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Zain, Safaricom wars go to President’s office

President Kibaki is introduced to Bharti Airtel Chairman Sunil Bharti Mittal (left) by Mr Naushad Merail, the chairman of Zain Kenya (second right), when they called on him at Harambee House. Looking on is the CEO of IBM, Mr Samuel J. Palmisano (second left). Photo/PPS
President Kibaki is introduced to Bharti Airtel Chairman Sunil Bharti Mittal (left) by Mr Naushad Merail, the chairman of Zain Kenya (second right), when they called on him at Harambee House. Looking on is the CEO of IBM, Mr Samuel J. Palmisano (second left). Photo/PPS 

Mobile phone service provider Zain Kenya has escalated its tariff and competition wars with Safaricom to President Kibaki’s door step, adding a political dimension to what has so far been a purely commercial dispute.

In a hard-hitting letter to Francis Muthaura, the permanent secretary in the President’s office and secretary to the Cabinet dated September 23, Zain accuses the Ministry of Information of uneven handedness in its handling of telecoms market players, citing the recent review of competition rules ‘in favour of Safaricom.’

Zain is asking for a fresh review of fair competition, equality and tariff regulations that were revised this month after Safaricom put up a big fight against an earlier version published in May.

The letter, signed by Mr Rene Meza, Zain Kenya’s managing director, accuses the Information ministry of being weak kneed in dealing with a dominant market player and soiling the business environment for smaller players.

Mr Meza is particularly outraged by the removal of a clause in the competition rules that defined the dominant operator as one whose revenues exceed 25 per cent of the total income of all licensees in a particular segment of the market.

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Safaricom controls 78 per cent of the entire telecoms market, while Zain has 10.4, Orange 5.2 and Yu 6.4 per cent.

Zain is uncomfortable with the introduction of a new provision that requires industry regulator, the Communication Commission of Kenya (CCK), to rely on a number of factors in determining any breach of anti-trust regulations.

Mr Meza says the provision as currently crafted make it impossible for the regulator to proactively act against a dominant player where possible abuse has been established.

CCK will instead rely on other factors including ability to earn super normal profits, operators’ product price movements over a period of time and the possibility of an operator erecting entry barriers to the market to determine whether anti-trust regulations have been breached.

“We are greatly concerned that the revised regulations make it very difficult for the commission to proactively intervene where dominance has been established,” Mr Meza says in the letter. “In our view, this defeats the purpose for the exercise of establishing the regulations and actually perverts justice to the small operators.”

Zain is also uncomfortable with the tariffs regulation clause that requires the CCK to, among other things, demonstrate that a licensee, who has been declared dominant, has abused the dominant market position before taking any action.

“To insist that the commission must find the dominant operator to have abused its dominance is tantamount to frustrating the commission in the performance of its statutory duty, which is to ensure that there is fair competition,” said Mr Meza.

Zain also says the revised regulations have not set out financial penalties for abuse of dominance and that the said regulations have also tied the CCK’s hands in demanding that it must first establish the existence of abuse before imposing any obligation on a dominant operator.

Zain said it had sought the intervention of the president’s office because the Ministry of Information had become insensitivity on the matter ‘from the very beginning.’

“Together with other small operators we objected to the choice of Frontier Economics because we questioned their independence and neutrality as a consultant on such a sensitive exercise,” said Mr Meza, citing the consultancy work that the group had done for Vodafone in Europe. Vodafone is the single largest shareholder in Safaricom.

“We are concerned that the ministry chose to disregard our views on the selection of the lead consultant and actually proceeded to revise the regulations in complete disregard of the written views of other operators and without taking steps at consensus building,” Mr Meza says in the letter.

Information Permanent Secretary Bitange Ndemo denied Zain’s claims that the operators were never consulted over the hiring of Frontier Economics.

Essar’s Yu, another small player in the market, also said it was not comfortable with the regulations as revised and wants them reviewed afresh.

“We are very unhappy with the way the whole issue has been handled,” said Atul Chaturvedi, Essar’s country manager.

The competition laws were reviewed after Safaricom accused the government of unfairly targeting it for being successful and threatened to seek legal redress if no action was taken to review them.

The latest revision of the telecoms competition regulations has removed a number of clauses that Safaricom said were targeted at its business to the advantage of rivals Zain, Orange and Yu.

Knocked out from the rule book is the section that defined a dominant player as one whose revenues exceed 25 per cent of the total income of all licensees in a particular segment of the market.

The new rules bear no threshold on revenues or market share, meaning that even smaller players can be called to account when they engage in practices that beat the spirit of fair competition.

This means that a service provider such as Safaricom -- which has welcomed the changes -- will not be declared dominant just because it has significant market power.

The government hired Frontier Economics in June in the wake of Safaricom’s opposition to the competition rules published in May, arguing that the regulations risked reversing the gains it had made over the years.

Before the regulations were reviewed, the CCK had the powers to approve any price increases or reductions by the dominant player.

The latest review of competition rules has left the regulator with the authority to approve only the dominant player’s price increments and not reductions.

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