Telecoms operator Safaricom has received crucial support in its war with the Francis Wangusi-led Communications Authority of Kenya (CA) which wants to automatically declare it a dominant player in the market.
The support came from the Competition Authority of Kenya (CAK), the consumer markets referee, which has poked holes into Mr Wangusi’s draft regulations that will from mid-June declare Safaricom a dominant player on grounds that it controls more than 50 per cent of the telecoms market.
In a memo written to Mr Wangusi, CAK director-general Wang’ombe Kariuki says 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 on to the dominant licensee, considering that the dominance position may have been acquired through innovation,” Mr Kariuki says.
Regulators, Mr Kariuki argues, should only be worried of dominance and intervene if the firm that possesses market power behaves to an appreciable extent independently of its competitors, customers and ultimately consumers.
Safaricom, which argues that it should not be punished for growing organically, has been embroiled in a long-drawn war with ICT secretary Fred Matiang’i, who is thought to be the originator of the CA’s draft regulations.
Safaricom controls 67.4 per cent of Kenya’s telecoms market, Airtel, its closest rival, has 22.6 per cent market share while Orange has 10 per cent, according to CA’s December 2014 statistics on subscriber numbers.
Declaring Safaricom dominant would put it in a more restricted business environment with additional obligations on transparency, marketing and product pricing. The company could also be required to split its massive business into independent units.
Mr Kariuki argues that, in line with international best practice, the CA should first conduct a market review of the telecom industry to prove abuse of dominance before introducing any stiff regulations.
International best practice demands that such a review should determine whether an industry has high entry barriers, whether a dominant position is expected to persist indefinitely and if application of the Competition Act alone cannot remedy the situation.
Fair Competition and Equality of Treatment Regulations, through which the CA is seeking fresh powers to address abuse of dominance in the telecoms market, contradict this argument.
The CA’s draft rules have deleted a clause in the Kenya Information and Communication (Amendment) Act 2013 that requires it to prove that a firm is abusing its dominance before declaring it as such.
Mr Wangusi says that the clause had made it impossible for the CA to declare any operator dominant and/or punish abuse of market dominance, a line of thought Dr Matiang’i shares.
“We have deleted Section 3A, that required us to prove abuse of dominance before declaring an operator dominant,” Mr Wangusi told the Business Daily in a past interview.
Under the new rules, any operator found to have abused its dominance or engaged in anti-competitive conduct will be liable to a fine not exceeding the equivalent of 10 per cent of its gross turnover in the preceding year, for each financial year that the breach persists.
If the CA’s new regulations are adopted without amendment, Safaricom will, among other conditions, have any intended tariff reduction or increment vetted by the regulator before implementation.
Currently, the law only requires such authorisation for proposed tariff increment.
Mr Kariuki argues that such a requirement would prove a considerable roadblock to any attempt by Safaricom to quickly respond to tariff changes made by rival Airtel and Telkom Kenya.
This, the CAK says, would be “retrogressive” in a market that still shows clear signs of being “contestable” with the players reacting to rivals’ tariff changes and customer complaints.
“The proposals will not only make the CA quite intrusive to the operators but also erase the independence of any undertaking declared dominant to respond to market dynamics,” says Mr Kariuki.
The new regulations also introduce price controls for dominant players, meaning the CA will have powers to set tariff thresholds for Safaricom as is the case in the petroleum sector.
The competition watchdog says such a move would support the “(mis)-interpretation” that being a dominant player is an illegality that can only be addressed using price controls.
The CA’s new regulations will also empower it to publish the proposed tariffs for regulated services in the Kenya Gazette and inviting consumers and competitor firms to comment on them.
Mr Kariuki argues that publication of tariffs not only deprives the forces of supply and demand their rightful role of setting prices but also overshoots the perimeters of price setting in markets, by allocating this role to competitors.
The CAK’s support comes in handy for Safaricom which has found itself outnumbered in contest where the minister, the sector regulator and its business rivals are fighting from one corner.
Dr Matiang’i last December wrote to Mr Wangusi demanding a brief on what the CA was doing in preparation to declare Safaricom a dominant player, raising questions about the authority’s independence.
Mr Wangusi responded three months later by releasing the now contested set of 11 proposed laws for public consultation ahead of their adoption in one and a half months.
Airtel, which controls 22.6 per cent of the market, has been pushing to have Safaricom declared dominant, saying such a move would give other players some breathing space.
Airtel has made a submission to the CA, arguing that Safaricom’s willingness to sign a settlement agreement to open up its M-Pesa agents was an acknowledgment of its position as a dominant player.
Bob Collymore, Safaricom’s chief executive officer, insists it is not right for the regulator to come up with laws that punish providers simply because they are market leaders. “It is unfair to punish someone just because they have a high market share,” said Mr Collymore.
“A high market share does not mean abuse of dominance, but rather it is a process of sound business management and independent customers’ choices.