The cost of calling across mobile phone networks in Kenya is expected to remain unchanged as the Communications Commission of Kenya fails to implement an intended cut on interconnection fees.

According to a new research note by Morgan Stanley investment analysts, “there is scope for a lengthy, or permanent, delay” in the mobile termination rate— the fixed charge on calling across mobile networks.

With the greatest share of mobile subscribers, this state of affairs could push up Safaricom’s earnings before tax as it is a net receiver of interconnection revenues.

A delay is also likely to discourage more aggressive tariff reductions from Safaricom’s competitors, Airtel, Telkom and Essar.

(Read: Airtel faces off with Safaricom over network fees)

The analysts underscore that the telecoms sector is likely to continue on a stable path after a rocky two years, which saw the MTR drop 50 per cent and headline tariffs fall 75 per cent, even as foreign exchange volatility and inflation made it difficult to turn a profit last year.

The termination rate has been held at Ksh2.21 ($0.03) for a year now. The proposed cut to Ksh1.60 ($0.02) hit a snag as the mobile phone players failed to agree with Airtel calling for a rate of Ksh1.44 ($0.01).

Safaricom, the largest operator, will be the beneficiary of a higher termination rate since it has more incoming calls from other networks.

Safaricom’s half-year ending March 2012 was “stronger than expected”, and in this half-year, the company is expected to post a 2.6 per cent increase in average revenue per user in the voice segment due to higher tariffs, though the bulk of its growth will still be driven by data and mobile money, expected to grow 20 per cent.

The analysts remain cautious on the outlook for consumer spending and inflation, especially as the country gears up for a general election in March next year. The note states that while a repeat of the currency turmoil witnessed in 2011 is “unlikely”, telecoms are still indirectly exposed to currency fluctuations through diesel costs.

The regulatory framework, too, is a cause for proceeding with caution. “Partly due to material industry losses and recent actions, we do not expect an escalation of recent price wars in Kenya. However, should an MTR glide path be unexpectedly lowered, this could encourage competitors (especially Airtel) to target Safaricom’s 65 per cent subscriber market share,” say the analysts.

With an estimated 20 per cent of GDP now flowing through the M-PESA mobile money system, the analysts note that there is “some threat of greater regulatory interference”, although there are no current plans to alter the framework.

(Related editorial: CCK board must act with speed on new calling rates)