Why regulator’s boardroom war carries crippling price tag for ICT

It was one of the last things he said before leaving office.

Fred Matiang’i, the former Cabinet Secretary for Information, Communications and Technology, told journalists at a press conference that his ministry had the highest number of lawsuits in Government.

His successor, Joe Mucheru, has barely been in office for four months, and besides inheriting several lawsuits from his predecessor, is himself the subject of a contempt hearing scheduled for April 25.

The hearing will be the latest (and one of at least three others) in a dramatic two-year fight for control of the boardroom at one of Kenya’s most important regulators.

The current board stalemate at the Communications Authority of Kenya (CA) was sparked even before the directors assumed office in 2014.

One of the applicants who had been left out of the list of nominations, Adrian Kamotho Njenga, filed a suit challenging the appointment procedure of a new board in May 2014. Last year, the court ruled in his favour, disbanding the board.

The ruling, delivered by Justice George Odunga, only affected seven new board directors; Wilbert K Choge, Kennedy Monchere, Grace Mwendwa, Levy Obonyo, Helen Kinoti, Beatrice Opee and Peter Munywoki.

This set the stage for an acrimonious boardroom war, with fault lines within the board going public, leading to legal spats and blame games.

Three weeks ago, matters took a dramatic turn as one faction of the board attempted to convene a meeting at the CA headquarters along Nairobi’s Waiyaki Way, but was repelled by administration police.

The conflict now threatens to throw the operations of the ICT regulator in disarray, as a board meeting cannot be constituted in the prevailing circumstances.

Government’s role

The Government’s role in the entire saga has also come under scrutiny, with the deposed board members reading an attempt at interference with the affairs of the authority.

After withdrawing an appeal that was effectively keeping the board in office, the Government, through the ICT Ministry, advertised the vacant positions and gave prospective applicants only two days to apply.

The recruitment process raised eyebrows after two ousted board members, Prof Obonyo, the dean at Daystar University’s communications department, and Ms Opee, who had served as a CA board member between 2012 and 2014, made it back on the list of nominated members.

Also on the list was Mr Njenga, whose lawsuit in 2014 eventually led to the dissolution of the board.

Mr Choge, one of the board members fighting to stay in office, reads mischief in the Government’s actions.

“We do not understand why the Government withdrew the appeal that disbanded the board without talking to the board and the CA, which is the interested party,” he said.

He added that the CA board, predicting the move by Government to withdraw its appeal, had filed a separate appeal in June 2015.

“The CA is a legal entity, and as such, we filed our own appeal to Justice Odunga’s ruling within the appeal window, and the minister’s move to constitute a new board is in contempt of this appeal, hence the hearing scheduled for April 25th.”

SLIM CHANCES

But according to Mr Mucheru, the decision to withdraw the appeal followed talks with Attorney General Githu Muigai.

“We made the decision under the advisement of the Government counsel, the Attorney General, who told us that the chances of winning the case were slim,” he said, a day after the appeal was withdrawn.

The boardroom wrangles at the regulator have raised questions about the independence of the CA, guaranteed in law in 2009 through amendments to the Kenya Information and Communication Act of 1998.

Before this, the ICT minister was the appointing authority, and the Government had preferential pick of the nine-member board that included three permanent secretaries.

Kenya’s ICT sector has grown phenomenally in the last decade. In the 2009-10 financial year, a total of 610 licences were granted by the industry regulator across various market segments.

In the 2014-15 financial year, this figure shot up to 1,866, and is set to become bigger as digital migration gathers traction, and the Universal Service Fund (USF), currently at Sh3 billion, becomes functional.

The ICT sector has not only become large, but also intertwined with other critical economic sectors as firms adopt technology to save costs and develop superior products.

For instance, mobile services providers in 2006 had voice, text and a nascent data offering that made the job for the then-Communications Commission of Kenya relatively easier.

Today however, the same companies have evolved and multiplied their customer base into the fields of micro-lending, insurance, healthcare, betting and broadcasting.

This has meant that CA’s influence and its policy decisions extend beyond the field of ICT as understood 10 years ago.

Predictably, there has been friction between CA and other regulators over matters jurisdiction.

