Sh2 billion loss: Inside Safaricom fresh battle for interconnection fees
Safaricom Chief Executive Officer Peter Ndegwa before the Senate ICT Committee at KICC, Nairobi County on Thursday, June 22, 2023.
The loss of Sh2 billion in revenues by Safaricom from interconnection fees within just eight months, is at the centre of the latest battle between the telco and its three main competitors who want the fees to be cut by a further 89.7 percent.
The Communications Authority of Kenya (CA) jolted Safaricom last year when it sought to cut interconnection fees or the Mobile Termination Rate (MTR) to just Sh0.12 per minute from Sh0.99.
MTRs are the charges levied by a mobile service provider on other operators for terminating their voice calls on its grid. Amid strong resistance from Safaricom, telecom operators reached a compromise with the regulator to initially reduce the MTR to a higher rate of Sh0.58 per minute for 12 months before it is lowered to the previously intended rate.
The 41.4 per cent cut of the MTR by CA, which was implemented from August 1, 2022, saw Safaricom bleed Sh2 billion in revenues in eight months in its financial year that ended March 2023.
The telco estimates that the annual loss from the lower interconnection fees is about Sh3 billion, which is a blow to its voice revenues which have already been on a steady decline.
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“The reduction in MTR negatively impacted our top line, resulting in a loss of Sh2 billion in interconnect revenues,” it said in its annual report.
Safaricom is the major beneficiary of the MTR due to its leading market share in the voice business, with the telco recording a net gain from its rivals.
Statistics show that about 80 percent of all calls made in Kenya are to Safaricom subscribers, which means it charges other telcos for carrying their calls.
It is however the National Roaming, Telecommunications Tower Sharing and Termination Network Cost Study 2022 which has proposed a further reduction of the MTR to Sh0.06 per minute that is the source of the latest battle between the telcos.
On one hand, Airtel Kenya, Telkom Kenya, and Jamii Telecommunications Limited have backed CA to further reduce the rate in what they argue will level the playing field in the sector where Safaricom dominates.
On Thursday, Airtel Kenya Managing Director Ashish Malhotra, Telkom Kenya CEO Mugo Kibati, and JTL chairman Joshua Chepkwony appeared before the National Assembly Departmental Committee on Communication, Information and Innovation to state their cases.
Safaricom Chief Executive Peter Ndegwa told MPs that reducing the rate will discourage the telco from investing in infrastructure upgrades, especially in rural areas where most of the customers are net receivers of calls.
Mr Ndegwa argued that the telco will be unable to adequately recover the costs it incurs to terminate calls from other operators on its network should the MTRs be further lowered.
