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Telco's merger and critical lessons from industry regulation

By Petra Abondo | August 17th 2019
By Petra Abondo | August 17th 2019
Dr Petra Abondo, a consultant in social work.

In April 2018, T-Mobile and Sprint announced their intention to merge and compete with AT&T and Verizon. The union would spur lower prices and enable the new entity deploy next generation 5G networks across the US. As this was unfolding, Kenya’s telco industry was preparing for an intended merger between Airtel and Telkom, the second and third player in the market. The Kenyan case attracted ridicule and criticism from varied quarters.

There were painful conclusions and unsubstantiated accusations that the firms had failed to invest like Safaricom. A bulk of these armchair pundits, including some legislators, are yet to appreciate the historical quest for regulatory intervention; an ongoing 20-year push that has led to the exit of several players.

The dailies have, in the past few days, highlighted Safaricom’s Sh601 billion injection into the Kenyan economy in the past year. The same dailies have also headlined the Sh68.9 billion cumulative losses that Airtel has incurred. Telkom got acreage of coverage over its intent to lay off about 70 per cent of its staff.

Narratives such as these should have the alarm bells tolling frantically, jolting MPs out of their ignorance to the implications of an extended delay to regulation review. The role of a regulator never stops; it is the continued review of checks and balances that keep the level of competition and scales in check, ensuring the market is attractive for further investment.

It is baffling that Kenya, the progressive and economic giant in the region, lacks swift regulatory intervention that is to blame for the exit of five investors from its Telco sector, while our smaller neighbour Uganda comfortably houses five.

The Telco sector was viewed as a natural monopoly that required no regulation to function effectively. With liberalisation, competition grew and technology changes saw the introduction of a competition-led approach. The role of the industry regulator – the Communications Authority – was to gradually evolve, guided by better principles of competition law, economics and corporate strategy.

Customer value

Kenya bears the tag of hub of technological advancement and adoption, thanks to MPesa and other short stories of innovation that made it for adoption by Silicon Valley. Granted, there is exponential growth on mobile phone accessibility, subscriptions and communication. But, does this growth epitomise customer value, integrity or even qualify as a credible case study of a truly thriving industry?

Mergers may reduce competition, whether through higher prices, less favourable terms of service or slower investment. Regardless, going from four players, to three and now two serves as a wake-up call for vital reform on the need for healthy competition. It is sad that the CA, which has been regarded as a model regulator in sub-Saharan Africa, is slow to take the bold step of correcting very obvious market anomalies. This regulatory inertia not only discourages investment but will affect the consumer in the long-term.

Is it not better to end up with a duopoly, should the intended merger proceed, than not allow the merger, witness the death of the two smaller players and end up in a monopoly? The literature on mergers and acquisitions to legislators, the industry regulator and its mother ministry, is seemingly lost on them, given that their role remains to preserve and improve on efficiencies and formulate remedies that allow Wanjiku to achieve more. All Wanjiku needs is access to services.    

Five years from now, we may find ourselves locked in a single player market. The goal of the ICT ministry and CA should be the pursuit of dynamic competition guided by policy and a sound regulatory framework. Otherwise, when the curtain falls on this one, we will be back onto the stage regurgitating the same script on our alleged successes. Let us stretch the time for just a little pretense as the ‘fastest growing sector’. 

- The writer is a consultant in social work. Email: [email protected]      

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