Kenya’s largest mobile service provider, Safaricom, is facing a significant financial blow following a recent decision by the Communications Authority of Kenya (CA) to cut mobile termination rates (MTR) by 41.4%. MTRs are the charges that mobile service providers levy on other operators for terminating their voice calls on their grid. Reduction in rates, from Sh0.99 per minute to Sh0.58 per minute, has resulted in a significant drop in interconnect revenue for Safaricom.
During the half-year ending September, Safaricom saw a decline of 470 million Kenyan shillings in interconnect revenue, and the company expects the impact for the full financial year to be a loss of 2 billion Kenyan shillings. It translates to an average loss of 250 million Kenyan shillings per month, setting the company up for a potential loss of 3 billion Kenyan shillings in the financial year ending March 2024.
Safaricom is the major beneficiary of MTRs due to its leading market share in the voice business and the reduction in rates has resulted in a net gain for Safaricom’s rivals, including Airtel Kenya, Telkom Kenya, and Equitel. These companies will now save on the fees they were previously paying to Safaricom.
The reduction in MTRs will add to the already declining voice revenue for Safaricom, which is facing pressure from the growth of mobile data usage and the adoption of Voice over Internet Protocol (VoIP) services, such as WhatsApp, Skype, Zoom, and Facebook Messenger. Additionally, text messaging revenue is also facing pressure as customers turn to these VoIP platforms.
Mobile termination rates have been declining within the country for the last years. Rates have plunched from Sh2.21 per minute in 2010 to Sh1.44 in 2011 and Sh1.15 in 2012. This trend continued with a cut to Sh0.99 in 2013, before last year’s review. However, the reduction in termination rates has yet to trigger any downward pricing among the country’s telecommunications companies, which could have further compounded the pressure on voice revenues.
Safaricom’s earnings from mobile termination rates were originally set to fall by a much steeper margin based on an earlier move by the Communications Authority to reduce MTRs to Sh0.12 per minute. However, Safaricom challenged the decision at the Communications and Multimedia Appeals Tribunal. The parties ultimately reached a middle ground and filed consent, resulting in the less severe reduction to Sh0.58 per minute.
With the recent reduction in mobile termination rates in Kenya having a significant impact on the financial performance of Safaricom, the country’s largest mobile service provider. The reduction in rates, along with the growth of mobile data usage and the adoption of VoIP services, has resulted in a decline in voice and text messaging revenue for the company. While this reduction in MTRs may benefit Safaricom’s rivals, the company will have to find ways to adapt and overcome this financial setback.