Safaricom Will Lose Ksh2 Billion in Call Tariff Cuts

Safaricom projects to lose Sh2 billion in the financial year ending March 2023 after the Communications Authority of Kenya (CA) cut mobile termination rates (MTR) by 41.4 percent.

MTRs are the charges levied by a mobile service provider on other operators for terminating their voice calls on its grid.

The rate was in August cut from Sh0.99 per minute to Sh0.58 per minute.

The telco now anticipates a Sh2 billion impact in the financial year after experiencing a Sh470 million decline in connection income during the half-year that ended in September when the new prices were in effect for two months.

“Interconnect revenue has declined coming from the MTR impact that we have seen in the first two months of the year,” said Peter Ndegwa, CEO at Safaricom in a call with investors and analysts on November 11.

“The full-year impact of MTR this year, just on a direct basis, which is the interconnect revenue drop, is around Sh2 billion.”

Due to its dominant market share in the voice sector, Safaricom stands to gain the most from the MTRs compared to its competitors Airtel Kenya, Telkom Kenya, and Equitel.

The telco’s expected Sh2 billion loss over the next eight months amounts to an average loss of Sh250 million per month, setting it up for an annual loss of nearly Sh3 billion in the fiscal year that ends in March 2024.

The telco’s competitors would benefit from the lost revenue since they will save money by not having to pay as much to the company, which is listed on the Nairobi Securities Exchange.

Reduced MTR has added challenges to text messaging revenue, which is already under pressure from rising mobile data usage and customers switching to Voice over Internet Protocol (VoIP) services, as well as voice revenue, which is already declining.

WhatsApp, Skype, Zoom, and Facebook Messenger are just a few of the VoIP platforms that allow for calls over the Internet.

Downward pricing

From Sh2.21 per minute in 2010 to Sh1.44 in 2011 and Sh1.15 in 2012, MTR has been on the decline.

A further reduction of Sh0.99 was made in 2013 before the evaluation of the previous year.

The decrease in termination rates has not yet resulted in any telecom pricing cuts, which may have put more pressure on voice revenues.

Based on the earlier decision by CA to reduce MTR to Sh0.12 per minute, Safaricom’s earnings from MTR charges were expected to decline by a far greater margin.

The Communications and Multimedia Appeals Tribunal was scheduled to rule on the situation before the parties struck an agreement and submitted consent, but Safaricom contested CA’s action there.