CA loses power to regulate dominant telcos

Telecommunications sector regulator, the CA, has lost powers to independently monitor dominance and act against its abuse – leaving it with a narrow mandate of licensing new players and allocating frequencies.

Parliament stripped the Communications Authority of Kenya (CA) of the mandate through the controversial Statute Miscellaneous Amendments Bill, 2015 that President Uhuru Kenyatta signed into law before Christmas.

Under the new legal regime, the CA will have to consult the Competition Authority of Kenya (CAK) before making a declaration of dominance and when assessing critical industry factors such as Significant Market Power before making a declaration of dominance.

Parliament’s action specifically targeted Sections 84W (4) and 84W (5) which were amended to transfer telecoms sector regulations-making role back to the ICT Ministry, in a move that Francis Wangusi, the CA director general, says is unconstitutional.

Mr Wangusi says the amendments run against Article 34 of the Constitution, which requires the CA to be free of government and political control and independent of commercial interests.

The CA, which in the past three years has shown little interest in exercising its constitutionally enshrined independence and has mostly acted as a department of the ICT ministry, now says the newly enacted changes will have the effect of increasing government involvement in the CA’s operations through the involvement of the CS, and the CAK.

“Transferring the power to regulate competition in the ICT sector from Communications Authority, whose responsibility is to manage competition ex-ante, to the Competition Authority, which is established to manage the competition for the entire economy ex-post, will undermine the CA’s ability to assert itself as the ICT sector regulator,” Mr Wangusi said, adding that the changes are likely to expose the CA to various forms of litigation and hinder efforts to attract investments to the sector.

Safaricom and Airtel declined to comment on the issue. The CA is the sector telecommunication and broadcast sector regulator while CAK is the overall Competition regulator in the country.

Mr Wangusi further reckons that under the new regime it will be difficult to implement the outcome of a study by the international firm the authority is seeking to hire to examine Kenya’s telecommunication and broadcasting sectors for market dominance and anti-competitive behaviour.

The CA in September started the search for a firm that, among other things, will identify the relevant markets (sub-markets) within the telecommunication sub-sector, the number of players and their respective market shares.

READ: CA moves to hire market dominance consultant

The consultant’s brief also includes review of existing policy, legal and regulatory frameworks on competition, recommending appropriate changes to enhance effectiveness as well as proposing remedies for issues identified.

“The authority will be unable to enforce ex-ante regulations, which are a key regulatory tool for correcting uncompetitive markets,” Mr Wangusi said.

The Act has also deleted the previous legal definition of dominance and provides that dominance is to be interpreted in line with Sections 4 and 23 of the Competition Act of Kenya, 2010, as amended by the Finance Act, 2014.

Mr Wangusi, however, described the definition in the Competition Act as unsuitable as it only makes reference to economic considerations while leaving out other factors that are pertinent to the communications sector.

“Moreover, the definition is a bit unclear as it shifts the burden of proof between the regulator and licensees depending on the market share controlled by the licensee in question,” Mr Wangusi added.

The Act is in favour of the CAK that has previously insisted that CA ought to align its competition regulations with the Competition Act, 2014 and that before declaring any telecoms operator dominant there is need to prove abuse.

The two institutions have been fighting over who should handle dominance and anti-competitive behaviour in the telecoms market.

The matter drew the attention of Attorney-General Githu Muigai who asked former ICT secretary Fred Matiang’i to withdraw from Parliament regulations seeking to have Safaricom declared dominant on account of its large market share.

In a letter to Dr Matiang’i dated July 9, 2015, Prof Muigai, also hit out at the minister and the CA for drafting the controversial regulations without his input, contrary to the laid down procedures.

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 Dr Matiang’i had proposed and which the authority described as drastic.

The regulations contained provisions that sought to empower the CA to automatically declare a telecoms operator with more than 50 per cent market share dominant, thereby subjecting any operator declared dominant to a restrictive marketing and pricing business environment.

In April last year, CAK director-general Wang’ombe Kariuki argued that subjecting restrictive dominance laws to operator with market share above 50 per cent without proving abuse of that position rubbishes the tenets of competition law and international best practice.

READ: Safaricom gets crucial support in battle with CA

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

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