Listers,

PRESS STATEMENT

10^th October 2012

NEWS EDITOR

RE:  PRESS STATEMENT ON MOBILE TERMINATION RATES

The attention of the Communications Commission of Kenya (CCK) has been drawn to reports and commentaries in some sections of the media appearing to suggest that the CCK Board has been unable to make a decision on the way forward on the implementation of the glide path on the Mobile Termination Rates (MTRs). The said reports further suggest that the CCK is hostage and beholden to certain political and business interests, thus casting aspersions on the ability of the Communications Commission of Kenya (CCK), as presently constituted, to effectively regulate the fast-growing ICT sector.  The reports have elicited disquiet in the local ICT market, and therefore merit a response.

Contrary to the said reports, the CCK Board and management are, and have always been committed to promoting a conducive regulatory environment for effective competition in the ICT industry in Kenya. This commitment explains why there is hardly any market segment in the entire communications sector today where competition does not exist. We appreciate that one of the key drivers of competition in any mobile telecommunications market is the regulation of interconnection. Interconnection serves as a critical public policy tool for the proper functioning of a competitive communications market. It is out of this understanding that the CCK commenced regulation of interconnection in 1999 following the licensing of two additional mobile operators – namely Essar Telecoms Kenya and Orange Telecoms.

Indeed, the local communications market witnessed significant market developments in the period between 2007 and 2010. Over and above the entry of two new operators, other notable developments that took place in this period included the introduction of the Unified Licensing Framework (ULF), landing of three undersea cables and the roll out of terrestrial optic cables, and tremendous growth in both subscriber numbers and call and data volumes.  

In order to capture these developments and also include new and up-to-date data in the network cost modeling, CCK undertook a detailed and consultative review of the Network Cost Study in 2010 with the objective of developing a new interconnection framework that promotes competition, operational efficiency of the firms and further growth of the sector through continued investments and innovations. 

Following the review, CCK issued the Determination No.2 on Interconnection Rates for Fixed and Mobile Telecommunications Networks; Infrastructure Sharing and Co-location; and Broadband Interconnection Services on 16th August 2010. The Determination was to operate from 1st July 2010 to 30th June 2013. Furthermore, the Determination was updated on 30th December 2010 to include Short Message Service (SMS) Termination Rates effective from 1st January 2011 to 30th June 2013.  According to this determination, the glide path for Mobile Termination Rates was to proceed as follows:

1. Call Mobile Termination Prices
Nominal KES.	1^st July 2010	1^st July 2011	1^st July 2012		1^st July 2013
Mobile Termination	2.21	1.44	1.15	0.99

Following the issuance of the Determination No.2 of 2010, retail price competition in the mobile voice services intensified with actual retail off-net call prices falling from a high of KES 12 per Minute in August 2010 to between KES 5 and 3 per Minute currently. In addition, on-net call retail tariffs dropped significantly from a high of KES 8 per Minute to KES 3 per Minute over the same period. The industry also witnessed a significant growth in the number of promotions and special offers as the operators sought to attract and retain subscribers. Moreover, mobile operators also intensified efforts to generate new revenue streams from non-traditional services such as SMS based applications, Internet offerings and mobile money transfer services through cutting edge innovations. In addition, important industry demographics such as mobile subscription and penetration levels improved significantly during the period.

Despite these positive signals in the market, some sections of the mobile telecoms industry and some government agencies raised concerns that the ensuing retail price competition arising from the reduction in mobile termination (wholesale) prices was detrimental to the continued growth of the sector and the economy. In particular, concern was raised that the retail price competition in the mobile voice market would adversely affect Government Tax Revenues, stability of the stock market, the Government’s macro economic agenda on employment and investments; and the profitability and viability of telecommunication enterprises.

The CCK Board considered these issues and at its Meeting held on 20th May 2011 decided to freeze the mobile and fixed termination rate for year 2010/2011 for a further one year as the Commission evaluated the veracity of the issues raised by stakeholders. Consequently, on 8^th June 2011, the Commission issued Addendum No.2 to the Determination No.2 of 2010 revising the mobile and fixed termination rates and the attendant glide path as follows:

1. Call Mobile Termination Prices
Nominal KES.	1^st July 2010	1^st July 2011	1^st July 2012	1^st July 2013	1^st July 2014
Mobile Termination	2.21	2.21	1.44	1.15	0.99

CCK has since contracted the services of a consultant to undertake a study on the impact of the ensuing competition in the retail mobile voice market on the Government Tax Revenues, stability of the stock market, Government macro-economic agenda on employment and investments; and the profitability and viability of telecommunication enterprises. The consultant has submitted an inception report and is due to present the interim report to the CCK Management and Board soon.

I wish to assure the mobile telecoms industry, consumers of ICT services and other stakeholders that CCK shall make a decision on the MTR as soon as we receive the final report from the contracted consultant. Our decision shall be fair and in the wider interest of consumers and mobile telecoms industry, and without influence from any quarter.

I also wish to take note of the ongoing discussions on the need to align our current legal framework – that is the Kenya Information and Communications Act, CAP 411A – with the requirements of the Constitution of Kenya 2010. The overriding goal of the alignment is to further insulate CCK from commercial and political interests. We appreciate that the rule and law-making responsibility in the sector falls within the remit of the Office of the Minister for Information and Communications. CCK, as an important stakeholder in this process, has already given its input on this ongoing process. CCK is fully in support of this process, and it is our hope that the debate shall be healthy and balanced and in the wider good of the ICT sector. We are confident that the Ministry of Information and Communications shall midwife this process successfully.

Issued by:

Francis W. Wangusi

DIRECTOR-GENERAL