You might have thought that this government cared for consumer but now you might get the real picture. Safaricom and Orange were very loud in calling for the stopping of the drop of the call charges. The government which holds shares in both Safaricom and Orange has intervened through a Presidential decree.

So when CCK through the no nonesense DG, Mr Njoroge, could not agree to be pushed to the wall by the operators, the decided to go to the media which they control since they pay big amounts in adverts and the mainstream media was singing their tune. So state house schedules a meeting with the operators, CCK, and the Information and Communication ministry on 18th May. The President heard the plea and without much thought and expertise, issued a state house decree that there shall not be much drop in interconnection charges and almost went as far as directing that no operator reduce charges any more.

The prices were to drop considering tha interconnection charges should have reduced from Ksh 2.21 to Ksh 1.44 by July 2011. This move clearly makes it hard for Airtel and Essar Kenya (Yu) to rethink their strategy for the market since they were most successful not in innovation but through serious price-war. Rene Meza, CEO Airtel, told Business Daily that infact their whole strategy was pegged on Mobile Termination Rates (MTR).

The Prime Minister’s office had a committee put into place to look into what the operators were asking for and was set to release a report of the finding next week. The President, using the PNU and ODM arm-twisting tactics in the government, jumped the gun, sidelined the PM with his committee and issued what amounts to a roadside declaration stopping the further drop of call charges. Now that is the kind of leadership we hate.

What we are not sure of is whether there were consumer organisation representatives and even application developers and consumers at the state house meeting.

“The Communication Commission of Kenya board held a meeting on May 20 and the implementation of the mobile termination rate cuts was suspended pending a detailed evaluation of the economic impact of the current charges,” Information permanent secretary Bitange Ndemo said in a letter to the Permanent Secretary in the Office of the President, Ambassador Francis Muthaura. That is according to the Business Daily article.

You will find the mainstream media arguing about the profitability of the ICT sector being eroded by the vicious price wars. The truth is that with more than 25% of the market share in a market like this, one operator will forever kill the spirit of the competition in the country and not show any growth. A situation where one operator makes over Ksh 20  Billion and all other operators, some ten years later have not even broken even is simply insane.

What do you think of Kibaki’s directive?

  • kri1987s

    It is a move to save on the local jobs. While its true that companies can stay profitable in the long run charging minimally, this comes at the expense of the incentives to invest in development. Kibaki does not want a situation where the excuse of the former Celtel CEO beomes valid, that the market is too cheap to consider to support a ROI on 3g (that was then). Take a look at Scandinavian countries, they charge high prices and guarantee high wages in most of their industries. 

  • Mutajua Kenya iko na wenyewe, Bureeeeeeeee kabisa

  • John K.

    I don’t understand how an Economist such as Kibaki can condone or even participate in such a move. The market should be allowed to control pricing itself. Call costs will inevitably settle down at a point that all the players (including the customers) will be satisfied with. Poorly done Mr. President.

    • HARD BALLS

      Its interesting that a committee has to be established in order to evaluate the economic rate for calling amongst the various mobile phone operators.I agree with Gmuddus that self interest of share holders, especially of Safaricom, have interest in protecting their future dividends and capital apprecaition. Kibaki ceased practicing as an Economist decades ago and therefore, cannot be said to be an Economist. His decision to suspend the lowering of the tarriff is informed by other reasons. When the prices of mangoes, tomatoes, cabbages, maize, milk ,potatoes are at most an economic level, why are commissions not established to determine the profitable price to the farmer to enable him take farming as a business and create employment? 

    • HARD BALLS

      Its interesting that a committee has to be established in order to evaluate the economic rate for calling amongst the various mobile phone operators.I agree with Gmuddus that self interest of share holders, especially of Safaricom, have interest in protecting their future dividends and capital apprecaition. Kibaki ceased practicing as an Economist decades ago and therefore, cannot be said to be an Economist. His decision to suspend the lowering of the tarriff is informed by other reasons. When the prices of mangoes, tomatoes, cabbages, maize, milk ,potatoes are at most an economic level, why are commissions not established to determine the profitable price to the farmer to enable him take farming as a business and create employment? 

    • HARD BALLS

      Its interesting that a committee has to be established in order to evaluate the economic rate for calling amongst the various mobile phone operators.I agree with Gmuddus that self interest of share holders, especially of Safaricom, have interest in protecting their future dividends and capital apprecaition. Kibaki ceased practicing as an Economist decades ago and therefore, cannot be said to be an Economist. His decision to suspend the lowering of the tarriff is informed by other reasons. When the prices of mangoes, tomatoes, cabbages, maize, milk ,potatoes are at most an economic level, why are commissions not established to determine the profitable price to the farmer to enable him take farming as a business and create employment? 

  • Gmunduus

    He never cares neither wll he ever when a bill was passed in parliament to control essential commodies prices he declined to assent it now the mfalme Jeta is containing prices, the other time controlled prices were going to hurt his margins in industries he has vast interest so he urgued it’s a free economy no controls. Now free competition from companies he has no interest are hurting his cash cow about turn yo look here guys we need to have economically sensible prices forget free market.The foolish Kenyans will still stick with SAFARICOM I switched 2years ago, why keep complaining and you gave options.Hama and leave them to eat the presidential decree

  • Kenyan Indian

    Kibaki is correct in doing this. By dropping prices the ecosystem suffers, its the dealers whose commissions get reduced and one source of income generation in the remote parts of the country suffers. The strategy is to use predatory pricing by offering prices below cost so that others are forced to match and bleed.. and they become the new monopolists.. its a gamble by airtel which if it loses it would have harmed the industry and if it wins will eventually harm customers through its eventual monopoly position..I think competition has to be rational and governed by sound economics of the entire ecosystem..