The Communications Commission of Kenya (CCK) has finally announced a cut in mobile termination rates (MTR), ending months of uncertainty about the move and flying in the face of protests from market leaders Safaricom and Orange. But is this the right move? HumanIPO reporters Gythan Munga and Kamau Mbote debate the issue.
The Case For: Gythan Munga
While MTR cuts are likely to reduce mobile operator revenue by a small margin in the next few years, the industry stands to benefit by incentivizing the consumers.
High rates are costlier for the consumer than low ones are for the operators. High rates are associated with high tariffs for the end user, resulting in the reduction of usage.
In various markets such as Latin America, the reduction of MTR has been seen to serve mobile operators with the opportunity to entice mobile users with revenue generation incentives. Impact on profitability is often likely to be less than the impact on revenue.
In any case, CCK Director General Francis Wangusi said that a report on MTR determined that low rates did not have a negative impact on tax collections, employment in the sector and on the Nairobi Stock Exchange.
It is the CCK’s responsibility to ensure a ‘safe and clean’ environment for competition. High rates today and in the past are seen to affect new entrants, with traffic volume originated by dominant mobile operators higher than incoming traffic, resulting in a net loss.
With improvement in technology, mobile users are finding a reason to communicate in more diverse ways, which opens up an opportunity for mobile operators to earn revenue through introduction of more products. Other than complain, they should power up their think tanks to come up with innovative solutions. In more ways than one, this is the only way. This is the future!
The Case Against: Kamau Mbote
The purpose of the reduction was to reduce call rates to other networks by telecom operators. Only one problem, Safaricom seems to call the shots, and no operator has yet declared any intention to reduce charges.
According to CCK statistics, only Safaricom and Essar have less calls off-net than on-net, meaning that in reality the other operators have been reduced to being links to Safaricom subscribers.
As HumanIPO revealed yesterday the other networks owe Safaricom in excess of KSh700 million compared to the KSh200 million Safaricom owes the other three operators combined. This means that, whether the other networks reduce their calling rates or not to Safaricom, it only means reduced margins.
For other networks this is a matter of life and death. Any further lowering of call rates could simply mean huge losses for the already loss-making industry.
There is a feeling among players in the industry that a lower MTR just means lower profit margins, providing a drain on much needed resources to expand access to more areas, with only about 70 percent of the country covered.
The pure Long Run Incremental Cost (LRIC) model that the CCK is experimenting with is barely in use anywhere else, and is intended for developed countries. It only allows the recovery of costs directly caused by the incremental termination of voice minutes, thereby of the assumption that all other expenses have already been incurred. The model permits recovery of shared and common costs, while the LRIC model widely in use globally permits recovery of shared and common costs.
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