Consultant backs down on proposal to split Safaricom

Safaricom mobile retailers give service to revellers at a past event. [Photo by David Gichuru/Standard]

Mobile service provider Safaricom has gained a reprieve after the firm contracted to assess competition in the telco industry backed down from an earlier proposal to split the company.

UK consultancy firm Analysys Mason said yesterday it changed its tune after consultations with industry players.

An earlier draft of the study’s report had proposed the separation of Safaricom and M-Pesa, both operationally and in financial reporting, which would in effect have created a new entity.

“This remedy could be seen as disproportionate and constraining the CA’s (Communications Authority) discretion to act as it saw fit at the time. The final report is therefore silent on what further remedies the CA might consider,” said the firm in Nairobi yesterday during a public debate where it presented the report titled Telecommunication Competition Market Study in Kenya.

ICT Cabinet Secretary Joe Mucheru, in a speech read by Permanent Secretary Sammy Itemere, also ruled out the earlier proposal, terming it punitive.

He said it would be a last resort after all policy interventions had been exhausted.

“The Government through the (Communications) Authority is not planning to split the businesses of players who are alleged or perceived to be dominant,” said Mr Mucheru.

“It is not the Government’s intention to punish success but enhance competition so as to foster the growth of the telecommunications sub-sector and indeed the wider ICT sector.”

Healthy competition

Despite backing down on the splitting option, Mason said there was a need for regulatory interventions to maintain healthy competition in the sector, considering that Safaricom’s market share currently stands at 70 per cent and 80 per cent market in the mobile communications and mobile money markets respectively.

“If a company has a high market share, it is in a position to set prices without worrying too much about the actions of other players,” said Philip Bates, the lead researcher at Analysys Mason.

“By virtue of having a high market share, we believe Safaricom does have the power to set prices, particularly if you think about the situation in rural areas where they are perhaps the only network.”

In the recent past, M-Pesa has grown steadily to be Safaricom’s largest revenue earner after voice, raking in Sh55 billion, more than 25 per cent of the firm’s combined service revenue.

The report also recommends the reduction of the number of tower infrastructure Safaricom was expected to share with competitors in order to expand access to telecommunication services in rural areas.

The report had recommended Safaricom to share its tower infrastructure with other Tier 1 service providers in 14 counties where telecommunications infrastructure is lacking.

These have since been halved to seven counties in the wake of criticism that this was seen as being punitive for prior investment.

Loyalty schemes

Some sections of the report if implemented could also affect consumers such as the prohibition of loyalty schemes and promotions.

The report recommended that the awarding of loyalty points such as Safaricom’s Bonga Points should be done equally instead of pegging it to different classes of consumers.

It also proposes curbing the telco’s advertising budget.