Kigali: Despite silent interconnectivity wars raging between telecoms MTN Rwanda and Rwandatel, the two companies say the increased excise duty imposed by government will not lead to another hike in airtime prices, RNA reports.  

Officials from the two local giants said Thursday they hope to absorb the tax increase without passing it along to consumers. Rwandans and Ugandans already pay among the highest rates for mobile phone calls on the continent.

In the 2009/10 budget statement in June, Finance Minister James Musoni slapped a 5% excise duty on airtime – up from 3 percent, and the change came into effect July 01. Though it’s only an increase of 2 percentage points, it means the government collects about 70 per cent more revenue from airtime use than before.

Mr. Andrew Rugege, MTN Rwanda’s chief operating officer, said to date the company has found ways to pay for the increase without raising call tariffs.

“But we can’t guarantee that there will be no effect [on tariffs],” he warned.

Rugege would not disclose how much money the tax increase represents beyond saying it meant a difference of several million francs.

“Although we are not increasing our tariffs because of that [excise duty], there is an effective drop in revenue,” he said.  

That means customers could indirectly feel the effects of the hike if MTN Rwanda is forced to limit the expansion of its network, Rugege explained.

Libyan-owned Rwandatel is also trying to manage the tax increase without exposing its customers to higher tariffs, said Ms. Cleophas Kabasiita, the company’s corporate communications manager.

“We don’t intend to [increase rates]. We’ll have to find a way to absorb that,” Kabasiita said, remaining tight-lipped on the details.

However, she did disclose that Rwandatel is wary of changing its tariffs too often in case it provokes the Rwanda Utilities Regulatory Agency - RURA.

The industry regulator could step in at any time if a company goes “overboard” with its tariffs, but has yet to do so, said MTN’s Rugege.

“So far they consider the tariffs to be reasonable and haven’t intervened,” he said.

More tax hikes coming?

Before 2007, the excise duty on airtime was 10 per cent. The telecom companies bargained with government to lower the tax to 3 per cent. The two companies– which have lately become major regional players, say the tax cuts meant lower tariffs.  

Rugege said the tax cut allowed MTN to lower its call tariffs, which in turn encouraged more people to join its network.

After July’s tax increase, Rugege said the company is bracing for future hikes. “We know they said they will continue to increase it but we don’t know when,” he said.

But Rwandatel’s Kabasiita said she didn’t think there would be another tax increase in the near future, since the government is aware that telecoms are still trying to adjust to the last one.

Rwandatel rates up 62.5%?

Rwandatel insists the tax hike has nothing to do with recent increases to the company’s tariffs for calls to MTN subscribers.

Instead, Kabasiita said, the change relates to the same issues that led to Rwandatel’s Rwf 2 billion ($3.51million) unpaid bill owed to MTN for interconnection fees.

Rwandatel has been charging Rwf 80 per unit but was required to hand over Rwf 40 to rival MTN as interconnection fee. This amount is applied each time a Rwandatel subscriber makes a call to an MTN phone.

Rwandatel racked up the bill mostly during the first few months following the launch of its new network last December. The company had a very small customer base at the time, which meant majority of calls were placed to MTN subscribers – translating into a large number of interconnection fees.

“When customers paid only Rwf 80 . . . half of that went right to MTN,” Kabasiita explained. “It was costing us a lot of money.”

When the company rolled out its per-second billing system last week, it also increased the tariff for MTN calls to Rwf 130 per minute. Alternatively, under the company’s new per-second billing option, a call to an MTN phone costs Rwf 3 per second (Rwf 180 per minute).

Previously, calls to an MTN subscriber cost Rwf 80 per minute, the same tariff as a call to a Rwandatel customer.

The practice of charging a different rate for calls to another company’s subscribers is already in place at MTN; it charges Rwf 126 per minute for calls to Rwandatel, about Rwf 30 more than calls to other MTN subscribers.

While Rwandatel’s Kabasiita said the higher tariff encourages subscribers to make calls within the Rwandatel network – thus avoiding the interconnection fee – she said the company’s unpaid accumulation of those fees also played into the rate increase.

By charging more for calls outside its network, Rwandatel will have enough money to pay the interconnection fees along with the company’s other expenses as it continues to expand, Kabasiita argued.

“You could say it was a lesson learned,” Kabasiita explained.

Both companies told RNA they are trying to resolve the issue without affecting their customers.

Additional files by Fred Mwasa