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Kenya expects increased investment with reduced spectrum fees

Ruling may help local players rather than entice international telcos

With its recent move to reduce spectrum fees, the Communications Commission of Kenya (CCK) is expecting increased investment in underserved areas and lower costs to the consumer.

The move is more likely to benefit incumbent operators more than new market entrants, even though the regulator expects new investors to enter the market and take advantage of lower upfront spectrum fees and offer competition to existing platers.

"The objective is probably more to make the market more competitive, particularly on the small service provider side, than on attracting large foreign investors into telecoms infrastructure," said Dobek Pater, senior telecoms analyst with Africa Analysis.

Under the new licensing regime, annual license operating fees for mobile operators drop from 0.5 percent to 0.4 percent of annual gross turnover while fees for mobile wireless access were reduced by 41 percent for the transmitters and 24 percent for fixed links. In its first review since year 2000, the CCK introduced geographical zoning, which reduces infrastructure costs in underserved areas like North Eastern Kenya by 50 percent.

"This is a significant development which will go a long way in reducing the overall cost of conducting telecoms business in Kenya," said Nzioka Waita, Safaricom corporate affairs director. "With this step, the CCK has signaled its pro-investment stance and on our part it will certainly support our already aggressive network investment plans."

The biggest incentive in the announcement is the reduction in costs of setting up infrastructure in rural and underserved areas.

"The good news in this announcement is that there is a real tax incentive to build towers in under-serviced areas," said Steve Song, CEO and founder of the Village Telco, a company that pushes for affordable rural connectivity.  "Government needs this kind of incentive to replace other issues like high interconnection fees that operators have argued that the must have to cover the cost of rural roll-out."

However, Africa Analysis' Pater does not view the reduced fees as an automatic reason for companies to invest in rural and underserved areas, since license fees may not be the only consideration.

"The main consideration will be -- is there a business case to deploy more infrastructure in northern Kenya, is there sufficient demand now and in the future to make a profit from infrastructure deployed or services offered?" Pater said.

Tinyiko Valoyi, CEO of Mavoni Telecoms, an investment vehicle that is focused on acquiring spectrum in African countries to deploy 4G networks, said the market should exercise some caution because spectrum is not the only challenge in deploying networks in under-served areas.

Other challenges include the cost of building an access network; backhaul capacity and interconnection; operational costs like salaries and distribution channels; electricity costs and availability and tower rentals.

"The CCK and other African regulators should go a step further and significantly lower interconnect rates for operators that are going to establish networks especially in rural areas while also giving further incentives to those that share facilities through co-location," Valoyi said. "This will encourage operators to invest in underserved areas and create more competition that will deliver affordable access and ultimately universal access."

The reduction in fees was also meant to even out costs across the East Africa region and make it easier for regulators to collaborate in different jurisdictions. The East Africa Community is comprised of Tanzania, Uganda, Rwanda, Kenya and Burundi. Previously, operators have cited lack of regulatory coordination as a major bottleneck to network expansion.

"This will allow regional operators to be more efficient operationally, and will lead to greater ICT integration within the region -- good for end users moving around the region, particularly enterprises and business individuals," added Pater.

While the cost of connectivity is not expected to fall drastically for end users, analysts agree that competition is likely to allow smaller companies to focus on niche markets and to provide a bigger array of value added services.


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