By David Kedode
Published July 18, 2015
Attempts by Kenya’s Ministry of Information, Communications and Technology to tame mobile service provider Safaricom by declaring it a ‘dominant’ player are likely to hurt consumers, the market and the economy.
But just what’s at stake here? How did the altercation between Airtel (previously known as Kencell in 2000, Celtel in 2004, Zain in 2008 and Airtel in 2010)–the first mobile phone operator to commence operations in Kenya on May 5, 2000–and Safaricom–that followed four months later, on October 19, 2000–begin?
In 2000 Kencell, not Safaricom, had first mover advantage in the market, including existing customers, market share and network coverage. Over the next four years, i.e between 2000 and 2003, Kencell grew faster than Safaricom due to its perceived high quality voice and data network which gave it clear competitive edge to Safaricom, then, experiencing transitional challenges due to its association with defunct Telkom Kenya.
This market position unassailably changed over time with Kencell (renamed Airtel in 2010) ceding huge market share to Safaricom. The market shares in 2015 stand at 67% and 23% in favour of Safaricom and Airtel, respectively.
Just what caused this dramatic shift in the market share? Will punitive regulations reverse it?
Safaricom gained market share from Airtel through a series of initiatives; it came with per-second as opposed to per-minute billing; customer service, big Kenyan brand, Sambaza, wide network coverage and if memory proves many right, Safaricom was the first company to launch 3G data services.
It later came up with the game-changer in 2007; flagship money transfer service christened M-Pesa all of which the Kenyan consumer placed a great premium on.
Airtel’s predecessors on the other hand had stuck onto per-minute billing, which would later earn it the infamous tag of an expensive network disconnected from customer usage patterns and needs.
Further, the numerous rebrands that Airtel’s predecessors subjected customers to did not create the close attachment that Safaricom continues to enjoy from its consistent brand.
Airtel was to later commit another big “mistake” in the name of cost-cutting by outsourcing its customer-care function which was received with mixed reactions by consumers, especially when labour issues emerged within the outsourced company.
Though Safaricom, then and at times at present, suffered from chronic switch congestion and its customer-care calls was taking too long to be answered, it was worse for Airtel whose outsourced customer-care did not have the passion and drive of their indirect employer. Airtel has also had a high turnover of CEOâ€™s compared to Safaricom.
But it is commendable that Airtel is doing everything within its means to claw back its market share. It has since tapped a new Chairman from the aviation sector.
in 2014, Airtel hired Adil El Youssefi, a shrewd CEO who mostly operates from behind the scenes. Today Airtel is aggressively applying regulatory means to recapture the market share it lost to Safaricom.
This strategy, known as regulatory capture, applies where a less competitive player tries to beat the market leader firm by political and regulatory means, instead of doing so through the market.
While it was busy doing these things, Safaricom was consistent with its brand positioning and developing innovative products and services which Kenyan consumers wanted.
Airtel has recently been engaged in a flurry of overtures to regulators and in June 2015 invited the Communications Authority of Kenya’s board to visit its premises.
Similarly, Airtel invited the Senate to visit its premises on July 3, 2015, where it made accusations against Safaricom and continue to seek alternative forums to ventilate its concerns against this operator.
The Cabinet Secretary for Information, Communications and Technology, Dr Fred Matiang’i, in open support of Airtel’s cause, wrote to the Communications Authority demanding a brief on what they were doing in preparation to declare Safaricom a dominant player.
The letter, dated December 23, 2014, and addressed to the Director-General, Francis Wangusi, states:
The Kenya Information and Communications Act, Section 84W, gives the Communications Authority of Kenya powers to declare a service provider to be dominant if their market share is at least 50 per cent of the relevant gross market segment.
“This is therefore to request you to provide information on the consideration of the exercise of your powers as provided for in the Act, to address the issue of dominance in the telecommunications sub-sector of our industry. I look forward to your prompt advice on this matter.”
Besides the letter, the Cabinet Secretary has filed regulations to curb Safaricom’s dominance.
