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Splitting Safaricom: If it ain't broken, don't fix it

Financial Standard
 One of the reasons for splitting Safaricom is to make it easier to regulate. [Elvis Ogina, Standard]

One of Kenya Kwanza's campaign promises was splitting Safaricom, with M-Pesa becoming an independent entity.

Central Bank of Kenya Governor Patrick Njoroge seems to support that move, with January 2023 as the due date.

Should this be a political or an economic decision? I ask this both as a Safaricom shareholder and an economist.

Firms spin off their subsidiaries if they believe they will get more value from two firms than one.

It's simply an economic decision. But shareholders must decide. Corporate lawyers confirm this, please.

Will Safaricom call a shareholders' meeting to ratify the decision? My hunch is that the decision to spin off M-Pesa will be a boardroom deal between the two key shareholders - the government and Vodafone.

The government is also the regulator! I'm afraid the rest of the shareholders will be cheerleaders. If M-Pesa is spun off, Safaricom's value will fall, my hunch tells me. Remember M-Pesa is what keeps many Kenyans on the network. As a shareholder, shall I be compensated for this loss?

The suggestion that M-Pesa alone will unlock more value is contestable. It will now behave like any other bank, highly regulated and less likely to spawn any innovation.

Most innovations in banking are from telcos, not traditional banking. That's why we celebrate fintechs.

More curious is if I will be a shareholder of the new firm - M-Pesa Plc, perhaps.

Will it be floated on the Nairobi Securities Exchange to unlock its true value?

Or will I simply own the same proportion of shares I currently own in Safaricom? Worse still, could I bought off?

Why do we think unbundling M-Pesa and other Safaricom services is necessary? I find that curious when banks are getting into insurance and supermarkets into restaurants.

Diversification is still a popular strategy despite outsourcing. Economies of scope work. The same phone you use to call now serves as a bank.

One of the reasons for splitting Safaricom is to make it easier to regulate.

Voice and data would be under the Communications Authority of Kenya (CA), while M-Pesa would be under CBK. What is the Competition Authority of Kenya's (CAK) take on the proposal?

I find the argument more about empire-building. CA and CBK have enough work already. The current regulations have made Safaricom what it is today. Why do we want to fix what's not broken?

Let's borrow from history. The most famous split in telcos was when AT&T (the original one) was split into seven regional companies by the US federal government.

The resulting competition gave us the vibrant mobile services we enjoy today. Could that have inspired Safaricom's split?

US and Kenyan markets are vastly different. That is why M-Pesa has worked here and not in the US or South Africa.

The other argument that Safaricom is too big and is a dominant player does not hold much water. Why not simply license more players in this sector? Is the government not one of the biggest shareholders of Safaricom and midwifed its growth?

Again, why do we think Safaricom is too big? It has about 36 million customers. China Mobile has 966 million subscribers and Bharti Airtel has 491 million. Should we not be supporting Safaricom to expand into Ethiopia and even cross the Red Sea? "Too big" is relative.

Others argue that the dominance of Safaricom in telcos and finance (M-Pesa ) is a big risk if there is a failure in its systems. Why don't we raise the same issue with the Internet? Safaricom does not operate alone; banks and other telcos can share the risks.

The other argument is that Safaricom is too dominant in the securities market.

While that is a fact when did we last have an initial public offering (IPO)? Do you recall how IPOs excited us during the Kibaki era? Such IPOs would easily raise capital, an alternative to debt.

Allow me to overthink: the new firm spun off from Safaricom will need a board and other jobs. Who will get these jobs? Recall the promise of jobs to poll losers?

Besides, other firms are dominant and the regulators are quiet. Think of the brewing and cigarette industries. Did I read that the government has bought more of Telkom?

More overthinking, why are we talking of splitting firms when political parties are merging or forming coalitions? Why can't we let the market do its work? Has the market failed in Safaricom's case?

Splitting Safaricom should be an economic, not a political, decision.

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