The Communications Authority of Kenya (CA) has has moved to control Safaricom market by lowering the recent cut in mobile termination rates.
Defending its move, CA director-general Ezra Chiloba stated that the cut will give smaller telecoms operators a better chance at competing with market leader Safaricom, even as it hinted at a further drop in call tariffs.
In a statement filed before the tribunal indicated that the low termination rate will give co-operators greater price, flexibility to compete with Safaricom.
“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,” Chiloba said.
The sector regulator says in its response to a petition filed by Safaricom before the Communications and Multimedia Appeals Tribunal that it plans to conduct a more detailed network cost study of mobile termination rates (MTR), suggesting it could consider further review.
MTRs are the charges levied by a mobile service provider on other telecommunications service providers for terminating calls in its network.
The 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. The capping was to start on January 1.
However, Safaricom argues that the charges should instead rise to reflect the true cost of doing business. The tribunal ordered the status quo to be maintained, pending further directions on February 2.
The regulator says the choice of methodology in determining MTRs and fixed voice termination rates (FTRs) is its prerogative and cannot be dictated by an operator.
“The review was an interim measure until a network cost study was conducted, and to prevent further market foreclosure given that the study is anticipated to take over one year to conclude and implement,” Chiloba said.
Rival operators Telkom Kenya and Airtel and Consumers Federation of Kenya (Cofek) have since joined the case.
A senior legal counsel at Safaricom Daniel Mwenja Ndaba, argues that globally, any reduction in MTRs often leads to a restriction in the rollout of the networks as operators could argue that there is a reduced incentive to expand their networks.
It holds that any MTR review would need to take into consideration that fact that there is no uniformity currently in establishing network efficiencies or growth due to the dynamics in the market.
“Due to the recent dynamic shifts the Appellant had noted particularly in the voice market where market shares have been consistently shifting in favour of other operators, it was the Appellant’s view that the market appears to be in a state of stimulation which should be encouraged to further encourage the resurgence in competition in the market,” Ndaba said.
He further accused the regulator of ignoring the true cost of doing business and relying on little-known benchmarks.
It says that reviews are typically undertaken when markets are deemed to be efficient, where all players have equally invested in infrastructure that allows them to recover their costs similarly.
“The Appellant further noted that in the current scenario in Kenya, two out of the three players do not own their own infrastructure, which forms a significant consideration for establishing the estimated cost of terminating a call on the existing networks,” Ndaba said.
It has dismissed Safaricom’s claims that stakeholders were not involved, saying it engaged the operators including where there was need for clarification or additional information.
Safaricom currently 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 1st Appellant, Telkom Kenya Limited is a Limited Liability Company which was established as a telecommunications operator in April 1999, providing mobile telecommunications connectivity and a variety of telecom and other services.
The 1st Appellant is licensed by the Communications Authority of Kenya “CAK” to provide mobile telecommunications services and a variety of telecom and other services under various licenses, with the Government of Kenya having a 40 per cent Shareholding in the Company.
The 2nd Appellant, Airtel Networks Kenya Limited, is a private Limited Liability Company incorporated in Kenya, providing mobile telecommunications connectivity and a variety of telecom and other services.
The 1st Appellant is licensed by the Communications Authority of Kenya “CAK” to provide mobile telecommunications services and a variety of telecom and other services under various licenses.
The 2nd Appellant has been operating in Kenya’s telecommunications sector since 1999.
The Respondent is a State Corporation established under the Competition Act No 12 (The Act) of Kenya. It has a wide mandate on matters of competition law and policy under the Act.
For purposes of this appeal, we shall focus on the Respondent’s mandate to control mergers through approvals of proposed mergers with or without conditions as set out under the Competition Act, CAP 504.
In 2015 Kenyan cabinet secretary Fred Matiang’i announced that the government would introduce new regulations aimed at guarding against monopolies, which could have led to Safaricom being declared anti-competitive and potentially split into three separate units.