PS fears mobile phone price wars could derail new Constitution

The price war in the mobile phone industry could derail the Constitution implementation process, Information permanent secretary Bitange Ndemo has said.

Describing the war as an “unnecessary headache”, Dr Ndemo said it also threatened efforts to alleviate the food shortages facing Kenyans.

Reacting to Airtel Kenya’s decision to reduce calling rates from Sh3 to Sh1 within its network last week, Dr Ndemo said the government was looking into the pricing issue.

“We have asked CCK (industry regulator Communications Commission of Kenya) to evaluate if this kind of pricing is sustainable,” Dr Ndemo said on Monday.

Citing the Kenya Revenue Authority’s recent failure to meet its 2010/11 first half collection target by Sh5 billion, the PS said the Airtel-triggered price war could not have come at a worse time.

The KRA raised Sh303 billion against a target of Sh308 billion in the first half of the current fiscal year, missing its target while the country is in the middle of implementing the new Constitution and tackling a drought ravaging the country.

Dr Ndemo said the government and millions of Kenyans, have heavily invested in the communications sector and any losses in the investment could have a ripple effect on the economy.

“I am not opposed to reduced prices but they have to make business sense,” he said. “Competition has to take care of re-investment in the sector as well as shareholder value.”

This is the second time in five months that Airtel Kenya has reduced its calling rates.

In August last year, it slashed tariffs by 50 per cent across all networks, forcing a price reduction by its three rivals — Safaricom, Telkom Kenya’s Orange and Essar Telecom’s yu.

Airtel’s latest price cut, however, has seen industry analysts as well as rivals, Safaricom and Orange, complaining about its effect on the sector even as subscribers celebrate.

Orange Kenya CEO Mickael Ghossein said on Monday that the future of the industry’s profitability appears grim should the current price wars be allowed to prevail.

“There has not been largely significant increase in the traffic across networks that would indicate that the low pricing model offered by the competition has resulted in massive recruitments. In any case, cannibalisation of another player’s market share cannot be considered as industry growth,” Mr Ghossein said.

“Operators will see little justification in improving call and related quality when profits are falling under assault from Airtel’s strategy.

“Improving service quality requires investment in new infrastructure, but with ever-reducing revenues, this will not happen,” warns Mr Peter Wanyonyi, a telecoms analyst.

But India’s Bharti Airtel-owned Kenyan subsidiary has defended its decision.