Safaricom surrenders Sh1.5bn in tariffs deal

Safaricom Plc CEO Peter Ndegwa.

Safaricom Plc CEO Peter Ndegwa on August 1, 2022, at the Michael Joseph Centre during the unveiling Safaricom's new brand campaign dubbed “Tuinuane”. The telco is set to lose about Sh1.5billion in revenue a year despite a deal with rival mobile telcos to implement a smaller cut on Mobile Termination Rates.

Photo credit: Diana Ngila | Nation Media Group

What you need to know:

  • The new rate will serve for an interim one-year period before the CA announces the substantive rate.
  • Airtel and Telkom, which were the biggest victims of the old rate, however, will be saved Sh1.4 billion and Sh190.5 million in MTR and FTR costs on averagely, during the year.

Safaricom is set to lose about Sh1.5billion in revenue a year despite a deal with rival mobile telcos to implement a smaller cut on Mobile Termination Rates (MTR) than earlier ordered by the industry regulator, the Communications Authority of Kenya (CA).

MTRs are the charges levied by a mobile service provider on other telcos for terminating calls on its network.

Safaricom, Airtel, Telkom, and Jamii Telecommunications on Thursday reached a consent deal before the Communications and Multimedia Appeals to cut and Fixed Termination Rate (FTR) from Sh0.99 to Sh0.58.

The new rate will serve for an interim one-year period before the CA announces the substantive rate.

“The current MTR and FTR be revised from Sh0.99 to an interim rate of Sh0.58. The revised interim rate will apply for a period of 12 months from August 1, 2022,” the tribunal consent stated.

“Upon conclusion of the Network Cost Study, the authority will without undue delay implement a new MTR and FTR.”

Based on the Sh3.5 billion average Safaricom earnings under the Sh0.99 MTR and FTR rates, the new Sh0.58 rate will deny the telco nearly Sh1.5 billion in the year to August 2023.

Airtel and Telkom, which were the biggest victims of the old rate, however, will be saved Sh1.4 billion and Sh190.5 million in MTR and FTR costs on averagely, during the year.

Bickering

The operators have been bickering over the Sh0.99 MTR and FTR rate for years, with rivals accusing Safaricom of making money from a service that ought to only recover its costs.

The Ministry of Information and Communication Technology (ICT) has also been on Safaricom’s case, accusing the telco of pushing for a system that punishes its competitors and making more than seven times its rightful share in MTR and FTR rates.

“Noting that termination rates are not meant to be income-generating streams but cost recovery mechanisms, the CA observed that due to the current imbalance in off-net traffic volumes, in a quarter, about Sh1.005 billion is paid out among operators as interconnection fees. The net beneficiary is Safaricom PLC, which received Sh883 million while the net losers are Airtel Kenya and Telkom Kenya, which pay out Sh845 million and Sh115 million respectively,” ICT Cabinet secretary Joe Mucheru told a senate committee in March.

The details by the ministry showed that in a year, Safaricom generated up to Sh3.5 billion under the old rates.

In July last year, the CA proposed cutting MTR and FTR from Sh0.99 to Sh0.12 starting January 2022, a move that would see Safaricom lose over Sh3 billion it earned from the services annually. Safaricom, however, rushed before the tribunal to protest in December 2021.

Airtel, Telkom, and Jamii telecommunications argued for lowering the rates, stating that the move would make voice services cheaper and more accessible to Kenyans.

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