The Communications Authority of Kenya says the downward review of the mobile termination rate (MTR) per minute to Sh0.12 from the current Sh0.99 will not hurt the profitability of any player in the sector.
The regulator said that operators ought not to book any gains from the MTR, but rather just recoup the cost of terminating rival operators’ calls on their own network.
“The proposed MTRs of Sh0.12 is sustainable and does not negatively impact industry players’ profitability,” CA said.
“In telecommunications competition regulation principles and best practice, operators ought not to make profits from interconnection, but are meant to recoup the incremental cost of carrying an additional call from another operator, which the reviewed MTR and FTR (fixed termination rate) does.”
The CA was responding to a case by Safaricom #ticker:SCOM at the Communications and Multimedia Appeals Tribunal opposing the lowering of the termination rate.
The leading telco argues that the contested reduction ignores the cost of doing business in the industry.
On the other hand, rival operators including Airtel Kenya have been lobbying for a reduction of the termination charge to be able to compete with Safaricom in pricing promotions and special offers targeting voice services.
The smaller players have for years argued that a higher MTR works in favour of Safaricom, which has a 68.9 percent of the voice market and on whose network most calls terminate.
On its part, Safaricom argues that the CA relied on a benchmarking methodology when bringing in the review, as opposed to long-run incremental costing which it argues is the preferred model in determining MTR.
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.
While a cut in the rate will see the amount it pays outfall to Sh321 million, it stands to lose more in incoming payments, which will fall to Sh782 million.
The regulator argues that Safaricom can absorb the loss of revenue that will come from the implementation of the MTR reduction.
“From this analysis, the respondent (CA) noted that the reduction in MTRs to Sh0.12 will result in an estimated reduction in the appellant’s (Safaricom’s) interconnect revenue by 87.9 percent, and an estimated reduction in the Airtel Networks Ltd and Telkom Kenya Ltd’s interconnect payout to the appellant by 87.9 percent.”
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.
The regulator says 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 prior to the contested revision.
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.
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.