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Mobile customers are enjoying lower calling costs after the Communications Commission halved the fee telecom providers charge each other to transmit calls across networks.

By Dinfin Mulupi

A price war sparked by mobile operator Zain has left mobile customers relishing low calling rates. The price war followed the mid-August move by the Communications Commission of Kenya (CCK) to reduce the fee telecom providers charge each other to transmit calls across networks -- also known as the interconnection rate. The decision was intended to encourage telecommunication companies to lower the cost of calls.

So far, so good, at least from the consumer’s perspective. Since the rate reduction, a heated battle has ensued to control market share. Four mobile operators -- Telkom Kenya, Safaricom (the biggest in terms of customers and market value), Zain (Bharti Airtel) and Essar Telecom Kenya -- have been competing by offering the lowest rates. Zain was the first to reduce its call rates by nearly 50 percent to 3 shillings for calls across all networks. Kenyan mobile subscribers can now make phone calls for as little as 2-5 shillings per minute.

Government Steps In

The CCK action was advised by the UK-based consulting firm Analysys Mason, who were hired by the CCK to study calling rates in Kenya last month. In addition to encouraging telecom companies to lower call prices, the CCK was hoping to curb what it views as anti-competitive activity in the telecom sector. The CCK claims that big telecom companies are creating what is called the “club effect,” using interconnection charges to discourage their customers from calling other networks. The tactic is designed to pressure consumers to subscribe to the operator with the biggest market share.

"This pricing mindset is offensive to competition as it entrenches tariff imbalances in favor of large operators," said CCK director Charles Njoroge.

The conventional wisdom is that high interconnection costs lead to high mobile prices, thus making mobile communications unaffordable to citizens. While some have questioned the direct link between the two, several other African nations have also sought to lower these rates to bring down costs for their citizens. South Africa and Nigeria have introduced lower interconnection rates. The Zambian government has reportedly given powers to the Zambia Information and Communication Technology Authority, the sector regulator, to fix the interconnection rates.

Benefits of CCK’s Action

As the telecom giants fight over control of the market, the customers have been the ultimate winners. Njoroge said the reduction of the interconnection rates and the calling rates will ensure a level playing field for all operators and guarantee benefits to consumers.

"If calls are cheaper, it means more people will be able to afford mobiles because the cost is low and people will be able to call more so there should be growth in voice and SMS traffic. I am impressed that mobile operators are finally passing on the benefit to the consumers," said Njoroge.

The CCK said the interconnection fee will be further reduced by 2013, before being eventually scrapped by January 2014.

Fears from Industry

One industry player has raised a red alert over the sustainability of the new calling rates after the price wars end. Telkom Kenya’s CEO Mickael Ghossein has said that it will be difficult to make any profit under the new regulations. With SMS text messaging, in particular, Ghossein worries his company will actually lose money.

According to Telkom Kenya’s analysis, if it were to charge 3 shillings for off-net (off network) calls, the firm would be left with a net margin of only 3 shillings before paying employee salaries and other costs, because of taxes and interconnection and other fees.

“We can easily close shop if we charge less than 3 shillings for off-net calls. The market is in a big mess. What other players are doing is not professional,” said Ghossein.

Njoroge disputes the fear that the CCK’s decision to regulate the prices will slow growth in the telecom sector. He insists it will spur growth and benefit consumers by ensuring they get better services.

“As you price-regulate, it doesn’t mean that you are going to restrict the market. If you look at the Asian countries the prices are very low, yet they are able to connect a million people a day,” he explained.

Are the Low Costs Sustainable?

Once the price wars end, the CCK is confident that operators will not revert to their old and higher rates. The CCK will monitor operators by requiring them to report their rates on a regular basis. Mobile subscribers now have many choices, thus operators will have to keep rates low to retain their customers.

In addition to the current price regulation, telecom operators are bracing themselves for the end of anti-competitive tactics. In the next three months, the CCK announced it will begin implementing measures to curb anti-competitive tactics outlined in the Kenya Information and Communication Act of 2010.

With the current price wars and number portability on the horizon, subscribers will be able to migrate from one network to another, depending on their preferences. The next wave of competition is expected to shift to the quality of the network, value added services and broadband.

Related Links:

National Survey Findings on Mobile Communications in Kenya

Big Boost for Zimbabwe’s Mobile Network

Kenya’s Referendum Shaped By Technology

Mobile Apps and Development: Getting from Pilot to Scale

Dinfin Mulupi is a business journalist based in Nairobi, Kenya.
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