Lower Mobile Termination Rates Put Safaricom’s Interconnection Income Under Pressure

In the language of telecom regulation, the phrase sounds bureaucratic. A few cents trimmed from the cost operators charge each other to complete calls. A phased reduction stretching across 4 years. Filing deadlines, amended contracts, a glide path that ends in 2029.

Yet the latest decision by the Communications Authority of Kenya does something more structural. It interferes with one of the mechanics that has helped determine how Kenya’s telecom market distributes advantage.

The regulator has lowered the mobile termination rate from Sh0.41 per minute to Sh0.37 beginning March 1, 2026. Further reductions are already scheduled: Sh0.35 in 2027, Sh0.33 in 2028, and Sh0.30 by March 2029.

Technically it is a wholesale price. Consumers rarely see it. The public debate tends to move elsewhere, toward bundles and data offers. But wholesale charges often shape the terrain beneath retail pricing. Over time they influence who earns money from calls and who pays.

For Kenya’s largest operator, the consequences arrive in arithmetic rather than headlines.

The mathematics of a dominant network

When a customer on one network calls another network, the originating operator pays the receiving operator a termination fee. The rule applies regardless of brand or device. It is simply the cost of completing the call on a different infrastructure.

Consider the structure of Kenya’s mobile market.

Safaricom holds roughly 61 percent of subscribers. Rivals such as Airtel Kenya and Telkom Kenya share the rest.

This imbalance produces an uneven flow of calls. Many Airtel customers dial Safaricom numbers. Telkom users do the same. The reverse happens less frequently simply because the subscriber base is smaller.

The result is predictable. Safaricom collects more termination payments than it sends out. In industry language it is a net beneficiary.

Financial disclosures provide a glimpse of the scale. In the year ending March 2025, Safaricom recorded Sh4.7 billion in interconnection revenue. A year earlier the figure stood at Sh5 billion. The drop followed a previous regulatory reduction that pushed termination rates down from Sh0.58 to Sh0.41 per minute.

Interconnection revenue still accounts for roughly 1 percent of Safaricom’s total earnings. Data services and the mobile money platform M-Pesa dominate the balance sheet. Yet the principle matters. Wholesale call fees have long been one of the invisible advantages attached to scale.

When the regulator lowers the rate, the largest network loses the most from each call that ends on its system.

The long argument about competition

Kenya’s termination rate debate has been running for nearly 2 decades. The regulator has revised the fee several times. Reviews occurred in 2007, 2010, 2021, 2024 and now again in 2026.

Each revision returns to the same question. At what level should the price sit so that operators recover infrastructure costs without distorting competition?

International institutions have taken interest in the Kenyan case. In December 2025 the World Bank argued that the Sh0.41 rate remained far above the underlying cost of delivering a call. The institution suggested levels closer to Sh0.06 could better reflect efficient network economics.

Its concern centered on what economists call the club effect.

When calls within a single network cost far less than calls across networks, subscribers gravitate toward the largest operator. The larger the network becomes, the more attractive it appears to new customers. Market concentration reinforces itself through daily calling habits.

Lower termination rates reduce the penalty for calling another network. Over time that narrows the price gap between on-net and off-net communication.

The regulator’s latest plan stretches the adjustment across 4 years. The pace is measured. The endpoint remains far above the levels some analysts consider cost reflective.

Still, the trajectory is clear.

How regulatory caution entered the picture

The present glide path reflects a compromise rather than a decisive regulatory stroke.

Earlier proposals attempted to push the termination rate as low as Sh0.12 per minute. Industry resistance followed, particularly from Safaricom. A steep reduction would compress a stream of wholesale revenue that has persisted for years.

Regulators often encounter this dilemma. Lower fees can improve competitive balance but may unsettle investment planning, especially in a market where operators continue to expand 4G coverage and prepare for broader 5G deployment.

Gradual adjustments therefore become the practical route. The regulator trims the rate incrementally while giving operators time to recalibrate financial forecasts.

The March 2026 change to Sh0.37 reflects that approach. It is not abrupt. It is not dramatic. It is steady and administrative.

Yet small regulatory increments accumulate.

The invisible economics behind a phone call

Retail voice prices have been sliding across many markets for years. Messaging apps and internet calling have eroded the central role of traditional voice services.

That trend sometimes masks the importance of interconnection charges. Even when consumers rely on data-driven communication, traditional voice traffic remains substantial in markets where feature phones and prepaid users dominate.

Kenya fits that description. Millions of customers still place standard voice calls every day. Each one moves through a chain of network agreements that few subscribers ever notice.

When Safaricom customers call another Safaricom user, the operator keeps the entire revenue stream. When the call ends on another network, a portion of that revenue leaves the company. The same rule applies in reverse for competitors.

Lowering the termination fee reduces the size of those transfers.

In theory, operators could respond by adjusting retail prices. In practice the connection is less direct. Retail pricing depends on bundles, promotions, data packages, and competitive tactics that extend beyond voice calls.

Wholesale fees simply alter the financial plumbing underneath.

Contracts, compliance, and the legal mechanics

The regulator’s decision requires more than a public announcement.

Operators maintain interconnection agreements that define how their networks exchange traffic. Each contract includes the termination rate applied to cross-network calls. When the regulator changes the cap, those contracts must be amended.

Companies therefore sign a legal document known as a deed of variation. It modifies the relevant clause without rewriting the entire agreement.

Once the document is executed, the revised contract is filed with the regulator. This administrative step ensures that every operator follows the same regulatory ceiling.

In other words, the policy becomes enforceable through paperwork rather than speeches.

Safaricom’s broader revenue engine

For all the attention around termination rates, the financial stakes remain modest compared with the rest of Safaricom’s business.

The operator’s growth has moved decisively toward data consumption and financial services. M-Pesa alone contributes a significant portion of operating income. Mobile data traffic continues to expand as smartphones proliferate and streaming services spread.

Voice revenue still exists but no longer dominates the ledger.

That context explains the restrained reaction to the latest regulatory move. The company faces a decline in interconnection income, yet the proportion of total earnings involved remains limited.

Still, market structure matters. Wholesale charges once formed a subtle reinforcement of Safaricom’s scale advantage. The regulator’s incremental reductions chip away at that reinforcement.

A telecom market still negotiating its balance

Kenya’s telecom sector has spent years negotiating the relationship between market dominance and regulatory correction.

Safaricom built its lead through network investment, early adoption of mobile money, and brand loyalty that extends deep into rural counties. Competitors have attempted to close the gap through aggressive pricing and expanded coverage.

Regulators now operate in the space between those forces. Too much intervention risks discouraging investment. Too little leaves smaller operators facing structural disadvantages that persist across billing cycles and network traffic.

The termination rate glide path represents one attempt to calibrate that balance.

By March 2029 the fee will stand at Sh0.30 per minute. Whether that level truly reflects the cost of delivering a call remains open to debate. Another review is already planned once the final rate takes effect.

The argument about telecom competition rarely ends. It simply reappears in new regulatory documents, often wrapped in the technical language of interconnection fees.

Behind that language sits a familiar question. In a market where one operator reaches most of the population, how much correction should regulation attempt and how much should competition resolve on its own.

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