Airtel battles CAK and vendors in multi-billion airtime suit

Airtel customers line up outside an Airtel shop along Kenyatta Avenue in a bid to register their SIM cards before the October 15th deadline. [Denis Kibuchi, Standard]

Airtel Kenya has moved to court seeking to block the Competition Authority of Kenya (CAK) from investigating and taking action against the telco over alleged abuse of buyer power. 

This follows a dispute with several of its airtime vendors that could see the competition regulator slap the country’s second-largest telco with billions of shillings in fines. 

The vendors, including Pesapal, Mawingu Airtime, Interintel Technologies and Okakazi Ltd are accusing Airtel Kenya of unilaterally varying its commission rate and introducing a new payment structure. 

According to documents filed at the High Court, Mawingu Airtime Ltd filed a complaint to the CAK accusing Aitel of abuse of buyer power. 

CAK defines buyer power as the ability of a buyer to obtain terms of supply more favourable than a supplier’s ordinary contractual terms.

In other words, it means the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms, or to impose a long-term opportunity cost, including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long-term cost to the undertaking or group of undertakings.

According to Mawingu, it entered a distributorship retail agreement together with other vendors in 2019 where the firms would provide prepaid airtime vending services to Airtel customers in return for a commission. 

“Airtel acted as a purchaser of distributorship services offered by Mawingu for its prepaid airtime and in return provided Mawingu with a commission in the form of discounts on the prepaid airtime vending services provided,” explains the document. 

The terms of the contract included airtime commission at an eight per cent upfront discount and a transfer of six per cent to the retailers as the recommended retail margin.

The vendors were to retain two per cent of the discount, and Airtel was to pay a bonus commission of two per cent in total value purchased per month. 

However, in 2021, Airtel reduced the commission to six per cent upfront and a transfer of five per cent discount to retailers and the bonus commission per month fell to one per cent if a partner achieves 80 per cent of the monthly target. Airtel’s vendors now accuse the telco of unilaterally lowering the commission rates from the earlier stated eight per cent, to six per cent and further to the current three per cent without drafting a new agreement. 

“On June 30, 2023, Airtel communicated to its Modern Trade Partners a unilateral reduction of upfront commission for total primary billing,” explains court documents in part. 

“The communication was to revise the commission structure from six per cent upfront commission for total primary billing down to a three per cent upfront commission for total primary billing effective from 1st August 2023.” 

Section 24A of the Competition Act mandates the regulator to investigate abuses of buyer power - where companies exploit their position as bulk purchasers of goods or services to harm smaller firms, partners or resellers - and take action against such firms. 

If found liable, Airtel Kenya could be slapped with a fine ranging from a minimum of Sh10 million to 10 per cent of the firm’s preceding year’s gross turnover. 

Airtel Kenya has moved to the High Court seeking an order to stop CAK from conducting investigations into the firm, arguing that its vendors have not yet exhausted the option of arbitration provided in their contract. 

Airtel Kenya further argues that there is no buyer-weller relationship between the telco and its vendors to warrant the investigation by the CAK. 

“The notifications of investigations refer to various remedies sought such as refunds of commissions which as matters within the dispute resolution clauses set out in the contracts between the applicant and the interested parties who have been engaged in mutually beneficial contracts that have resulted in many engagements over the course of the years without demur and/or complaint,” states Airtel Kenya in an affidavit filed by its legal counsel. 

However, Mawingu says it, together with other airtime vendors under the lobby group Digital Vendors Association of Kenya, has on various occasions attempted dialogue with Airtel regarding the commission structure but to no avail. According to Mawingu, the 50 per cent reduction in commission rates will negatively affect its operations and puts the firm in a precarious position in honouring commissions it pays to other agents and retailers it contracts. 

“Mawingu still pays the same expenses regardless of the amount of airtime sold, hence, no justification for the disparate treatment of commission rates on airtime sales and that it would lead to an outright reduction of income,” says the firm. 

“The proposed commission will force Mawingu to make drastic cost-cutting measures, including declaring redundancies since Mawingu has invested a lot in the digital infrastructure, business relationships advertising and human resources to facilitate digital sale of Airtel Airtime.”