Comms: Kenyan mobiles - companies told to reduce cost of SMS

General Charles Njoroge, the Commissioner, has issued a statement in which he says "“The Communications Commission of Kenya has issued an addendum to the Interconnection Determination No.2 of 2010 on Short Message Service (SMS) Interconnection termination rates. Operators are now required to implement lower termination rates with effect from 1 January 2011. All operators are at liberty to negotiate lower SMS termination rates subject to the capped rates."

The changes are dramatic: the new permitted rate is 60 Kenyan cent - but that has been ordered to fall to 5 cents over the next two years.

The CCK examined the marginal cost of additional users and found that it was a mere 1.5 cents but operators were charging interconnect fees of as much as 2 shillings. That, CCK said, could not continue and ordered the telecoms companies to come up with a better pricing model. They didn't so the CCK has imposed one, much to the chagrin of the companies.

Njorage says that the savings must be passed onto consumers. After the CCK's rapid and somewhat brutal intervention at this stage, comms companies do not doubt his resolve to see that consumers benefit.

High termination rates act as a barrier to entry for new companies because they cannot set off similar volumes of interconnect business with larger rivals. The higher the cost, the weaker the cashflow of the smaller / newer business.