Hard times for small firms in wireless sector

It is interesting how within weeks of a hasty retreat by the Communications Commission of Kenya (CCK) on the fair competition and equality regulations, which were based on a 2006 survey report, the US Federal Communications Commission (FCC) last Thursday unveiled a similar report that could see the regulator take the Kenyan route.

According to the report, the two largest mobile operators, AT&T and Verizon Wireless, have 60 per cent of the country’s mobile subscribers and of revenue.

In addition, the biggest continued to grow, together gaining 14.1 million subscribers in 2009, while the smaller T-Mobile USA and Sprint Nextel lost a net 1.7 million subscribers in 2008 and gained only 827,000 in 2009.

The 237-page report says industry consolidation has grown by 32 per cent since 2003.

This according to insiders is an indication that the competition in the wireless market has been eroded and that policy makers need to start worrying about these numbers.

The report further states that most of the best mobile spectrum — those bands below 1GHz, which allow for greater coverage with fewer cell sites —is overwhelmingly controlled by the big players. AT&T and Verizon Wireless together hold 67 per cent of the 700MHz band and 91 per cent of the 850MHz Cellular band, the report said.

This was the first report designed to review competition across all parts of the mobile wireless industry, including voice, messaging and broadband data services in the US.

Unfortunately, it falls short in giving a clear-cut conclusion competition levels.

So, looking at this report and the events in our industry, one sees competition concerns in the wireless industry are similar globally.

Where the bigger have the tendency to grow even bigger while the smaller ones shrink and some eventually pack up.

Moses Kemibaro, the CEO of DotSavvy, one of the leading web development firms in Kenya said the growth of Safaricom could be attributed to a network effect —“the effect that one user of a good or service has on the value of that product to other people.”

When network effect is present, the value of a product or service increases as more people use it.

Meaning, people joining the network due to the perceived value of other people joining the same network.

But the initial subscribers are normally driven by the value the network offers.

In the case of Safaricom, this could have been tariffs and innovation.

So then, is there room for market stabilisation based on policy and regulation in both cases?

The FCC is still studying the report, but there are no indications they are introducing regulations.

The wireless market is very competitive, with new services, applications, and devices.

Therefore, there is justification for more regulation in a market where the forces of supply and demand are working properly.

Trying to do this is to say the least defeatist and will only act to destabilise the marketplace.

Hare is a director at African eDevelopment Resource Centre.