In a clash between revenue-threatening state regulations and business, East Africa’s telecom firms are facing a storm as Kenya moves to slash mobile phone interconnection charges and Rwanda implements new tariff rules.

Kenya government officials and telecoms executives met last week to resolve a dispute over the rates mobile phone operators pay each other for calls originating from rival networks. While in Rwanda regional operators were slapped with new regulations, a shift that could see them increase call tariffs to Rwanda.

Rwanda has adopted the International Gateway Traffic Verification System (IGTVS) aimed at strengthening  capacity to measure the quality of service of network operators, seal all revenue leakages, and accurately audit the revenue gained from incoming calls into the country.

The deadlock on Kenya’s rates has delayed the lowering of the charges to Ksh1.60 ($0.019) earlier planned for this month from the current Ksh2.21 ($0.025).  The policy shifts in the sector could define the profitability of the telecoms industry in the region, a sector whose era of super profits is threatened by higher operational costs and the ruinous price war that has been raging in the industry over the past few years.
In May, Safaricom announced a four per cent decline in its full year net profits to Ksh12.6 billion ($151.80 million) for 2011, the second successive time that the mobile phone company posted  a drop in net profits, underscoring the increasingly turbulent environment mobile firms are operating in.

No profits

Analysts at Morgan Stanley said that as big money firms such as Airtel continue to improve their network coverage and cut tariffs, East Africa’s telecoms industry will find it increasingly difficult to grow profits, highlighting their growing opposition to the government’s plan to reduce  tariffs in Kenya.

A meeting scheduled for June 20 failed to resolve the bitter dispute, and now the Ministry of Information is leading discussions between the Communications Commission of Kenya, the industry and Treasury to find common ground.

CCK had scheduled the rate to fall by this July, but mobile operators say the decision has to be informed by a study on the ideal industry rate, whose outcome is expected in September.

While Airtel and Essar (Yu), which have a smaller market share in Kenya, have been pushing to hold the rates at the lowest possible level, Safaricom had earlier written to CCK requesting that the cost study reflect the real situation of the economy and the cost of doing business, considering the changes in inflation and the foreign exchange rates

“The entire telecoms industry is a loss making industry; last year, three out of four mobile providers made losses,” said Nzioka Waita, Safaricom’s director of corporate affairs. “Kenya already has one of the top three competitive pricings in Africa, but the return on investment is very low. This is what we worry about,” he said.

CCK eventually intends to bring the interconnection rate down to Ksh0.87 ($0.01) over the next two years, but the Rwanda Utilities Regulatory Authority (Rura) seems to be going in the opposite direction, with a $0.22 tax per minute on all the incoming calls. From this tax, mobile phone operators will earn a $0.12 share, while a $0.07 levy will be for maintenance of IGTVS, and $0.03 as government revenue.

Rwanda argues that the system will help reduce fraud, ensure that consumers of telecommunications services in the country benefit from services being provided to them in the sector, and strategically position Rura in determining incoming and outgoing calls, and regulate the development of the telecom sector in the country.

As a result, regional telecom operators are reviewing their call tariffs upwards to cushion the additional costs of calls destined to Rwanda. MTN Uganda and Vodacom Tanzania have already raised their call tariffs to Ush840 ($0.33) and Tsh700 ($0.43), up from Ush295 and Tsh349.8 per minute, respectively. Uganda’s UTL, Warid Telcom, Airtel and Kenya’s Safaricom said they are also reviewing their tariffs before advising their customers accordingly.

UTL spokesperson Emmy Olaki said the operator has already called on business analysts to review its new tariffs. Mr Waita said Safaricom is currently reviewing its retail calling rates since the new surcharge will result in a general increase in retail prices by the operator terminating calls to Rwanda. “We remain hopeful that Rwanda will review this decision,” said Mr Waita.

Less calls

According to a Deloitte study conducted last year, the costs per minute to Senegal, Ghana, Congo Brazzaville, and Gabon rose by more than 50 per cent and the number of international call minutes terminated on the countries’ networks decreased since the surcharge was introduced in 2009. It also impacted negatively on the international competitiveness of those countries and drove up the cost of doing business at a time of global economic downturn.

UTL and Safaricom currently charge Ush450 ($0.18) and Ksh18 ($0.21) per minute across all networks in Rwanda and other networks in the East African region. Sector analysts told The EastAfrican that Rwanda’s decision to impose tax on the incoming calls is likely to reduce the number of calls into the country.

Sam Nkusi, former minister of ICT and a telecom expert in Rwanda, said it was not the right time for the country to introduce the tax. “Increasing tele-density should be the priority and it cannot be done by increasing tariffs,” Mr Nkusi said.

Mobile phone users in Rwanda currently stand at 4,508,666 million as of April this year, according to Rura, with MTN Rwanda alone having more than half of the subscribers. Other operators are Tigo and Airtel Rwanda.

Mikawi Khaledi, CEO of MTN Rwanda, said they have been forced to abide by the new regulation though they do not welcome the arrangement because all mobile phones users in the country will be affected.

By Christine Mungai, Isaac Khisa and Alex Ngarambe