But Safaricom’s often perceived ‘hands-off’ CEO, Bob Collymore, is not taking the dalliance between his competitor and the Senate and the ICT Secretary without a fight. He says ‘splitting’ Safaricom ‘is not part of the options.’
Clearly, a stalemate beckons even if the regulations were passed by Parliament; which will have no precedent in the East African region.
But why is Safaricom against the new regulations and why should every other ICT player be concerned?
This is not the first time the Communications Authority (CA) has tried to hit out at Safaricom through regulations.
In 2010 Airtel, Orange and Essar-Yu took out a full page newspaper advertisement in support of regulations perceived to be targeting Safaricom.
It appears Airtel is keen to use the Government and Parliament to humble Safaricom out of market dominance.
The issue at hand is that the proposed regulations will be used to determine whether an operator is dominant and if that is the case they will then be subjected to penalties.
Safaricom’s position as stated by Collymore is that there is nothing wrong with dominance or large market share in itself; what should be of concern is whether a dominant player is acting in any manner that can negatively impact other players.
In Safaricomâ€™s corner is the crucial but little-known Competition Authority of Kenya (CAK). In late April 2015, CAK wrote to CA saying subjecting a business to restrictive regulations without proving abuse of dominance rubbishes the tenets of competition law and international best practice.
“The CA should aim at being proportionate in appropriating ex-ante remedies onto the dominant licensee, considering that the dominance position may have been acquired through innovation,” said the CAK advisory.
Consumer Federation of Kenya (Cofek) has recently announced a ‘WriteShop’ in which it is encouraging debate around ICT market dominance, dormancy, innovation and competition.
In analysing this subject, ICT commentators must move to objectively evaluate whether it is valid for a sector regulator to automatically ‘punish’ a player that has large market share or whether they should be subjected to other tests.
The position taken by the regulator, CA, is even more puzzling given comments that have been made by its Director General, Francis Wangusi, who is quoted as saying:
“Equating dominance with abuse of the market, as is the case with the current regulations, makes regulating dominance in the country onerous considering that dominant licensees do not always abuse the market.”
Wangusi also stated that although Safaricom is a dominant player controlling about three quarters of the market share, the regulator does not perceive the company as abusing its position.
“You see, being creative and competitive is not abusing dominance in any way. You can’t cap someone’s innovation and creativity at a percentage so that you protect those who are not as creative and innovative.
“As far as we are concerned, there is fair competition in the industry. I don’t see any major competition issue in the telecoms sector in this country. What needs to be addressed in that sector is the service that these firms offer customers.”
Why has the position changed and the focus shifted to ‘managing’ Safaricom?
We have seen recent calls by the Airtel Kenya CEO, Adil Youssef, calling for a number of regulatory interventions to help it make a profit.
Youssefi has called for higher retail prices for the dominant operator (Safaricom) and that M-Pesa should be ‘removed from Safaricom’ to enable Airtel compete with Safaricom.
A number of questions arise with regard to whether it is even feasible to remove an innovation such as M-Pesa from Safaricom.
Proprietary innovations tend to be the assets that different companies use to grow and compete. If these can be taken away from a company what signal will this send to innovators and investors?
If a dominant player is forced to raise its retail prices and therefore create a price gap between it and other players ‘does that not punish the consumers using the dominant operators’ services?
Another question that should be considered is: whereas these regulations are seemingly targeted at Safaricom, what will their impact be on other companies that are deemed dominant in other market segments â€“ even relatively smaller companies?
In any case, the world over, the competition and dominance laws are made for mature markets. That a strog player, not necessarily dominant, would have the financial muscle to engage in research and development, hence pro-consumer innovations.
This is the doctrine of unintended consequences where others will suffer because of the sins of another.
Another key question: Is this the right direction that the CA and Government ought to take particularly in a liberalised economy such as Kenya’s?
David Kedode is Programme Officer at Consumer Federation of Kenya (COFEK).
AÂ Consumer Federation of Kenya (COFEK) article.