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Call tariffs rise looms in planned price controls

Safaricom’s Steve Chege and CA’s Christopher Kemei.
Safaricom’s Steve Chege (left) and the CA’s Christopher Kemei. photo | file 

Mobile phone calls and text messages could cost more in coming months if the regulators adopt the proposed introduction of price regulation in the telecoms sector.

Telecoms sector regulator, the Communications Authority of Kenya (CA), last Friday gave the clearest signal that it plans to implement the findings of a study it commissioned in the wake of mounting concerns that the operating environment was stuck against smaller telecom firms.

Both Airtel, the second largest operator, and Telkom, the third, welcomed proposals to regulate tariffs, but Safaricom #ticker:SCOM warned that the move could be counterproductive as it could lead to an increase in calling rates.

Telecoms market observers argued that the proposed regime could instigate collusion among operators to increase prices above current rates confident that rivals cannot go below the regulated rates.

Mobile operators Airtel and Telkom Kenya have in the past wanted market leader Safaricom to pay a higher fee for calls and texts completed on rivals’ networks, but the CA has been hesitant to go down the price controls route.

Analysys Mason, the consultants that the CA hired to study telecoms market dominance, have tried to address the concerns by proposing active regulation of Safaricom’s standard tariffs and permanent loyalty schemes, but Safaricom has dismissed the move as retrogressive.

“Safaricom standard tariffs, permanent loyalty schemes and promotions (including non-tariff promotions such as lotteries) should be capable of being profitably replicated by a reasonably efficient competitor,” the report says.

"Retrogressive"

Safaricom said retail price controls as proposed in the report are retrogressive, arguing they will result in higher retail prices for Safaricom customers.

Steve Chege, the Safaricom Corporate Affairs director, said that the telecommunications sector is “a liberalised and competitive” and that operators should be left to compete on quality and price of services.

Mr Chege said innovation and network investment plays a key role in determining customer choice and should not be killed by price controls.

“The requirement that Safaricom can only roll out services that are replicable by its competitors will stifle our ability to innovate around customers’ calling habits to offer them tailor made pricing like Tunukiwa, which have been a big hit with customers,” he said.

“We also believe that another recommendation of the report that seeks to curtail Safaricom’s ability to advertise is anti-consumer and unjustified,” he added.

If implemented, the market leader will have limited space to charge differential rates for on-net and off-net calls.

“Safaricom may not charge differential rates for on-net and off-net calls under any circumstances and all marketing materials relating to airtime bonuses must make clear that the bonuses can be used for off-net as well as on-net calls,” the report says.

Both Telkom Kenya and Airtel have been making losses even as rival Safaricom posts runaway profits every year. Safaricom charges Sh4 a minute for calls within and outside its network between 8 a.m. and 10 p.m. and Sh2 a minute for rest of the hours.

Last March, Airtel Kenya introduced a voice calls package that cut by a third to Sh2 per minute call charges from its subscribers to rival networks in an effort to tap new subscribers.

Telkom Kenya cut off-net calling rates for specific packages from Sh3 to Sh1.80 per minute.

The CA now says that it will move to regulate Safaricom’s tariffs in line with the findings of the competitions study  that found the operator dominant.

“The Kenya Information and Communication (Tariffs) Regulations, 2010, define regulated services as those offered or supplied by a licensee - a) in a market or market segment that is uncompetitive; or b) where the licensee has been declared dominant in the relevant market or market segment,” said CA last week while announcing the impending plans to regulate tariffs.

“This means that tariffs of players found to be dominant in specific relevant markets, will be regulated. However, the impact and need for these remedies will be reviewed after some period, to determine whether they’ll still be appropriate and necessary,” added CA in a statement.

“Club effect”

Airtel and Telkom Kenya have accused the market leader of using its market power to lower prices to a level that condemns competitors to losses.

The market leader has also been accused of promoting the “club effect” that enables the largest network to offer lower calling rates to other numbers in its network.

The smaller operators last Friday welcomed the proposed regulations arguing it could help level the playing field.

“By virtue of its financial muscle, a dominant operator is able roll out promotions that other operators cannot match without incurring losses. Obligating a dominant operator to ensure that their promotional tariffs and loyalty schemes are replicable by the other operators on a large scale will act as a cautionary measure for anti-competitive behaviour through predatory pricing,” Airtel Kenya said in a statement.

Safaricom remains Kenya’s telecoms market leader with 29.4 million subscribers or 71.9 per cent market share according the latest market report.

Airtel Kenya is a distant second with 6.1 million (14.9 per cent) while Telkom Kenya has 3.4 million (8.4 per cent) subscribers.

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