Towards the end of 2021, ICT regulator the Communications Authority of Kenya (CA) announced plans to cut call termination rates, also referred to as mobile termination rates (MTRs) from KES 0.99 to KES 0.12 per minute.
The new rates were supposed to go live on Jan 1, 2022. However, the development has since been disputed, mainly by Safaricom, which argues that the rates were not arrived at procedurally and that the CA failed to take note of stakeholder input submitted previously.
Telkom Kenya, and Airtel Kenya, on the other hand, continue to support the new termination rates, with the overall argument being that the consumer will pay less when making calls, especially to other networks.
Benchmarking Methodology
To reiterate, Airtel firmly supports the new MTRs and had previously taken part in the review exercise.
It should be remembered that Airtel suggested the use of the benchmarking method during the review of the termination rates, arguing that cost study data was not immediately available, and resources/time involved to collect the data would be enormous.
The points were supported by a variety of reasons. First, a comprehensive cost study was last done more than a decade ago in 2010. The cost study was therefore dated and did not accurately reflect the current cost situation.
Secondly, in the assessment of the current MTR, time is of the essence. Small operators have been making representations to the CA for the review of the current MTR, based on the economic burden that they have borne for a long time.
Airtel said it believed that it was urgent that the Authority listened to these small operators.
Finally, Airtel added that it would be more cost-effective for the CA to use Benchmarking methodology for the now-concluded review, given the necessary data was already available to reach a reasonable conclusion.
The same process (benchmarking), Airtel argues, is what other leading nations across the globe use.
The Rationale for Airtel Kenya’s Recommendations
At the start of the review of MTRs, Airtel suggested to the CA to reduce termination fees.
Airtel argued that high MTRs have been a burden to small operators, and have made them hard to compete with leading telcos (in this case, Safaricom), because high MTRs often favour the latter.
MTR should be cost-based and operators should not profit from interconnection but merely recoup costs incurred in carrying additional traffic from the other operators’ networks. – the CA
Data has since revealed that 95% of Safaricom’s total traffic is actually on-net and only 5% is off-net. While for Airtel 80% of its total traffic is on-net and 20% off-net.
During the assessment period (for the 2020/2021 FY), Airtel’s off-net minutes in the quarter ending June 2020 was slightly over one billion minutes, Telkom had 200 million minutes, and Safaricom has approximately 500 million minutes’ worth of off-net traffic.
The total off-net traffic for all operators for that period was 1.7 billion minutes. Of these, 1.4 billion minutes were the off-net traffic from Airtel to Safaricom.
This clearly indicates that more than 80% of the industry’s total off-net minutes flow towards Safaricom’s network.
Alternatively put, for every one minute received from Safaricom, Airtel sends 2.8 minutes to Safaricom.
The pattern isn’t drastically different between, Safaricom and Telkom.
Therefore, the bulk of off-net traffic moves in the direction of Safaricom, making Airtel the net payer of interconnection dues.
Again, this is replicated between Telkom and Safaricom.
The argument here, according to Airtel, is that Safaricom not only reaps heavily from a high share of on-net traffic, 95% as said above but also is the net beneficiary of MTR pay-outs by both small operators.
Besides, the MTR pay-out by Safaricom is considerably less than the smaller operators.
To put this in perspective, Airtel pays Safaricom KES 300 million per month in termination fees.
So?
Safaricom has a financial reason to dispute the new rates because it earns a high share of on-net traffic.
Another way to look at it is that for at least 95% of its traffic, the earnings are not subject to MTR payments to other operators.
Considering Safaricom is a market leader, this is a significant financial advantage that ought not to flow from a regulated service.
In the same breath, a substantial portion of the small operators’ total traffic is off-net.
Airtel 20% and Telkom up to 40% and subject to MTR pay-outs. These operators are, to this end, at a significant financial disadvantage.
It would appear that all these reasons, among others, were looked into by the CA, hence the downward revision of termination fees.
Safaricom’s objection to the new rates has since been submitted to the Communications and Multimedia Appeals Tribunal. We are yet to hear their decision, but that will happen in the near future.
