Kenya - Regulator to reduce interconnection costs between networks using a LRIC model

[the east african] Mobile phone interconnection rates in Kenya will be reviewed downwards. The UK-based Analysys Mason is conducting a network cost study which will form the basis upon which the new rates will be reviewed. The study, to be concluded this month and commissioned by the industry regulator, Communications Commission of Kenya, will examine various issues affecting mobile network providers' operations including interconnect rates or mobile termination rates being charged for calls across networks. In their survey and recommendation, Analysys Mason will take into account the Long Run Incremental Cost (LRIC), which is the forward projected incremental cost that can be accounted for by a company.

The LRIC model is used in telecoms regulation to determine how much competitor network providers pay for services provided by an operator who holds significant market power. The current rates were introduced by the CCK in 2007 and are modelled on an annual reducing pattern. In 2007, the fees stood at $0.08, in 2008 it stood at $0.07 and $0.059 in 2009.

The fee is applied across the board by all GSM operators regardless of the size of their networks or number of subscribers in the market, a position the less dominant operators say favours the market leader, Safaricom.

Compared with Safaricom, other network operators charge their subscribers relatively lower fees to call rival networks.

Some charge as low as $0.08, which means they benefit very little after deducting the interconnection fee of $0.059, 10 per cent excise duty and 16 per cent VAT.

Zain Kenya, Telkom Orange and Essar Telekom's YU say the model, referred to as symmetric mobile termination rates (MTR), is not sustainable in the local market.

"It does not offer a level playing field in a market where the dominant operator commands nearly 80 per cent of the market in terms of subscriber numbers," says Stephen Kiptinnes, Telkom Orange's head of regulatory affairs. Mr Kiptinnes adds: "Inevitably most calls will terminate on the dominant player's network meaning all other operators are net-payers to Safaricom."

Out of Kenya's over 19 million subscribers, Safaricom controls 78 per cent of the market, Zain Kenya has 17 per cent, Orange 4 per cent and Yu 1 per cent.

The operators want the CCK tocreate a level playing field which will help smaller players compete more effectively.

The model that would work in the Kenyan scenario, according to the operators, is the asymmetric MTR in which the dominant operator pays more for interconnecting to the smaller operators.

According to the International Telecommunications Union, mobile network operators set interconnection rates through negotiation and commercial agreements, with the industry regulator only acting as an arbitrator where parties fail to agree.

ITU's report titled "Trends in Telecommunication Reform 2009," notes that of the 19 African countries that took part in the 2009 tariff policies survey, 16 have imposed price controls on mobile termination rates.

Two countries - Benin and Burundi - apply the "bill and keep" interconnection model, while 13 of the countries studied use the "calling party network pays" regime for interconnect services. "Bill and keep" method means each network agrees to terminate calls from the other network at no charge.

Now CCK to Review Cost of Calling Other Networks