Economy & Politics

AG blocks Matiang’i bid to cut Safaricom big market muscle

Attorney-General Githu Muigai:
Attorney-General Githu Muigai:"I advise that the Ministry withdraws the regulations from the National Assembly and subject them to discussions." PHOTO | FILE 

The Attorney-General has asked ICT secretary Fred Matiang’i to withdraw from Parliament regulations seeking to have Safaricom declared dominant on account of its large market share, giving the telecommunications giant timely support in its fight with rival Airtel.

In a letter to Dr Matiang’i dated July 9, 2015, Githu Muigai, the AG, has also hit out at the minister and the Communications Authority of Kenya (CA) for drafting the controversial regulations without his input contrary to the laid down law-making procedures.

“[Drafting of the regulations and forwarding to Parliament] has been done without the input of this Office as per the agreed procedure for the preparation of legislation or of the CAK (Competition Authority of Kenya), the expert body in matters relating to competition under the Competition Act,” Prof Muigai says.

“Accordingly, I advise that the Ministry withdraws the regulations from the National Assembly and subject them to discussions in all aspects as contemplated by the MoU (between CA and CAK).”

The AG’s response was triggered by a letter the competition authority wrote to the ICT secretary asking for revision of the proposed set of 11 regulations, which the authority describes as drastic.

The regulations have provisions that empowers the CA to automatically declare a telecoms operator with more than 50 per cent market share dominant, subjecting Safaricom to a restrictive marketing and pricing business environment.

Dr Matiang’i forwarded the proposals to Parliament last month, with spirited backing from Airtel, and the CA, leaving Safaricom fighting a lone battle.

Prof Muigai’s support therefore comes as a welcome relief to Safaricom, which has maintained that it is not abusing its dominance and that it is being unfairly targeted by the stringent guidelines.

Statistics released by the CA on Monday show that Safaricom controlled 67.1 per cent of Kenya’s telecom market as of March, down from 67.4 per cent in December.

Telkom Kenya (Orange) gained 0.8 percentage points to reach 10.8 per cent market share while Airtel lost 2.4 percentage points to close the period at 20.2 per cent market share.

CAK director-general Wang’ombe Kariuki in April backed Safaricom in its battle with the CA, arguing that subjecting restrictive dominance laws on the telecoms operator without proving abuse rubbishes the tenets of competition law and international best practice.

In a memo to his CA counterpart Francis Wangusi, Mr Wang’ombe cited several clauses in the proposed law he considered “retrogressive” and wanted repealed.

One of CAK’s main arguments, which were also attached in the June 17 letter to Mr Matiang’i, is that the Fair Competition and Equality of Treatment Regulations do not envision market research as a basis to ascertain dominance and its abuse.

“The regulations can only be introduced after the sector regulator has undertaken reviews of the telecommunications market taking into consideration the general principles of competition law,” Mr Kariuki said.

“The proposed regulations can only be introduced in a scenario where a monopoly situation exists, and not dominance. They should only be imposed in markets where competition remedies are not sufficient to address the problem.”

The CA’s draft rules deleted a clause in the current law requiring it to prove abuse of dominance before declaring an operator as such. The regulator argued that the clause had made it “difficult” to punish errant telecom firms.

A market review is meant to determine if an industry has high barriers to entry, whether a dominant position is expected to persist indefinitely and if application of the competition laws alone cannot remedy the situation.

Mr Wang’ombe advised that the CA only apply restrictive measures (price controls) in cases where there is a catastrophic market failure, adding that the Kenyan telecoms market still shows signs of being contestable.
If passed, the proposed law will also require dominant telecom firms to have their tariff adjustments vetted by the regulator before implementation, a requirement that would deny Safaricom the chance to respond speedily to changes by rivals.

The new regulation also introduces price controls for dominant players, meaning the CA will have powers to set tariffs for Safaricom as is the case in the petroleum sector.

The competition watchdog says this move seems to support the “(mis)-interpretation” that being a dominant player is an illegality that can only be addressed using price controls.

The new CA regulations will also empower the regulator to publish proposed tariffs for regulated services in the Kenya Gazette and invite consumers and competitors to comment.

Operators found abusing their dominance or engaged in anti-competitive conduct will also be liable to a fine not exceeding the equivalent of 10 per cent of gross revenue in the preceding year, for each financial year that the breach persists.

The AG’s letter to Dr Matiang’i adds a fresh twist to the ongoing supremacy war between the CA and the CAK. Prof Muigai argues that the CA and the CAK need to abide by the MoU they signed on May 6 committing to “collaborate in the preparation of legislative…regulations.”

“I consider that the concerns raised by CAK require discussion between your two bodies for the sake of harmony of operations. The expected collaboration was not forthcoming in the present case,” the AG says.

Airtel has in recent months been piling pressure on the CA to declare Safaricom dominant, saying its position had made the market uncompetitive, risking edging out rival firms.

Airtel, which has gone as far as lobbying the Senate, argues that is has consistently made losses over the past five years because the market “is concentrated and only one operator makes profit.”

Safaricom has maintained that, not only is it not abusing its dominance, but that it acquired the market power through calculated investment and should therefore not be punished for it.

If passed, the proposed law would also require Safaricom to split its massive business into independent units, a move analysts say is targeted at M-Pesa — the telecom’s cash cow.

“We see no justification for splitting our business into three. The likes of Google, Microsoft, Panasonic and Sony are vibrant because they stand on their own two feet,” Bob Collymore, Safaricom’s CEO, told the Senate committee on ICT last week.