East Africa urged to cut airtime tax for growth

Kenya, Uganda and Tanzania should cut taxes on mobile phone airtime to encourage usage and help operators weather the global economic downturn, an association of GSM operators said on Wednesday.

Vitalis Olunga, chairman of industry group GSM Africa, said excise duty rates of more than 10 per cent in the trinity of neighbouring east African countries were too high.

"If they reduce it, it will promote the usage of mobile. Rwanda has given us a good example where they introduced it at 3 percent," he told Reuters at a regional telecoms conference.

He said a cut would also help cushion the sector from forecast falls in Average Revenue Per User (ARPU) as the region increasingly feels the impact of the financial crisis.

"The industry will be hit. There will be reduction in utilisation. ARPU will go down in a way, once the prices of other things go up, you will have to reconsider your use of the mobile phone," Olunga said.

He said lower excise duty rates would also give operators room to consider dropping their tariffs to make them more affordable for customers on the world's poorest continent.

Susan Mochache, an assistant director at the Communications Commission of Kenya regulator, told Reuters her organisation expected tariffs to fall anyway due to growing competition.

"We have made significant strides over the past two years. This is an ongoing process, so we will continue to see prices falling as the competition intensifies," she said.

Mobile phone penetration is estimated at 31 per cent of the population in east Africa, lower than the continent's average, which is seen at 40 per cent.

Operators said this offered great opportunities.

"This is a huge market for us. There is huge potential for growth," said Raed Haddadin, regional commercial director of Kuwait' Zain. His company has operations in Kenya, Uganda, Tanzania and Madagascar.

Other operators in the region include Safaricom, MTN, Orange and Millicom Cellular.