Safaricom and Telkom Kenya Orange want the Communications Commission of Kenya to further reduce spectrum costs to promote network expansion to rural and economically unattractive areas.
Under the CCK'a spectrum pricing methodology, mobile operators are required to pay annual spectrum access fees of $100,000 and additional fees based on the network infrastructure and number of links that an operator puts up. The regulator also requires operators to pay 0.5 percent of annual turnover.
In 2011, Safaricom paid the regulator $39 million while Telkom paid $14.6 million in license fees. The operators feel that the regulator should revise the fees down to allow them invest in areas where returns are low and may not be covered by mobile or internet infrastructure.
"If you evaluate the amount of money Safaricom has been paying to the regulator, the fees are high and if it was reduced a few years back, network roll out would be very far by now," said Stephen Chege, head of regulatory and public policy at Safaricom.
In October last year, CCK revised the spectrum pricing methodology, with costs declining according to size of network roll out. This favors bigger operators with the ability to deploy more links. The new pricing model reduces the amount payable but is still based on access and usage.
"The methodology for frequency fees for mobile wireless access has both the elements of spectrum access and spectrum usage charges; the methodology for spectrum usage divides the total number of transmitters into three categories with progressively reducing charging rates per transmitter in order to facilitate deployment of additional transmitters," said John Omo, Commission Secretary at the CCK.
The new model is supposed to take effect on July 1 but operators want it backdated to last year.
"We appreciate the move to revise the pricing methodology by CCK but we need a different way of spectrum pricing if operators are to deploy more networks and maintain them in more outlying areas where the business case is not strong," said Mickael Ghossein, Telkom Kenya CEO.
The Average Revenue Per User has decreased because of increased network penetration and competition, forcing operators to explore ways to reduce capital and operational expenditure.
Safaricom is suggesting an increase in the cost of access and the removal of usage costs, which it says would allow operators to be more efficient in deploying networks and maximizing on available spectrum.
"If Safaricom pays for access only, we will save costs and use it to extend the network to rural and economically unattractive areas; if this was done a few years ago, network roll-out would be very far," added Safaricom's Chege.
Telkom Kenya supports the removal of usage costs but wants the payment to be based on the number of minutes the network is in use. This means that operators would likely not allow free calls within the network because the CCK would be billing.
"Some of the BTS sites do not generate enough revenues to support and maintain them yet we pay CCK; if payment was on the number of minutes the network is in use, then it would be fair to operators," added Ghossein.
In the new pricing schedule, the CCK reduced the cost of network transmission to Northern Kenya, which is dry and is comprised of nomadic communities, making business harder for operators. However, operators want the cost of transmission and usage also to go down in areas in the south of the country that are remote and have generate about the same revenue as the North.
"If you examine the network map, only areas around Nairobi and maybe a few other towns are profitable; there are other areas like Eastern province, some parts of coast province and Rift valley province that are not economically attractive yet they are in the south and should be included as part of the incentives," Chege said.
Ghossein took issue with CCK's Universal Services Fund. The fund is expected to help network expansion, but there has been no communication what the fund is specifically doing to support the operators. Under the Communication Act, the universal fund is supposed to draw contributions from operators based on revenue.
Kenya is not the only African country with issues on spectrum policies and pricing. Operators in South Africa, Nigeria and Ghana also have issues with the way spectrum is allocated and charged.
"In South Africa's case, spectrum licenses especially for high demand bands have until now been largely issued behind closed doors with no specific formula on how the fees are determined," said Tinyiko Valoyi, CEO of Mavoni Telecoms, an investment vehicle that is focused on acquiring spectrum in African countries to deploy 4G networks.
Valoyi says that regulators are improving on allocation policies with countries like Nigeria inviting companies to bid for licenses and Ghana charging more for spectrum compared to previous allocations where operators were allocated spectrum behind closed doors and paid less than the market value.
In countries where mobile and internet subscribers have grown exponentially, the debate on spectrum allocation is more vibrant because scarcity of spectrum and interference have meant that operators can not offer very good voice, video and data services. For instance, in Kenya, operators have petitioned the CCK to repossess spectrum licenses that were allocated in the 1990s in cases where spectrum holders have not deployed services. Some operators are suggesting reallocation of repossessed licenses based on need, while others want them auctioned to highest bidders.