Safaricom resists call rate cuts as price war looms
Safaricom, Kenya’s biggest telco, is fretful that the proposed further slashing of Mobile Termination Rates (MTR) by 89.7 per cent will unleash fresh price wars in the sector amid a push to have cross-network calls more affordable.
The fear points to a vicious fight between Safaricom and its rivals, some of whom are comfortable with further MTR reduction as it would help them cut what they pay for roaming on the Safaricom network.
MTRs are the charges levied by a mobile provider on its rivals for terminating calls in its network. The Communication Authority of Kenya (CA) has proposed a steeper reduction in MTRs ceiling to Sh0.06 from Sh0.58 per minute of interconnection.
But this fresh decline is creating jitters that other mobile network operators (MNOs) will be in a position to further reduce the call rates for their own customers, a move that might attract Safaricom customers.
As such, Safaricom could equally be pushed to introduce lower tariffs for its own consumers to keep pace with the competition. Safaricom’s own call rates, inclusive of taxes, currently stand at Sh4.87 per minute during peak, while Airtel’s is Sh4.3 per minute. Telkom charges as low as Sh1.5 per minute to any network.
While appearing before the Nationals Assembly Communication, Information, and Innovation Committee, Safaricom CEO Peter Ndegwa argued that lower tariffs could deeply impact investment in the sector and cause revenue loss to the government.
“Despite the benefit to consumers in terms of reduced rates, price wars have been observed to lead to reduced market value, slowing down industry expansion and ultimately leading to reduced and slow gross domestic product (GDP) contribution by the sector,” Safaricom CEO Peter Ndegwa said when he appeared before the Nationals Assembly ICT committee.
But for rival networks, lower MTRs mean they are saving what they pay Safaricom. Telkom Kenya Ltd, Airtel, and Jamii Telecom Ltd are all up in arms in support of the new proposed rate reduction to Sh0.06 per minute.
They argue the revenue loss to the government is insignificant while consumers will benefit more.
“If we keep these rates high, customers are moving to Whatsapp calls. What we are trying to protect artificially now is going to go away. We strongly support the CA submission to reduce the rate to Sh0.06. Consumers need accessible and most affordable services,” said Airtel Kenya Managing Director Ashish Malhotra.
“It is time to do the right thing. When we look at the cost of Sh0.06 per minute, it confirms what has been empirically arrived at by the regulator. The rate is about consumers,” said Telkom Kenya CEO Mugo Kibati.
Safaricom has been the major beneficiary of higher MTRs owed to its 60 per cent commanding market share in the voice business, whose revenue contribution has, however, been on a downward spiral as internet usage intensifies.
CA reduced MTR to Sh0.58 from Sh0.12 per minute across all networks in August 2022, a move that left Safaricom with a Sh1.1 billion revenue blow within just four months since April 2023.