Kenyan telcos in dilemma over infrastructure sharing

On Tuesday, a consultant retained by Communications Authority of Kenya (CA) presented findings of research done two years ago on the state of competition in the telecommunications industry.

The consultant, Philip Bates of Analysys Mason, kept on referring to Safaricom and two other ‘small players’.

According to the London-based research firm, the small players need help to compete in the Kenyan market.

Top on the list of the support needed is being allowed to share Safaricom’s infrastructure in seven counties - instead of building their own – for a period of five years.

The consultant said it would be uneconomical for the companies to set up their networks in the counties, at least in the short and medium term.

“We found that it was not economically viable for smaller operators to extend coverage in areas of low population density given current market share and cost of tower sharing,” Mr Bates said.

Analysys Mason presented the case as a win-win for all the mobile operators that would enable Telkom and Airtel increase their reach in the country while at the same earning Safaricom infrastructure-sharing revenue, though the amount paid by the two would be regulated.

Shortly after the firm made the case for the small players, Airtel Africa Head of Regulatory Daddy Bujitu shot up and introduced himself.

“For those who don’t know about us, (Bharti) Airtel is the third largest mobile operator in the world by subscribers,” he said.

For a moment the room went silent, before murmurs broke out with people questioning how Analysys Mason could have gotten it so wrong in classifying Airtel as a small player who needed help to operate.

While the study classifies Airtel Kenya as a ‘smaller’ operator, the global entity is a behemoth and competes with Vodafone – Safaricom’s mother company – at the world stage.

Bharti Airtel has operations in 20 countries across Asia and Africa with its headquarters in New Delhi, India.

By December 2017, the company had over 394 million subscribers, giving it about Sh1.5 trillion revenue.

For comparison purposes, Safaricom’s highest revenue is slightly higher than a tenth of that at Sh200 billion.

Bharti Airtel has built over 185,000 base stations, compared to Safaricom’s 4,600 and about 8,000 for the three operators - the third being Telkom Kenya.

For the past three years, the Delhi-based telco has been spending an average of Sh305 billion annually to expand in other markets, with little of that coming to Kenya.

Perhaps the questions in the minds of many who attended the Tuesday launch included why the world’s third-largest mobile operator was hesitant to invest in northern Kenya, instead preferring to carry its traffic through Safaricom network.

“Safaricom should be required to provide other Tier 1 mobile operators with access to its sites in seven designated counties,” Analysys Mason said in its recommendations, which are now in the public participation phase.

“Access should be provided on a non-discriminatory basis and the regulated price shall apply for a minimum of five years at each individual site.”

The seven counties are Isiolo, Garissa, Mandera, Marsabit, Samburu, Turkana and Wajir.

“In total these counties account for more than 50 per cent of the Kenyan territory, but only contained around 10 per cent of the population at the time of the 2009 census,” says the report.

Investment by Safaricom in the seven counties is bigger than the combined outlay by Telkom Kenya and Airtel in the areas, according to Analysys Mason.

Residents of the counties have for long complained of neglect by Government and private sector because of little investments.

But the private sector has expressed concern in putting money in some of the areas, which are susceptible to terrorist attacks. In the case of telcos, they have to bear the cost of repairing base stations.

Fiona Asonga, chief executive of Telecommunication Service Providers Association of Kenya (Tespok) said the study had not taken into consideration such factors as security.

She said operators with networks in the regions where they will have to share infrastructure with rivals have to secure their own sites and cited the numerous terror attacks that have caused downtimes, with the operators having to incur additional costs in bringing the networks back online.

Commercial arrangements

These costs, said Ms Asonga, may not be factored in the regulated cost of sharing infrastructure and operators should not be compelled to share infrastructure but it should be based on commercial arrangements.

“There are instances where there are repeated attacks on infrastructure and operators end up having downtimes that cumulatively add up to months. This way they cannot meet the quality of service parameters stipulated by CA,” she said.

“Infrastructure sharing is already in place. The operators have a code of practice that has been in force since 2010 where they agreed to share infrastructure, but based on a business arrangement.”

Asonga also faulted Analysys Mason for a heavy focus on the mobile network operators in many of the segments of the report and recommendations, in an industry that has numerous players.

“The study looked at mobile operators other than telecommunication service providers. There are Tier 2 and Tier 3 players that the consultant left out and that may make one question the recommendations,” she said.

The other big question is why Airtel declined to apply for Government subsidy - under the Universal Service Fund - to set up their own network in the under-served areas.

Last year, CA adopted a methodology that targets the application of the fund to marginalised and under-served areas by offering to co-fund with an operator, with government willing to invest between 20 and 80 per cent.

CA then called for the three operators to bid for a total of 105 lots, where a lot would require building between five and six base stations.

Safaricom tendered for 31 lots and was awarded 24 to construct on a subsidy of Sh888 million. Telkom Kenya tendered for 12 lots and was awarded 10 lots at Sh350 million.

Airtel did not apply for any, raising questions about its commitment in expanding its network.