Safaricom against connectivity rate plan

January 18, 2011
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, NAIROBI, Kenya, Jan 18 – Safaricom is now calling on the government to discontinue the implementation of the \’glide path\’ guidelines which provide for the gradual reduction of mobile interconnection rates over the next three years.

Chief Executive Officer Bob Collymore on Tuesday warned that continued implementation of the rules by the Communications Commission of Kenya (CCK) would have dire implications such as reduced taxation to government and job losses which would affect the sector and the economy in general.

"I do not believe that we should continue with the glide path. People need to forget about it because we have seen how some of the players behave. Let the industry continue to find its natural place," he told Capital Business.

The glide path was adopted by CCK in August last year when it first imposed a cut in the termination rate by 50 percent to Sh2.21 and through which it hoped to see a progressively decline of this rate by 35 percent, 20 percent and 15percent annually in 2011, 2012 and 2013 respectively.

The intention was to have the interconnectivity charge stabilise at Sh0.87 by 2014.

The imposition of this price cap triggered a price war which has only gotten fierce in the last few months as the operators try to outdo each other and seize a bigger market share.

This erosion of prices has seen Kenya placed second after the Democratic Republic Congo (DRC) in the number of countries that have the lowest mobile prices in Africa.

Going by what happened in DRC where a price decline forced operators to decommission base stations and had the multiplier effect of reducing revenues to the government; this is not a positive development.

Critics have argued that investments in infrastructure development in the sector so as for instance to improve the quality of service might be affected if good returns are not guaranteed.

Already, a Sh6 billion to Sh8b drop in tax revenues is expected from the telecommunications industry this year and this figure might even be higher in coming years if such policies continue to be implemented.

"That\’s a big hole for the government to fill especially at a time when five million people are starving.  The government has a responsibility to save these people," he said.

The responsibility of the government also lies in protecting employment opportunities which Mr Collymore argued would be lost if this business model is sustained.

"Could we move to Sh1 (per minute)?" Yes we could but what would the consequences of that be? It would mean that we would start exporting jobs in call centres, in network management in IT from Kenya to Asia," he stressed.

While maintaining that Safaricom is not threatened by competition, the CEO held that the firm would not respond to their rivals by effecting similar price cuts.

Doing so he argued would be a wrong business move that would not only impact the company\’s profitability in the long run but also the shareholder value. Ultimately, it could mean that Safaricom would have to issue a profit warning.

"We are more experienced in this sector than any other player because we have been around for a long time and we have made a success of it. We know how much it cost. Sh1 is below cost and that would not be doing the 750,000 shareholders or our employees any justice," he stressed.

But while the price wars have had a negative impact on Safaricom\’s voice revenues, Mr Collymore said the firm was leveraging on the performance of its data segment, which he said they are happy with.

Despite these challenges, the telecommunications solutions firm plans to invest Sh23billion this year to improve the quality of its network.

Safaricom has started running technical tests of the fourth generation network which offers super fast download speeds, which Mr Collymore said is a testimony of the company\’s intent to continue investing in the future of the country.

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