Third Eye

Review termination rates to boost telephony services

Friday, August 13th, 2021 00:00 |
Digital economy. Photo/Courtesy

Telecommunication companies play a critical role in engendering digital inclusion.

Their contribution to the economy is well-acknowledged considering that telcos have facilitated digital business transactions and money transfers, not to mention increased access to services like e-medicine and banking. 

Indeed, well over 90 per cent of digital transactions in Kenya are conducted on phone, making telcos a key facilitator of economic activity.

Whereas this paints a rosy picture of the industry, there is a risk of glossing over the challenges that players in this sector have had to contend with over the last ten years.

Due to these challenges, telcos have been held in a straitjacket, denying subscribers greater benefits, such as digital services that can boost financial inclusion.

The most glaring of these challenges has to do with the uneven playing field that smaller telcos find themselves competing in.

This places them at a great disadvantage in terms of service delivery to their subscribers and ability to grow their businesses as happens in other countries where regulators enforce rules that bolster fair competition.

Sadly, numerous recommendations to redress this imbalance have not been implemented.

In 2017, Macmillan Keck and Acacia undertook a market inquiry into the pricing and conditions of USSD access by mobile operators in Kenya.

Again, one player was found to be dominant but was not declared so despite the findings.

A year later, Parliament embarked on an inquiry on competition in the telco sector, to establish the legislative and regulatory gaps affecting competition.

The expectation was that the legislators would propose mitigating measures that would facilitate growth and fair competition.

Despite the hopes that the inquiry raised among industry players, again the parliamentary report was not released. 

In the meantime, as the industry regulator takes its time to act on the recommendations that would be beneficial to all, consumers have been denied the benefits of a reformed communications sector, notably high quality of telephony services at much lower costs.

As a result, this has discouraged usage of these services, as the declining revenues that telcos have been declaring in segments like voice and SMS attest.

This imbalance, besides holding back consumers from enjoying better and cheaper telephony services, also affects government revenue.

When consumers spend less, that translates to lower tax revenue. When this happens, the first reaction by Treasury usually is to raise taxes on these services as happened recently with the introduction of excise tax on digital transactions.

This further depresses consumption as the proportion of taxes vis-à-vis service costs increases.

Yet, Kenya needs to embrace the digital economy more as it holds great promise for GDP growth into the future. Basically, such tax measures are counterproductive.

The question then arises: How do we reverse this vicious cycle? The answer lies in reviewing the role of the industry regulator so that it can enforce rules and procedures that facilitate fair competition, such as providing for asymmetrical Mobile Termination Rates (MTRs).

This is both fair and equitable because it means smaller players pay less in MTR rates when their calls terminate onto a dominant player’s network. 

This principle is based on egalitarianism, a key component of capitalism that requires one to pay according to their ability.

This will result in improved balance sheets for smaller players, income that can be channeled to improving quality of service so that they too can grow organically.

More robust regulation will also reduce the attrition rate in the industry. It will also create the right conditions for players in the industry to grow, hence increase their contribution to economic growth and improvement in the quality of services.

Equally important, it will encourage investment in the sub-sector, attracting more home-grown and international players, not to mention their partners who will be offering subsidiary services.

Such investments will lead to increased competition, which will translate to benefits for subscribers. For instance, they will have more freedom to choose while also enjoying favourable pricing for various products and services.

In turn, they will spend more on telephony usage, which will facilitate lower taxes as more active users are brought into the tax bracket. In short, it will be a win-win for all. — The writer is a Partner and Head of Content at House of Romford. [email protected]

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