World Dialogue on Regulation

The government introduced a 10% excise duty on CDMA networks in the Budget last week. The new tax eliminates what some considered a price subsidy that was only benefiting a few operators.

Finance minister Amos Kimunya imposed the excise tax on CDMA operators, after rival GSM operators, such as Safaricom and Celtel, complained on the grounds that they were paying excise tax. Now all wireless operators will pay 10%. The Finance Bill must still be passed by Parliament without amendments.

CDMA wireless local loop (WLL) operators Flashcom and Popote Wireless say they might increase tariffs if Parliament endorses the proposal.

"We will be forced to increase tariffs on the local Popote-to-Popote Wireless calls because of the new tax. We have not yet decided exactly by how much. But it will be around 10 per cent as the level of excise tax," said Edwin Muthi of Popote Wireless.

Mr Joe Kariuki, the CEO of Flashcom, said that Telkom Kenya’s fixed-lines should also be subject to the tax because it is the main competitor to CDMA lines. Only Telkom's fixed wireless product will be affected by the tax. He said Flashcom may increase tariffs.

Telkom Kenya representative, Richard Gitonga, said that the company was studying the implications of the excise tax before making a decision on call charges.

Through the harmonisation, the CDMA operators will lose a significant advantage they have over GSM operators Safaricom and Celtel, as calling charges are likely to converge now. This could mean few consumers will see the need for CDMA phones. CDMA WLL was slowly gaining customers because it was cheaper than GSM-based services.

Source: Business Daily - WDR/Intelecon Regulatory News.