CBK to tame Safaricom dominance, to lower cash transfer charges

The giant telco Safaricom Plc has suffered a major blow after the Central Bank of Kenya (CBK) moves in to lower cash transfer charges.

CBK has urged digital payment service providers to cut their prices as part of Covid-19 support measures, arguing that they are best placed to pass the benefits of digitized payments to consumers.

The regulator believes further cuts are still necessary for inclusivity during economic recovery although transaction fees across digital payment slightly dropped.

“Prices and tariffs of some payment services can be high in relative terms, while others are not easily understood by the average customer. Further, where institutions utilise payments, services are availed to end-customers with multiple charges,” CBK said in its 2022-2025 National Payments Strategy.

Central Bank is, however, determined to ride on the cashless economy that has greatly taken shape.

It said the inability to put in place effective and easy-to-access mechanisms to address price related complaints, particularly on digital channels, has undermined trust.

“CBK is determined, working with the industry, to change this reality and ensure that benefits of digitalisation translate to affordable, transparent and customer-centric payment services” the strategy paper stated.

Safaricom’s M-Pesa platform, which has the largest market share in mobile money categories, trimmed transfer charges by up to 45 per cent for low value transactions, leading to additional 2.8 million customers beginning to use mobile-money services during Covid-19 peak.

The telco operator consequently experienced 75 per cent increase of merchant tills and 43 per cent surge in the number of active lipa na M-pesa agents between 2020 and 2021.

But upon the end of waiver, charges gradually shot up as the telco claimed dented earnings.

Last month, the Communications Authority of Kenya (CA) moved to control Safaricom market by lowering the recent cut in mobile termination rates.

Defending its move, CA director-general Ezra Chiloba stated that the cut will give smaller telecoms operators a better chance at competing with market leader Safaricom, even as it hinted at a further drop in call tariffs.

Through a statement filed before the tribunal indicated that the low termination rate will give co-operators greater price, flexibility to compete with Safaricom.

“It is our position that due to its size, Safaricom enjoys economies of scale, and their costs are low compared to other small operators. The proposed low termination rate will give small operators greater price flexibility to compete with them,” Chiloba said.

The sector regulator said in its response to a petition filed by Safaricom before the Communications and Multimedia Appeals Tribunal that it plans to conduct a more detailed network cost study of mobile termination rates (MTR), suggesting it could consider further review.

MTRs are the charges levied by a mobile service provider on other telecommunications service providers for terminating calls in its network.

The CA cut the charge to Sh0.12 per minute from the current Sh0.99 per minute after a six-year freeze, drawing legal action from Safaricom that earns the most from MTR due to its large voice market share of 68.9 percent. The capping was to start on January 1.

However, Safaricom argued that the charges should instead rise to reflect the true cost of doing business. The tribunal ordered the status quo to be maintained, pending further directions on February 2.

The regulator said the choice of methodology in determining MTRs and fixed voice termination rates (FTRs) is its prerogative and cannot be dictated by an operator.

“The review was an interim measure until a network cost study was conducted, and to prevent further market foreclosure given that the study is anticipated to take over one year to conclude and implement,” Chiloba said.

Rival operators Telkom Kenya and Airtel and Consumers Federation of Kenya (Cofek) have since joined the case.