Debate on dominance gets telcos charged

The telecoms industry is set to witness new rounds of messy fights for the mobile phone service market. This time round, it might not be through price or marketing wars as previously witnessed, but intense lobbying.

Airtel Kenya, which is a distant second in terms of market share, has renewed its push to have industry leader Safaricom declared dominant and treated as such.

In the coming weeks, the debate on whether to declare Safaricom a dominant provider is set to intensify. This is after the Communications Authority of Kenya (CA), through the Ministry of Information Communications and Technology, announced it has sponsored a Bill to address concerns raised by industry players.

CA is proposing to revise the Fair Competition and Equality Treatment Regulations section of the Information and Communications Act (2010) to include measures that could potentially hit Safaricom’s business.

Safaricom has a subscriber market share of 67.4 per cent, with mobile money transfer services at 77.4 per cent, voice traffic at 84 per cent, SMSes at 96.4 per cent and mobile data subscriptions at 70.7 per cent, as per CA’s latest statistics.

Analysts at Standard Investment Bank (SIB) warn that if the Bill is approved by Parliament, the criteria for determining a licensee as dominant would be lowered dramatically, effectively placing Safaricom as dominant in most key product categories.

This could subject the telco to more punitive reporting (with separate books for each service) as prescribed by the authority, discounted pricing to competitors (based on its costs), as well as unfettered access to its M-Pesa customers.

Punitive action

“While in the previous regulations, a dominant player had to abuse dominance for punitive action to be taken, in the new regulations, a company does not need to abuse dominance for such measures to be taken, which begs the question whether the regulator is punishing success,” said SIB in a valuation update on Safaricom last week.

Besides wanting it declared a dominant player, Airtel Kenya has recommended that M-Pesa be hived off from the other services Safaricom offers.

“When you have such a strong hold on a national resource, that national resource needs to be spun off as an independent entity,” Airtel Kenya CEO Adil Yousseffi said, adding that such decisions have been made in the US, Britain and in Gabon where Bharti Africa — Airtel Kenya’s parent company — was declared dominant after surpassing 50 per cent market share.

Would Safaricom be willing to let go of one of its greatest innovations? It appears not.

Last week, Safaricom presented its side of the story, and accused the Government of punishing success and innovation, as well as showing favouritism through the proposal to introduce new fair competition regulations.

A visibly unsettled Safaricom CEO Bob Collymore on Friday took CA and Airtel to task over the proposed regulations, which he said were in bad faith and against free market policies.

“The new regulations intend to make any player who has a significant market share dominant and proposes to automatically demonise them without catering for the abuse of dominance test, which is used to decide if a player has abused their dominance or not,” Mr Collymore said.

“This goes against any international best practice, and sets the stage for negating the gains that have been made in the country’s ICT sector, encouraging inefficiencies and lack of investment. Why would you invest in innovation and technology if they will take it away from you if you are successful?”

CA is proposing 14 amendments to the Information and Communications Act.

“As Government, we are concerned about the issue of market unevenness, and we are sending the regulations to Parliament to address some of the concerns that have been raised,” said ICT Cabinet Secretary Fred Matiang’i.

He added that the legislation is not meant to clip the wings of Safaricom as may be perceived, but to make the country’s telecommunications sector more competitive.

However, Safaricom is reading mischief in the move.

“The regulations set the stage for the automatic and immediate regulation of the retail prices of a dominant operator, and this goes against free market policies,” said Collymore.

He added that introducing such laws would set a dangerous precedent and could have far-reaching implications not only in the ICT sector, but across the economic landscape.

“In the proposed scenario, any CA licensee that has above 50 per cent market share in any market segment will automatically be subjected to penalties and become regulated. This means we could expect companies such as Wananchi, Nation Media Group, Royal Media Services, Multichoice Kenya and others to be similarly impacted and subjected to retail price controls and other sanctions.

“If such measures can be imposed in the ICT sector in a liberalised economy, can we expect similar sanctions in other industries where companies like Coca Cola, Bidco, East African Breweries, British American Tobacco, Brookside, etc, would be impacted?”

Competition rules

Airtel earlier this year wrote to Dr Matiang’i, asking to have Safaricom split into three firms.

“In other countries, as soon as a mobile operator reaches 50 per cent market share, there are some measures that are put in place, not to give preferential treatment, but to give other players a chance to expand their market share to be able to compete and invest,” said Mr Youssefi in a past interview.

“Today, we are in a situation where mobile money service transactions are dominated by one player and more than 90 per cent of transactions are going through one player.”

According to analysts at SIB, the proposed regulations could have a direct impact on Safaricom’s pricing of its services, and thus its bottom line.

“A dominant licensee under the new regulations would be required to unbundle charges, not just when interconnecting for voice, but also other services, so that competitor licensees are not charged for items unrelated to the service requested,” said SIB.

“This further entrenches non-profitable, cost-based charges. For voice services, we think the implication could be the dominant player charging lower voice interconnection rates than what it pays to other licensees for interconnection (asymmetric pricing).”

The proposed competition rules also appear geared to give CA powers to regulate M-Pesa’s interconnection charges. Essentially, M-Pesa will become the default national mobile payments platform.

The impact of this, SIB said, is that Airtel Kenya and Telkom Kenya may be able to offer almost interchangeable products to Safaricom’s, while still being able to compete on price (effectively accessing all Safaricom customers).

“Additionally, there is a plan by the Kenya Bankers Association to provide a real-time interbank mobile money transfer platform, which we think is likely to create a very real challenge to Safaricom’s M-Pesa,” the analysts said.

“From this standpoint, we wonder what restrictions would be placed on the banking sector mobile platform to enable Safaricom invest and compete effectively against it.”

-Additional reporting by Jevans Miyungu.

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