Calling rates to rise with the exit of India’s yuMobile

A duopoly in the telecoms market could stop consumers from enjoying cheap calling rates and reduce mobile phone penetration. [PHOTO: FILE]
 A duopoly in the telecoms market could stop consumers from enjoying cheap calling rates and reduce mobile phone penetration. [PHOTO: FILE]

By Macharia Kamau

The exit of yuMobile in the Kenyan market might see an increase in cost of calling.

Market research firm International Data Corporation (IDC), notes that the consolidation taking shape with the expected sale of yuMobile to Safaricom and Airtel has the potential of creating a duopoly and a renewed competition between the two leading telecom firms.

yuMobile increased the number of players in the mobile telephony industry when it started operations in Kenya in 2009 and hence the competition.

Market share

 With reduced players in the market and Orange Telkom Kenya having a small market share, it is feared that the two leading operators could increase calling rates. This is as Safaricom looks to grow its return to shareholders while Airtel seeks to return a profit after years of reporting losses.

Safaricom is still the largest player with a share of 66.5 per cent according to the latest Communications Commission of Kenya (CCK) report. Airtel comes second with 17.6 per cent share. yuMobile has a share of 8.8 per cent while Telkom Kenya’s Orange has 7.1 per cent. “The move will see the market shrink to three players with two leading operators, Safaricom (66 per cent market share) and Airtel Kenya (potential 26 per cent) gaining  about 90 per cent of the market in Kenya,” said IDC in an outlook of the Kenyan mobile market with the expected exit of yu.

“The biggest losers are the consumers as the acquisition might also lead to increase in prices as fewer players get control of the market and establish an oligopolist presence.”

While it has previously been an advocate of low calling rates, even credited with playing a significant role in pushing other operators to bring down calling rates, Airtel has recently reviewed its calling rates to other networks from Sh3 to slightly above Sh4. Safaricom charges Sh4 for both on-net and off-net calls. Calling rates in Kenya are relatively low compared to other markets, having come down after a 2010 price war.

Termination Rate

In August 2010, Airtel reduced by more than 50 per cent the cost of calling across networks.  This was after CCK reduced the Mobile Termination Rate (MTR) by a similar margin to Sh2.21, from Sh4.42.

The move sparked a price war that saw operators cut calling rates as they tried to outdo each other in a bid to attract and retain subscribers. Calling rates dropped to as low as Sh3 from a previous average of Sh8.

The low rates were seen as a significant gain for the consumer but hurt the operators, with a segment of the market noting that the rates were unsustainable and were eating into money that would have been spent on expanding their network and improving the quality of service.

MTRs, which are fees mobile operators charge each other to terminate calls from another network, is expected to fall to Sh0.99 this year, according to a “glide path” developed by the regulator in 2010.

There were even calls to the regulator to put in place price floors – a minimum rate – with Safaricom and Telkom Kenya (Orange) expressing fears that the low call rates could cripple the industry.

yuMobile and Airtel however seemed to be enjoying the show then, always pushing to lower calling rates arguing that reduced pricing would allow consumers to enjoy more affordable calling rates, thus increasing penetration.


 

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