Airtel, Telkom to save millions in call rate review

A shared mast between Telkom Kenya and Airtel.

Airtel Kenya and Telkom Kenya are looking at hundreds of millions of shillings in savings each year following a move by the telecommunications regulator to slash mobile interconnecting rates by 87 per cent.

Communications Authority of Kenya (CA) on Wednesday announced a revision of the interconnection rates from Sh0.99 to Sh0.12, setting the stage for price wars in the local voice market segment that has plateaued in earnings in recent years.

“The authority has recognised that the current voice termination rates may not reflect the true cost of interconnection,” said CA Director General Ezra Chiloba in a statement.

“Further, the current voice termination rates may be preventing operators from offering consumers more affordable and competitive prices and services.”

This is the first review of interconnection rates in six years and is expected to give smaller operators more leeway to price their voice calls. Mobile termination rates are the costs operators levy each other for cross-network calls.

In October this year, Airtel Kenya Finance Director Shailendra Singh told Members of Parliament that the Sh0.99 mobile termination rate rewarded Safaricom at the expense of smaller players.

“Retail tariffs have reduced over time and the current MTR (mobile termination rate) of Sh0.99 per minute is not tenable,” he told parliament's Departmental Committee on Communication, Information and Innovation.

“In some retail tariffs available in the market, the operators are making negative margins when they account for MTR on off-net traffic which creates opportunity for predatory pricing and negatively impacts competition.” 

"Telkom yesterday welcomed the review, saying that lowering the MTR will discourage price discrimination between on-net and off-net customers. 

"This review is quite timely and is a progressive step towards making voice services more affordable and accessible to Kenyans," said the telco in a statement. 

Data from CA indicates that off-net voice traffic grew 32 per cent from 1.8 billion minutes last year to 2.4 billion minutes as at September this year.

Safaricom’s larger subscriber base relative to other operators means smaller telcos pay more when customers make cross-network calls.

“Since the smaller operators send a lot of traffic to the bigger operator, it becomes a revenue drain,” Ganson Lewela, Airtel Kenya’s Head of Regulatory told MPs.

“For example, Airtel pays about Sh300 million each month for just interconnection,” he said. “That is a high cost and a burden that could help if redirected to something else.”

In 2010 CA cut MTR by more than 50 per cent from Sh2.21 to Sh0.99 by July 2013.

The move kicked off a price war between Safaricom and Airtel that saw voice call costs fall from a high of Sh12 per minute to an average of Sh3.