Consumers of telecommunication services will have to wait longer for a further drop in call costs after President Kibaki once again stopped the planned drop in termination rates.
The President’s intervention, which amounts to political meddling in the work of an independent state organ, has for the second time in as many years stopped the industry regulator, the Communications Commission of Kenya (CCK), from lowering the Mobile Termination Rate (MTR).
MTR is the price that operators pay each other for calls terminating in their networks from outside and ultimately determines call costs.
Mr Kibaki, who has been acting on behalf of two telecoms operators, issued the directive in a letter to Information permanent secretary Bitange Ndemo, stating that there should be no change in the MTR until a fresh study of the same is carried out.
“This office has received communication dated July 11, 2012, from your minister authorising the acting director-general of CCK to effect the new MTR before conducting a study that will bring this matter to rest,” read part of the letter to Dr Ndemo and signed by Nick Wanjohi, the President’s private secretary.
“I am directed, therefore, to inform you that until an all-inclusive study of costs and other relevant issues is undertaken and forwarded to this office for His Excellency’s consideration, the status quo should remain,” Prof Wanjohi says.
Mr Kibaki’s intervention on behalf of Safaricom and government-owned Telkom Kenya came even as his co-principal, Prime Minister Raila Odinga, jumped into the CCK’s regulatory mandate with a similar directive on behalf of yet another big business – Royal Media Services.
In a letter dated June 14, Mr Odinga wrote to the CCK director-general asking him to withdraw the notice he had published of intention to revoke frequencies that the media house is accused of acquiring irregularly.
“The Prime Minister has directed that you immediately withdraw the notice referred to above and obey the court order referred to above,” Mohamed Isahakia, the permanent secretary in the office of PM, said in a letter to CCK.
“This means you do not at all interfere with any frequencies and licences issued and being used by Royal Media Services Limited as contained in your notice.”
Royal Media Services declined to comment on the matter, saying it is before court. The two interventions are seen as clear examples of illegal executive interference in the running of State agencies to the detriment of the public good.
Mr Kibaki’s directive effectively exposes him as working with big business to the detriment of consumers who have been denied lower calling rates.
Mr Odinga’s intervention also harms the public good by stalling orderly management of frequencies that are a national resource.
The MTR dropped from Sh4.42 in June 2009 to Sh2.21 in July 2010 and was to drop to Sh1.44 in June last year before the President stalled it for one year following intense lobbying by Safaricom and Telkom. Senior CCK managers refused to comment on the letters.
Industry sources said the President’s latest intervention in the MTR controversy was at the behest of Telkom Kenya, which sought and got State House’s backing.
Telkom and Safaricom are opposed to the planned drop in MTR, citing the negative impact that a similar move had on industry revenues two years ago when Airtel rode on the lower MTR to pull all operators down the call costs ladder.
Voice call tariffs dropped by half from Sh6 per minute to Sh3 per minute in a move that reversed market leader Safaricom’s profit growth for the first time since it was founded in 2000.
Telkom’s Kenya’s chief executive Mickael Ghossein confirmed that the firm had demanded a fresh study before the next MTR review, but denied seeking State House’s backing on the matter.
“We only sought State House support in 2011, when we asked that the MTR review be shelved until a fresh study is conducted to determine the economic and social impact of the resulting low tariffs,” he said. “To date, no study has been done to this end and at Telkom Kenya, we are looking to have anti-dumping (selling under the running cost) mechanisms in place to stop the destruction of the telecom sector and its value.”
Mr Ghossein said that even at the current MTR, the operators’ margins are way below the recommended 30- 40 per cent. That is the margin range that operators say would enable them absorb the heavy capital and operational expenses required to run the business and make profit.
“Lower tariffs are good for consumers, but the truth of the matter is that we are not making any money. Some operators are out to kill this industry by offering free calls. They have now forced us to go that way,” said Mr Ghossein.
Operators like Essar have argued that the status quo only benefits the market leader and hurts the smaller operators who have to pay a significant part of their call revenues to Safaricom – the dominant player with 65.3 per cent of the mobile phone subscriber base.
Airtel has 15.3 per cent or the market, Orange 10.6 per cent while Essar yu trails with 8.7 per cent.
The mobile operators had on May 29 struck a deal that was to see the termination rate fall to Sh1.60 a minute on July 1 in what was to end the one-year freeze and reduce the cost burden on smaller operators.
The operators, however, remain deeply divided with Airtel leading the drive for a lower rate of Sh1.44 while Telkom Kenya leads those in favour of the Sh1.60, on condition that the regulator caps minimum calling rates at Sh4 a minute.
Mr Odinga’s demand that the industry regulator confirms in writing to Royal Media Services that the notice has been withdrawn and that it will not take any further action until the dispute is resolved adds a new dimension of micro-management to the political interference stunt.
CCK had on May 17 given unauthorised users of broadcasting spectrum a 30-day notice to surrender the frequencies or face the law. The deadline expired on June 17.
The regulator wants all frequencies operated under a valid licence, and adherence to the set conditions.
“Operation of radio services without a licence is an offence that attracts a fine of Sh5 million or imprisonment for a term not exceeding three years or both,” CCK had said in its notice.
Royal Media is accused of operating 24 unauthorised FM broadcasting frequencies on which it runs its flagship Citizen Radio, and vernacular stations Egesa, Chamge, Ramogi, Mulembe, Inooro, Bahari and Muuga FM stations.
The regulator insists that the frequencies must be repossessed because the unauthorised users have been duly informed to cease operating them without success. CCK is the body charged with the responsibility of managing the country’s frequency spectrum resources.
Dr Ndemo refused to comment on the issues denying knowledge of the two letters.
“CCK should be left alone to do its work because interfering will only weaken the regulator,” Dr Ndemo told the Business Daily last month.