Telkom Kenya has revealed that it pays over half of its revenues to Safaricom and rival operators as costs for handling its calls, condemning the firm to a loss-making territory.
The firm says it has been unable to compete due to the current mobile termination rates (MTR) and fixed voice termination rates (FTRs) — charges levied by telecoms operators for handling rivals’ calls on their network.
The Communications Authority of Kenya (CA) cut the charge to Sh0.12 per minute from the current Sh0.99 per minute after a six-year freeze, drawing legal action from Safaricom that earns the most from MTR due to its large voice market share of 68.9 percent.
Telkom Kenya and Airtel have thrown their weight behind the regulator, arguing that the drop in MTR is long overdue.
Telkom Kenya reckons that the reduction of MTRs and FTRs will promote competition in the market and lower calling rates for the benefit of consumers.
“Telkom had previously raised concerns that over 50 percent of its mobile communications revenue is paid to other telecommunications operators in settling expenses associated with MTRs and FTRs costs,” Stellar Wawira, head of public policy and regulatory affairs at Telkom Kenya, told a tribunal hearing the Safaricom suit against the CA.
“I believe that CAs determination to reduce costs of MTRs and FTRs is in the interest of the consumers whom the CA has an obligation to protect.”
She did not provide figures to back the claims.
A smaller operator tends to pay more in mobile termination rates because its users are likely to spend more time on other networks than its own.
Airtel’s market share stood at 29 percent while Telkom Kenya had a two percent stake. The two firms remain in losses while Safaricom is the region’s most profitable firm with profits of Sh68 billion for the year to March.
The lower termination rates could benefit subscribers grappling with reduced spending power due to the adverse effects of the Covid-19 pandemic.
Mobile operators recently adjusted the cost of calls to other networks to reflect the recent change in excise taxes.
Airtel now charges Sh2.78 to make calls to other networks per minute while Safaricom and Telkom Kenya charge Sh4.87 per minute and Sh4.30 to call rival networks respectively.
The mobile termination rate was in 2012 cut to Sh1.44 per minute from Sh2.21 and subsequently to Sh0.99 in 2015.
Then-President Mwai Kibaki had in 2011 stopped further cuts after operators said their business was under threat from sliding revenues.
Operators like Telkom Kenya and Airtel are set to be the main beneficiaries of the plan along with consumers.
“I believe that CA’s determination to reduce costs of MTRs and FTRs is in the interest of the consumers whom the CA has an obligation to protect,” Telkom Kenya said.
Safaricom earns an estimated Sh6.5 billion annually from MTR while paying out Sh2.6 billion to rivals, leaving it in a profitable position while competitors remain in a net losing trade.
The operator has filed an appeal at the Communications and Multimedia Appeals Tribunal seeking to quash the regulator’s decision while arguing that the charges should instead rise to reflect the true cost of doing business.
The market leader is also accusing the regulator of relying on little-known benchmarks.
The regulator said in its submissions that revised rates would give small operators greater price flexibility to compete with Safaricom and benefit consumers.
“It is our position that due to its size, Safaricom enjoys economies of scale, and their costs are low compared to other small operators. The proposed low termination rate will give small operators greater price flexibility to compete with them,” CA director-general Ezra Chiloba said.
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