Airtel Kenya and the Communications Authority of Kenya have always had a tussle about money, especially regarding spectrum fees. The fight has been ongoing for some time now, and has for a long time seen the operator and the regulator go to court in an attempt to iron things out.
Before we can look at the latest development from the two, we should at first try go back to when Airtel asserted that the CA was charging a little too much for spectrum fees, in this case, the license for 4G.
4G license is too expensive
Back in 2020, Airtel wrote a letter to the CA, and lobbied it to revise spectrum fees downwards.
The plea’s main point was that a review of spectrum fees would enable carriers to deploy cheaper services to customers.
Airtel added that the existing structure did not allow companies to compete fairly in the telecom space.
Market leader, Safaricom was the first to launch 4G services back in 2014. The license cost the carrier a healthy sum at KES 2.5 billion.
Then in 2017, Telkom Kenya managed to acquire the same license. It was a big time gap from Safaricom’s launch, which had the financial muscle to pay for LTE spectrum.
Airtel only managed to launch 4G services in 2018.
The nation’s second largest operator, which is owned by India’s Bharti Airtel, stated that excessive fees impeded policy goals of delivering broadband access to everyone and led to valuable spectrum remaining unsold.
Airtel then added that ‘there is a strong economic case to avoid the level of spectrum fees being determined on the basis of revenue-maximising objectives.’
Order to pay KES 2 billion after license expiry
This development has been revealed this February following a report by the Business Daily.
The case details are as follows:
- Airtel Kenya’s operating license expired back in 2015. From then, the CA has been trying to compel Airtel to pay KES 2 billion following the said expiry.
- Airtel Kenya has admitted it will pay the funds in installments.
- Payment will be completed over the next two years, and this will allow the firm to renew its operating license.
- The agreement further states that the company is now exempted from forfeiting 30 percent ownership to Kenyans. You can find out about this regulation here, but in short, it follows the National ICT Policy 2019, which was signed into law; hence, ‘It is the policy that only companies with at least 30% substantive Kenyan ownership, either corporate or individual will be licensed to provide ICT services.’ As said, Airtel Kenya is fully owned by Bharti Airtel.
- And why has Airtel been fighting with the CA over this period? Well, Airtel Kenya bought Yu Mobile back in 2014 for KES 750 million. Yu’s permit is still active, but will expire in 2025.
- Airtel now says that following the Yu purchase, it wasn’t supposed to renew its license in 2015.
- The CA, on the other hand, argues that Yu’s permit was not transferable, for which Airtel added that it couldn’t have proceeded with the purchase had it known that the CA was about to change its position.
- Airtel only had two options: sell 30 percent of its stake to locals, or pay the KES 2 billion. Airtel, as of this February, has picked the latter option.
But they agree on other issues…
By know, we know the call termination case is being discussed widely by telcos and other industry insiders.
Termination fees have since been reduced by the CA from KES 0.99 to KES 0.12. The development has been supported by small telcos, meaning Airtel and Telkom Kenya – but Safaricom has disputed them.
Airtel argues that high termination fees have been a burden to small operators, and have made them hard to compete with leading telcos because high mobile termination rates (MTRs) often favour the big players.
To put this into contetxt, 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.
And to put this in perspective, Airtel pays Safaricom KES 300 million per month in termination fees.
The fees are high, and imply that Safaricom profits from smaller players, which have failed to compete with the carrier.
The revised fees are, therefore, to the advantage of small operators, and mark a point where the CA and Airtel have finally agreed on something.
Still, it is not clear if the new rates have been put into effect.
It is also not clear if the CA will revise spectrum fees. Safaricom is already testing 5G for a later 2022 launch, and with its financial position, it can be able to afford the 5G license, whose price is yet to be revealed.
However, how long will it take the other players to catch up? This is a question that will be answered over the next years.