New Mobile Termination Rates affected Safaricom’s half-year results

In August this year, the Communication Authority (CA) introduced new Fixed and Mobile Termination Rates (FTR and MTR). These are prices that mobile operators charge each other for connecting customers on either network.

The new rates effected by CA and adopted by Safaricom, Airtel and Telkom dropped from Sh0.99 per minute to Sh0.58 per minute.

Safaricom now says the new rates led to the loss of interconnect revenues which dropped by 13.6%, to stand at Kshs 2.9 Billion. The company confirmed that profits fell by 18.4 attributing this to the heavy costs incurred during the company’s entry into Ethiopia.

“We’ve only had a two months’ impact on MTR because the new rate was introduced in August. If you annualize that, it will be Sh3 billion impact on our business. It has a substantial impact on our business,” Safaricom CEO Peter Ndegwa said, shifting the blame to the industry regulator, the Communications Authority for reviewing MTR charges downwards. Safaricom said it lost Sh470 million in revenues since August following the adjustment.

But Why do FTR/MTR charges have such a huge impact?

In a report from the 2022/2021 financial year, 95% of Safaricom’s total traffic was on-net and only 5% was off-net. On the other hand, 80% of Airtel’s total traffic was on-net, while 20% was off-net.

Airtel’s off-net minutes in the quarter ending June 2020 was slightly over one billion minutes, Telkom had 200 million minutes, and Safaricom had approximately 500 million minutes’ worth of off-net traffic. The total off-net traffic from all operators stood at 1.7 billion minutes.  Airtel to Safaricom calls accounted for the largest chunk of off-netting calling, standing at about 1.4 billion minutes.

From the above outlook, Airtel and Telkom clearly paid a huge amount in MTRs to Safaricom. When the Communication Authority reviewed the rates downwards in August, Safaricom automatically lost a huge chunk of its revenue.

The CA says that the Mobile Termination Rates are interim, and would be reviewed within 12 months.

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Simon W Nderitu

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