Analysts warn telecom industry regulator’s decisions setting up operators for disputes

Consumers will be able to send and receive money across networks at no extra cost starting today, opening another chapter in the country’s dynamic mobile money market.

The move to develop an interoperable mobile money wallet across networks dates back more than half a decade.

It was a key point used by Safaricom’s competitors in lobbying the regulator to split the company over its stranglehold on Kenya’s fintech market. Economists are now warning that the industry regulator, Communications Authority of Kenya (CA) is repeating the same policy blunders that a few years ago established market conditions termed by other operators as unfair for healthy competition.

This comes even as CA prepares to introduce new policies for the country’s telecommunications sector based on proposals from the recent study looking into unfair competition in the sector.

One of the proposals was for the establishment of new regulatory framework that will see the CA unilaterally step in whenever it was perceived that a dominant firm was using its market position to edge out competitors.

According to the Institute of Economic Affairs (IEA), giving the CA the sole discretion of determining market dominance and the action to be taken is misplaced.

“Ex-ante (forecast in advance) regulation has been applied as a tool for regulators to address imbalances created where firms establish their presence at different times and therefore have different strengths,” explains IEA Chief Executive Kwame Owino.

Mr Owino however says this type of regulation is inappropriate for the local telecoms market since the regulator laid the ground for the current market conditions.

“Ex-ante regulation is based on the fear that a firm can abuse its dominance in the future and is inconsistent with Kenya’s regulatory policy,” explains Owino.
The dynamic nature of the telecoms sector makes it precarious for the regulator to confine one player with regulations unique to its competitors based on the latter’s perceived market dominance.

There are also concerns that the CA’s recent policy decisions across various segments of Kenya’s ICT industry are setting up operators for bitter competition disputes and maintaining high prices for consumers. Kenya’s telecommunications sector is rapidly shifting with new market segments and opportunities emerging to replace those rendered obsolete with the evolution of technology.

In the turn of this decade, voice and SMS were the main revenue streams for service providers and Safaricom, still stretching the potential for mobile money was yet to launch its lucrative payments service Lipa na M-Pesa.

According to data from the CA, Airtel, Telkom and Safaricom have 10MHz, 7.5MHz and 17.5MHz of the spectrum on the 900MHz frequency band respectively.

Safaricom acquired an additional 7.5MHz that belonged to Essar Telecom as part of the transaction back in 2014 that saw Easar bought out by Safaricom and Airtel.

This has however been the bone of contention for competitors who said this gave the leading service provider an unfair advantage. At the same time, licensing for the existing telecommunication firms was staggered with some entering the market ahead of the rest.

This has led to claims of unfair advantage on the part of the early entrants; a matter the regulator could have addressed with a more transparent licensing policy.

“This difference arises when regulators make decisions that allow some firms to rise faster than others and this is not the fault of the firm that invested first,” explains Owino.

Data market

The CA’s current handling of 4G licensing is creating the seed for future disputes in the data market that is considered the next frontier for investments and profits.

Early last year, the CA issued Jamii Telecom with the Sh2.5 billion 700MHz frequency spectrum without carrying out an auction as should be the procedure when allocating spectrum.

Jamii Telecom denied receiving special treatment in obtaining the license for Sh100,000 stating that it was for a trial service. However in late December the firm launched it’s mobile and data network under the 0747 prefix.

The decision to award the licence if thought to have caused divisions in the regulators boardroom that led to the suspension of CA Director General Francis Wangusi earlier this year.

“This was a regulatory mistake on the part of the CA because when having discussions around 4G or even 5G, the point is to ensure all players start on the same footing,” explains Owino.

“When you issue 4G licences to one firm earlier and they pay a different sum than another firm replicates the problem we have today and four years down the line, there will be someone claiming one firm is dominant in the data market because they had a head start.”

The same lethargy from the regulator has been blamed for the low uptake of mobile number portability where the CA, then the Communication Commission of Kenya dragged its feet for too long before introducing the policy.

Despite years of consumers’ asking for the service to be made available, the CA dragged it’s feet forcing subscribers to resort to having more than one SIM cards to maximise their user experience across networks.

Today four out of every ten Kenyans have more than one SIM cards. This has limited consumer engagement to a dedicated service provider - making it difficult for providers to broaden products such as post-pay services.

“The best way to regulate the market is through open competition and once you have four firms who have entered openly, it is difficult for collusion to happen and the beneficiary of that competition is the consumer,” explains Owino.

“The faster operators can broaden on these products and services the faster new businesses will develop to capitalise on the emerging opportunities,” he said.