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Calls from rivals for higher charges by Safaricom rejected

Proposals by Airtel and Telkom Kenya that could have seen Safaricom forced to charge its customers higher rates than its rival telecommunications providers have been rejected by consultants hired to assess competition in the sector.

Airtel and Plum Consulting (on behalf of Telkom Kenya) had separately written to the Ministry of ICT last year asking that Safaricom pays a higher fee for calls and texts completed on its rivals’ networks.

The fee, technically referred to as a mobile termination rate (MTR), has been set at Sh0.99 for calls and Sh0.05 for text messages since 2010.  The MTR is paid whenever a customer calls or sends a message to a network other than her own and has implications on the costs that an operator passes on to subscribers.

The proposal for an asymmetrical MTR has been rejected by Analysys Mason on the grounds that Kenyan companies are already paying low fees relative to companies in other global markets.  Asymmetric MTR, the firm writes, is meant to cushion new players in a market and this is not the case locally.

“In Kenya, even though Safaricom clearly has greater economies of scale than other mobile operators, these other operators have been in the market for a long time and should not be ‘rewarded’ for having smaller scale,” reads the draft report.

Although the current MTR is standard for all operators, calling trends in Kenya mean that it favours Safaricom. Most of Safaricom’s 26.6 million customers only call within the network. On the other hand, Airtel has the highest proportion of off-net traffic and finds itself having to pay out relatively high MTR fees.

The report also shows that Airtel had written to the government proposing that a price-floor be set on Safaricom’s retail services. This would have meant that the market leader was not allowed to lower costs below a certain threshold. Such a price floor, Analysys Mason has said, “places unnecessary restrictions on Safaricom’s ability to innovate with its tariff plans and promotions”.

This is not the first time a minimum call rate has been proposed for the market.  In the midst of a price war, operators had in 2012 called for a minimum calling rate to be set at 50 per cent above the MTR fee to discourage the race to the bottom. The proposal was later rejected by the industry regulator.

Analysys Mason was hired to carry out a study on competition in the telecoms sector amidst outcry by the smaller telecom firms that the operating environment was too harsh. Telkom Kenya and Airtel have been operating in loss-making territory.

The report still needs to go through stakeholder consultation and the Communications Authority of Kenya (CA) review before it can be implemented. It will be upon the industry regulator to strike a balance that results in a more competitive environment without crippling one of Kenya’s largest companies, Safaricom.

Despite the rejection of the proposals on MTR and price floors,  the draft report seems to be a general boon for the smaller players in Kenya’s telecommunications sector. The report finds Safaricom to be dominant in both the mobile money and mobile telecommunication businesses.

Analysys Mason has proposed that the government impose on Safaricom stringent regulations to ensure that it shares its existing infrastructure. The most far-reaching of the proposals is the implementation of seamless interoperability in mobile money before the end of 2017.

Failing this, Safaricom will be forced to spin-off M-Pesa into an independent company. It will also be required to extend M-Pesa the same terms that it would

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