Kenya - Safaricom CEO says "voice is dead" with the outbreak of a mobile price war

[business daily] Voice is dead." In those three words, Telkom Kenya CEO Mickael Ghossein summed up the effect of the latest price war on the telecommunications industry.

I think he put it politely, because I firmly believe the industry has lost its collective mind.

Millions of consumers may be gleefully rubbing their hands at the prospect of paying as little as Sh2 for calls across networks, but we need seriously examine the impact of lower calling rates on our economy.

According to State data, telecommunications provided Sh541.6 billion in 2009 of the country's Gross Domestic Product (GDP) last year, a 29.5 per cent jump in contribution, signalling the growing influence of the sector on the economy.

Currently, the telecommunications business employs over 200,000 people, who all stand to be affected as tariffs continue to descend to unsustainable rates, and players seek to lower costs in order to protect their businesses.

With individual contributions averaging Sh4 billion every year, mobile firms have topped the list of biggest donors to the country's tax kitty over the last five years.

It may not be a very popular view right now, but we need our telcos to make money, and to do that, they need to charge us more than what is being currently proposed.

Largely, tariff reductions have been triggered by a directive from industry regulator, Communications Commission of Kenya (CCK) who placed a Sh2.21 tag on interconnection fees among operators.

Of the Sh2.21, the operators will plough back 26 per cent to the government in the form of taxes, leaving them with just over Sh1 from every minute to maintain their billion shilling networks, keep people employed in the sector, and roll out more innovations.

Many operators are banking on recruiting many consumers to make more frequent calls so as to offset to the lower rates charged; but current statistics reveal that this has not happened yet.

Data suggests that Kenyans call for an average of 75 minutes every month, while their counterparts in India spend an average 500-600 minutes per user per month, rendering the economies of scale argument a little pre-mature.

The last time this happened in 2008, tariffs dropped from Sh15 to Sh8, and although some companies gained millions of new subscribers, these add-ons were eventually lost due to the fact that many subscribers retained their old lines, and returned to their old network due to the pull of value-added services.

The devastating effect on revenues from that event is still being absorbed by players in the sector, and along comes another price cut.

Lastly, consumers should not expect prices for internet services to come down any time soon.

With operators in the telecommunications space (who make up the biggest number of investors in undersea fibre optic cables) stripped of their ability to make money from voice services, expect them to ring-fence revenues from data in the short to medium term, meaning there will be marginal price cuts for data.

In Defence of Higher Mobile Phone Call Tariffs