Last year, for instance, the authority’s director general, Francis Wangusi, and his counterpart from the Competition Authority of Kenya (CAK), Francis Kariuki, openly differed on the issue of market dominance and leading telecommunications firm Safaricom.

Issues of dominance

CA sought to declare Safaricom dominant and former ICT Cabinet Secretary Matiang’i was on the verge of presenting a Bill to Parliament to that effect.

The Bill was, however, withdrawn, with CAK saying Safaricom cannot be unilaterally declared dominant by virtue of its market share.

CA retreated and commissioned an external consultant to conduct a survey to determine issues of dominance and abuse in the ICT sector.

It is, however, doubtful that CA will be able to act on the findings of the survey. President Uhuru Kenyatta in December last year assented to the Statute Miscellaneous Amendments Bill, 2015 that, among other things, proposes CA consults CAK before effecting legislation pertaining to market dominance.

The new amendment would strip the communications regulator of some enforcement powers, and even though the authority can legally declare a player in the telecommunications sector dominant, it has little recourse to make a policy decision without the blessings of the CAK.

Activist Okiya Omtata has since moved to court to have the Statute Miscellaneous Amendments Bill, 2015 repealed.

Another issue where the independence of the regulator has come into question is a Sh2 billion licence renewal fee for Kenya’s second-largest mobile services provider, Airtel.

Airtel Kenya’s frequency spectrum licence expired in February last year, and CA issued the firm with a Sh2.1 billion demand letter for a new 10-year licence.

Airtel, which has been having difficulties growing its revenues, routinely citing Safaricom’s market position, protested this cost. It said the acquisition of the operating licence from Essar (the Indian firm that sold off its yuMobile network last year, exiting the Kenyan market) should have guaranteed some form of reprieve.

More than 73 per cent of the regulator’s income comes from annual frequency fees, with the rest coming from operating licence fees, interest income and type approval fees.

According to CA’s financial reports, it made Sh7.3 billion in income in the 2013-14 financial year, down from Sh8.7 billion the year before.

Still, with Sh1.7 billion spent on operating expenses, CA’s Sh5 billion surplus remitted to the Treasury is one of the largest contributions among all Government regulators and agencies.

Airtel’s licence issue split the board down the middle.

Last month, Bharti Airtel founder Sunil Bharti Mittal made a quiet State visit to President Uhuru, accompanied by Airtel Kenya’s new board chairman, Titus Naikuni.

Mr Wangusi, however, said the regulator is independent from external influence in terms of making policy decisions, though it is bound to statutory laws for public companies.

“We are not completely independent from public financial management rules and other statutory legislation, like the Constitution, and this means we cannot do what we want,” he said.

“But in terms of our independence in making industry decisions, nobody is interfering with us. We simply inform the ministry what we are doing, but we execute it ourselves.”

The director general paints a tenuous picture of the organisation’s ongoing operations and performance in the midst of the crisis in its boardroom.

“Since two months ago when the board was sort of disbanded, we have not made any serious decision that required its guidance,” he said.

“The impact has not been severe because by the time the board was disbanded, we had already passed our budgets. We are now implementing the activities and programmes that had already been decided upon.”

Wangusi, however, acknowledged that should the current stalemate continue, activities at the regulator might grind to a halt, and in effect, affect the larger ICT sector.

“We will be severely impacted if the stalemate gets past the point when we need serious decisions about the operations of the organisation, such as the budget and other approvals that must be done by the board.”

EXTENT OF CORRUPTION

One of the issues that is due for deliberation, and that is paradoxically the cause of the rifts in the regulator’s board, is the adoption of a forensic audit by consultancy firm KPMG.

Last year, an internal audit at CA revealed that senior officials had collected millions of shillings in allowances and mileage claims.

According to documents seen by Business Beat, board members took home Sh9.8 million in sitting allowances over a six-month period, and another Sh10 million in training expenses.

Choge, who claims to have blown the whistle on the wastage, said the extent of corruption at the authority is even deeper, necessitating the audit that was to be released last month.

“We know the external forensic audit was going to expose damning evidence of corruption by some senior members in the authority, but just before we held the meeting where it was going to be tabled and adopted, the board was dissolved,” he said.

Wangusi said the forensic report would be released.

“We have received the audit report and we are going through it, and we will make it public since we have nothing to hide,” he said.

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