Price controls on telco tariffs ill-advised

CA should also examine the market dynamics at play before applying measures that might be punitive to the business success [File, Standard]
The mobile phone has become a way of life. Few can imagine living without a cellphone. Nearly half of the Kenyan population today is 18 years and below, which means they were born in the era of mobile phones. For them it’s never about whether they will have a phone but what model, capabilities, specifications, the look and feel and the experience.

The cellphone has become a gadget of national importance. Which is why the Communications Authority (CA) was right in seeking to study the development of the telco markets since the first cellphone towers went up about 18 years ago and to correct any imbalances.

For the purpose, the CA identified a British consultant – Analysys Mason – to carry out the task on their behalf. A fortnight ago, the CA called for public meeting to discuss the findings. Among the raft of recommendations by the consultant is that Safaricom’s standard tariffs, permanent loyalty schemes and promotions (including non-tariff promotions such as lotteries) should be capable of being profitably replicated by a reasonably efficient competitor.

The report also proposes that Safaricom may not charge differential rates for on-net and off-net calls under any circumstances and all marketing materials relating to airtime bonuses must make clear that the bonuses can be used for off-net as well as on-net calls among a raft of other recommendations.

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The CA has said that tariffs of players found to be dominant in specific relevant markets, will be regulated. However, the impact and need for these remedies will be reviewed after some period, to determine whether they’ll still be appropriate and necessary.

What I find confounding in the CA’s statement is not that they are about to discharge their mandate but that the basis on which they are making their decisions is fundamentally flawed. Those who attended the launch of the Market Analysis report will remember a remarkable statement made by Mr Philip Bates, the Analysys Mason principal who eloquently delivered the findings at the Hilton Hotel.

Sharper focus

Mr Bates told the gathering that the study did not take into account the history that brought the markets to where they are today. I’m referring to the growth of the telecommunications market in Kenya. Two decades ago, Airtel’s predecessor – Kencell – had a head start in the market. At least a third of Kenyans will remember the head to head competition that went into winning the hearts and minds of Kenyans with advertising campaign after another occupying billboards, TV and radio spots and newspaper pages.

Then Safaricom began to break away akin to a marathoner with a sharper focus on the prize. It came with the strategy to bill by the second and not by the minute as Kencell did then. Not only that by Safaricom demystified the whole issue of mobile phone technology by availing it to the masses.

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The gap between the two competitors has therefore opened organically. The analyst should have taken into account the historicity of the moment because if we determine to correct the market without the rear view, we will be punishing two decades of successful business strategies and the energy and sheer will that has built what is easily one of Kenya’s most recognisable brands anywhere in the world.

I’m of the view that CA should also examine the market dynamics at play before applying measures that may be disruptive to business success which may in turn create unintended consequences on the stock market and the wider economy.

Respectable analysts such as Citi are already warning that a cocktail of the proposed remedies to the market as they stand – including price regulation – may cause a risk to the dominant player in the market. In trying to fix a two-decade history, CA must not create an economic historical injustice for the future on whom successful business models depend.

-The writer is an investigations reporter for The Standard. [email protected]

price controlstelco tariffscommunications authority