Competition Could Lower Mobile-Phone Costs in Kenya

Kenyan mobile-phone users are hoping the entry of a new company, Econet Wireless, and consolidation of services by Telkom Kenya will offer competition and decreased prices for phone calls.

The current GSM (Global System for Mobile Communications) service providers, Safaricom and Celtel, are demonstrating duopolistic tendencies, with each refusing to lower cross-network call charges. Calls within the networks remain relatively cheap compared to calls from one network to the other.

Safaricom dominates the market with an 80 percent share, while Celtel has 20 percent. Telkom Kenya has a small market share with its CDMA (Code Division Multiple Access) technology, and has yet to launch GSM service. Econet is set to roll out operations by July.

Cross-network calls cost an average of twice as much as internal network calls, discouraging users from calling across networks, according to John Walubengo, an ICT expert who led an online discussion on GSM interconnectivity.

Safaricom charges between Ksh14-20 (US$0.20-0.30) per minute for internal calls, compared to Ksh 20-30 per minute for cross-network calls. Celtel, on the other hand, seems to keep both its internal and cross-network tariffs the same, ranging from Ksh 6-24 per minute, depending on whether the call is made in peak or off-peak times.

The Communications Commission of Kenya (CCK) has declined to intervene in the price war between the two players. The operators should reduce the interconnection charges, said Charles Njoroge, CCK director for competition, tariffs and market analysis, in an interview.

Alex Gakuru, chairman of the Kenya ICT Consumer Association, said that the carriers are exhibiting noncompetitive practices, and consumers can only hope that the entry of new competition will lower costs.

The permanent secretary in the Ministry of Information and Communication agreed.

"If it is established that the dominant players are undercutting small players, then the regulator must intervene to protect growth of a competitive environment," Bitange Ndemo said. The small players are those operators getting into the market now and with less than 500,000 subscribers.

Safaricom and Celtel have defended the decision to lower internal call costs and argued that the high cost of calls is due to the 26 percent tax imposed by the government.

However, Walubengo said there are two issues involved in the cross-network tariff behavior.

The first one, based on Celtel's synchronized cross-network and internal network tariffs, suggests that the actual interconnection costs are immaterial -- engineering and administrative costs for connecting and maintaining the link between the two networks is insignificant, and that is why Celtel chooses not to factor them into its inter-network tariffs. Whether a subscriber calls internally or across networks, the cost is the same.

The second issue is that with Safaricom's cross-network tariff, the cost of maintaining across-network links is twice as high as for internal links.

"The truth could lie in between, since both players could be playing with cross-network tariffs rates in order to gain or retain market share, thus hiding the true cost of interconnection," Walubengo said.

But Walubengo noted that the apparent high costs of calling across the networks may not be due to high interconnection rates between the players, but due to other factors such as the tax on mobile calls and low competition.

During the first phase of interconnection cuts implemented in 2007, CCK imposed a maximum interconnection rate of Ksh30 across all networks. Prior to a telecommunication-networks cost study in 2006, mobile charges across networks were as high as Ksh50.

But before competition kicks in and market forces regulate the market, Gakuru suggested that subscribers should invest in duo-SIM (Subscriber Identity Module) phones to take advantage of offers from the two companies.

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