Safaricom, Kenya’s leading telecommunications company, finds itself at the center of a contentious issue in the rapidly evolving landscape of its local telecom sector: an impending 89.7% decrease in Mobile Termination Rates (MTR). This proposal instigates heated debate over potential ramifications. Safaricom predicts that this substantial reduction may trigger renewed price wars among industry titans.
Once again, MTRs—the charges a mobile provider enforces upon its competitors for call termination on their network—have seized the spotlight. The Communication Authority of Kenya (CA) recommends an enormous reduction in these MTRs: from Sh0.58 to just Sh0.06 per minute of interconnection. This significant decrease aims at rendering cross-network calls more affordable. However, such a substantial change does not occur without ripple effects; it is triggering apprehension within the industry—an indicator of how interconnected and interdependent all sectors truly are.
A drastic reduction in MTRs may provoke intense competition. Safaricom’s rivals, seizing the opportunity to further decrease call rates for their customers—a strategy that could potentially attract Safaricom’s customer base. Consequently, out of competitive necessity, Safaricom might be compelled not only to introduce lower tariffs but also to intensify its battle for market share.
During peak hours, Safaricom currently charges call rates of Sh4.87 per minute inclusive of taxes. In contrast, competitors Airtel and Telkom offer their services at a lower rate—Sh4.3 and Sh1.5 respectively. The impending reduction in rates presents a strategic quandary for Safaricom: it must balance the potential effect on its revenue with the imperative to maintain competitiveness within the market.
In a session with the National Assembly Communication, Information, and Innovation Committee, Safaricom CEO Peter Ndegwa articulated his concerns. He posited an argument—while reduced rates might accrue benefits for consumers—he contended that it could precipitate three repercussions within the industry: firstly, diminished market value; secondly, slowed expansion; thirdly—and most importantly—reduced contributions to GDP (gross domestic product).
Conversely, rival networks—Telkom Kenya Ltd; Airtel, and Jamii Telecom Ltd—rally in support of the proposed rate reduction. They argue that any marginal revenue loss to the government pales compared to its consumer-centric benefits. Consumers would then relish more accessible—affordable services with this approach.
Ashish Malhotra, Managing Director of Airtel Kenya, emphasized the necessity for a paradigm shift. He stated: “Should we persist with these elevated rates—customers will inevitably migrate to Whatsapp calls. Our current efforts to artificially safeguard an aspect shall soon dissipate.” Mugo Kibati, CEO at Telkom Kenya, resonated this sentiment and underscored that aligning proposed rates at Sh0.06 per minute concurs precisely with empirical findings from regulators—a move ultimately in favor of consumers.
With a commanding market share of 60% in the voice business, Safaricom has reaped significant benefits from higher MTRs. Yet, as internet usage intensifies, its revenue contribution within this segment is spiraling downward. The Communications Authority (CA) further curtailed MTR to Sh0.58 from Sh0.12 per minute in August 2022—an action that dealt a substantial blow to Safaricom’s revenue, totaling at Sh1.1 billion within just four months since April 2023. This is a clear indicator of their financial vulnerability and dependence on prevailing rates set by regulatory authorities.
The industry, in its anticipation of the regulatory decision, actively engages in a battle over mobile termination rates—a reflection of the delicate balance between fostering robust competition and safeguarding financial stability for major players within Kenya’s telecommunications arena.