Mtr Research Proposal

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Research Proposal

Effects of the reduction of mobile termination rates on Kenya’s telecommunication industry and the economy

Elam Muchira
Supervisor: Prof. Joseph Keriko

A research proposal submitted in partial fulfillment of the requirements for the award of the degree of Masters in Business Administration of Jomo Kenyatta University of Agriculture and Technolog.

Declaration
This proposal is my original work and has not been presented for a degree in any other University. Elam Muchira

……………………………………………..…………………………………………. Signature Date

This proposal/thesis has been submitted for examination with my approval as University Supervisor . Prof. Joseph Keriko

……………………………………………..…………………………………………. Signature Date

Acknowledgement

I wish to acknowledge my classmates in the MBA class of 2013 and my supervisor Prof Joseph Keriko for their invaluable contributiuon towards the preparation of this research proposal

Abstract

Mobile Termination rates are the charges which one telecommunications operator charges to another for terminating calls on its network.

For example, a customer of Safaricom wishes to call a friend who has an Airtel mobile. Safaricom will charge the customer a fee per minute (the retail charge) for this call. Airtel will charge Safaricom a fee for terminating the call on its network. This termination rate therefore forms part of Safaricom’s cost of providing the call to its customer. Termination rates may be commercially negotiated or may be regulated. A range of approaches can be used to regulate rates. International benchmarking or cost models such as a LRIC cost model are the most common approaches. In Kenya, MTR are regulated by the Communication Commission of Kenya (CCK). Historically there was and in some countries still is much debate about the best level for interconnection rates. Some argue that approaches based on models do not take in to account real world risks and costs and suffer, among other things, from survivorship bias (they consider that risk can be assessed by looking only at the returns of surviving companies) and therefore underestimate the true level of risk. Another concern is based on Real Options. This considers the benefit that is extinguished from the moment that an investor chooses to invest and suggests that the loss of this right to invest should be taken in to account when looking at the expected returns on investments made. The fundamental principle of any telecommunications network is to allow calls originating from a subscriber A to reach a subscriber B, whether on the same network or on another network, commonly known as “any to any connectivity”. In more technical terms, traffic, originating from Subscriber A is terminated at a point of destination, Subscriber B, and in order to allow for traffic to be routed and terminated between different operators, “interconnection” must be established. Interconnection allows for calls placed by a subscriber in one network to reach a subscriber in another network. Such a call is “terminated” in the destination network.

Most available commentaries on this issue are largely based on perceptions and public sentiment, not necessarily by robust scientific research. This research therefore hopes to provide a basis for decision making by the Communication commission of Kenya in controlling the mobile termination rates charged across the four telecommunication companied in Kenya, by studying the effects the continued reduction in the MTR by CCK will have on the country’s economy.

The research will take a descriptive approach because the problem areas are clearly defined and there is available data, whose analysis will provide the required answers. The study will spurn across all the four mobile network operators in Kenya. Both primary and secondary data will be used for the study. The Primary data will constitute compiled industry statistics from CCK. The secondary data will be obtained...
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