The recent move by the telecommunications regulator to lower the termination rate from KES 2.21 per minute to KES 1.44 is aimed at encouraging competition among the mobile operators which will subsequently result in lower calling rates.

The termination rate is the amount of money an operator pays another operator if its subscribers call another network.

This move will significantly impact the networks receiving the largest number of cross-network calls such as Safaricom because the amount of revenue they receive for the termination rate would reduce significantly. Data from The Communications Commission of Kenya (CCK) 2^nd quarter ICT sector statistics for 2011/2012 show that on-net traffic declined by 10.78% from 6.58 billion minutes to 5.87 billion minutes with Safaricom Ltd recording 18.28% decline in on-net traffic while cross network calls increased by 58.17% from 498 million minutes to 789 million minutes.

A significant amount of revenue generated from the termination rate has been going to Safaricom, this has forced Airtel and Essar to push for lower termination rates, arguing that they are paying Safaricom a huge amount of their revenue.

Safaricom in the other hand has opposed the lowering of termination rates, arguing that the move would worsen the ongoing mobile price wars that have drastically reduced the industry’s earnings. CCK has responded to this by noting that 93% of the operator’s revenue comes from calls within the networks thus lowering termination rates would have little impact on the profitability of the operators.

Simply put, the move to lower termination rates could encourage a further lowering of off-net calling rates. This would result in users migrating to the network with the lowest off-net calling rates. Safaricom being the network with the largest subscribers and highest rates for both on-net and off-net calls would be the biggest loser. For starters its on-net call volume has reduced by 18.28% and stands to lose more from lower termination rates. Secondly, the amount of revenue it generates from the termination rates would reduce from KES 2.21 per minute to KES 1.44. It is no wonder Safaricom is opposing the move to lower termination rates.