reflect the true cost of doing business. The tribunal ordered the status quo to be maintained, pending further directions on February 2.

The regulator says the choice of methodology in determining MTRs and fixed v0ice termination rates (FTRs) is its prerogative and cannot be dictated by an operator.

“The review was an interim measure until a network cost study was conducted, and to prevent further market foreclosure given that the study is anticipated to take over one year to conclude and implement,” Mr Chiloba said in a statement filed before the tribunal.

Rival operators Telkom Kenya and Airtel and Consumers Federation of Kenya (Cofek) have since joined the case.

Safaricom argues that globally, any reduction in MTRs often leads to a restriction in the rollout of the networks as operators could argue that there is a reduced incentive to expand their networks.

It holds that any MTR review would need to take into consideration that fact that there is no uniformity currently in establishing network efficiencies or growth due to the dynamics in the market.

“Due to the recent dynamic shifts the Appellant had noted particularly in the voice market where market shares have been consistently shifting in favour of other operators, it was the Appellant’s view that the market appears to be in a state of stimulation which should be encouraged to further encourage the resurgence in competition in the market,” Daniel Mwenja Ndaba, a senior legal counsel at Safaricom, said in filings before the Tribunal.

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

It says that reviews are typically undertaken when markets are deemed to be efficient, where all players have equally invested in infrastructure that allows them to recover their costs similarly.

“The Appellant further noted that in the current scenario in Kenya, two out of the three players do not own their own infrastructure, which forms a significant consideration for establishing the estimated cost of terminating a call on the existing networks,” Mr Ndaba said.

The regulator said being an election year and given the fact that the world is still suffering from effects of Covid-19 pandemic, it was forced to adopt a stop-gap measure to ‘prevent further market foreclosure’.

It has dismissed Safaricom’s claims that stakeholders were not involved, saying it engaged the operators including where there was need for clarification or additional information.

“The respondent provided details of the approach, process, justification for the methodology adopted, the benchmark countries and the justification for the selected countries, and the factors considered in arriving at the impugned MTR and FTR,” CA’s lawyer Wambua Kilonzo said.

Airtel has thrown its weight behind the regulator, arguing that the drop in MTR was long overdue.