Prime Minister Raila Odinga
I did undertake last week to address, more comprehensively this week, various issues around mobile telephony Sector. I also informed the House of a planned meeting with all mobile phone operators to discuss trends in, and prospects for the Sector.
I am pleased to report to the House that I did have a meeting yesterday with all mobile phone operators together with all Government Departments concerned with the Sector. The meeting established a Task Force that will deal with the following seven (7) issues and report back in two weeks:
· The Glidepath for Call Termination Charges;
· Universal Access Fund;
· Mobile Number Portability;
· Infrastructure Vandalism including Fibre Cuts;
· Money Transfer platform outside the Banking System;
· Spectrum/Frequency Charges; and
· Sharing of Infrastructure Facilities.
I will address these issues in some depth later in this Statement.
Mobile telephony has removed the barriers of time and distance to commercial activities. Access to affordable communication has enabled millions of Kenyans create real wealth in their businesses. This has been made possible by increasing affordability of mobile telephony services. The average call tariff was Kshs.17 per minute in 2002. Today it is Kshs.3. The cost of a handset in 1997 stood at a high of Kshs.150,000/-. Today it is as low as Kshs.1,000/-. In 2000, airtime usage charge stood at Kshs.60 per minute. Today, it is between Kshs.1 to Kshs.3. These factors have increased the adoption of mobile telephone technology by a greater majority of our people. Mobile penetration has grown from fifteen thousand (15,000) users in 1999 to twenty-four million (24 million) users in 2011, with national penetration now standing at 60%.
Let me turn to the issue of "price wars" amongst the four operators. In doing so, allow me to first distinguish between market segments that are regulated by market forces of supply and demand and those that by their dysfunctional nature, have to be regulated by a Regulator. A market segment is competitive if innovation and efficiency is a function of supply and demand supported by multiple players. However, in a market that exhibit natural monopoly tendencies or market failures (lack of competition) such as the wholesale mobile call termination market, incentive regulation by the Regulator remains the only viable tool to eliminate barriers to competition.
operators. If not regulated, this scenario leads to monopoly rates and market distortion by a dominant operator. Termination charges are payable for using another operator’s infrastructure. Termination charges are not payable in respect of calls made within one network. If termination charges are high, subscribers find it expensive to call outside their network. The incentive to join another network is also limited. Competition is therefore curtailed.
The communications Commission of Kenya (CCK), after a participatory expert study, developed a glide path for the gradual reduction of termination charges from KShs.4.42 in 2009 to Kshs.2.21 in 2010, then to Kshs.1.44 in 2011, Kshs.1.15 in 2012 and Kshs.0.99 in 2013.
How has the industry performed since the 50% reduction of the interconnection rates in September 2010? I table a "Quarterly Sector Statistics Report" by CCK published in January 2011 which illustrates the following in respect of the fourth quarter of 2010 after the reduction:
· growth of 9.5%, the highest growth recorded over the last three quarters of 2010;
· Mobile tariffs have continued to decline with pre-paid subscribers being charged an average of Kshs.2.65 for on-net calls per minute against Kshs.2.50 for post-paid subscribers. This is 33.4% reduction for pre-paid subscribers and 55.5% for post-paid subscribers;
· Voice Traffic across mobile networks increased from 187 million minutes to 405 million minutes;
· Roaming-out voice traffic increased from 19.8 million minutes to 24.3 million minutes while Roaming-in voice traffic increased from 4.49 million minutes to 7.47 million minutes; and
· The number of internet/data subscription grew from 3.09 million to 3.2 million.
turn increased accessibility to mobile telephony by more Kenyans.
As I said last week, VAT and Excise Tax collections on airtime have declined with the reduced tariffs. However, this is compensated by other macro-economic variables such as enhanced access and affordability of communication services to the poor, reduction in inflation, reduction in the cost of doing business and increased attractiveness to the other business such as BPOs.
Global industry trends show that calling prices tend to decrease as the volume of data exchange increases. Revenues in the mobile telephony sector tend to decline from voice and increases from data and value addition services as a market matures. Kenya is no exception.
The case of Sri Lanka was raised in the House last week.
(compared to Kenya at 60%) driving penetration is not one of the Regulator’s key focus.
Another issue regarding outsourcing of customer care services by Safaricom was raised last week. Safaricom has invested heavily in its own call centre with 1,200 employees. Its competitors on the other hand have outsourced their customer care services to KenCall (a Kenyan company), Horizon (a Kenyan company), and
In Sri Lanka, there was no paid mobile termination regime, where revenues were kept by the originating network. (Sender Keeps All). With no mobile termination payment in place there was no compensation for operators for calls terminated in their network by others.
In light of the above, operators threatened to stop interconnection, hence the Sri Lankan Regulator intervened and introduced paid mobile termination regime and a floor on retail prices. The scenario is very different in Kenya which has been having a paid interconnection regime for a very long period. Operators get paid for interconnect fees for all calls terminated on their network by other operators.
Spanco (an Indian company but setting up a branch in Kenya). It is clear that outsourcing will not necessarily lead to job losses as the call centres are in Kenya and the employees are Kenyan.
Let me now turn to the future of the Sector. On April 1, 2011, mobile number portability will be launched in Kenya. This will allow customers to freely change networks without changing numbers. The Task Force will advise on the reasonable mobile number portability charge as well as the off-air period to be allowed to effect such portability.
As regards mobile money transfer services, each operator currently operates its own unique platform with an independent settlement mechanism, all outside the banking system. The Task Force will recommend how mobile banking platforms can be integrated to allow for inter-operator transactions and networking with the banking system. However, this must not undermine the speed and the low cost by which consumers are able to liquidate the e-value on their mobile handsets.Presently, mobile operators largely own and operate independent infrastructure assets such as towers. Sharing of such infrastructure facilities will reduce the cost of providing service to the consumers and translate in low tariffs. The Task Force will make recommendations in this respect.
Spectrum charges are presently set by CCK at the point of entry. The Government has been steadily reducing spectrum charges. The Government is considering basing such charges on a revenue sharing formula.The Task Force will also review the proportionality of the 0.5% charge on annual gross turnover of each operator for the Universal Access Fund. How to make the management of the Fund more inclusive, transparent and accountable will be explored.
Finally, the law is being reviewed to institute stiffer penalties including custodial punishment for persons found guilty of infrastructure vandalism such as theft of copper wires and cutting of cables. The Kenya Police have been sensitized on the problem.
Local Authorities who grant way leaves have been instructed to ensure the security of the cables.
Rt. Hon. Raila A. Odinga, EGH, MP
PRIME MINISTER
Wednesday, February 23, 2011
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