Economy

Regulator sets tough conditions for mobile firms

bob

Safaricom chief executive Bob Collymore. Photo/FILE

Safaricom chief executive Bob Collymore is facing hard options, following last Friday’s approval of his company’s quest to acquire rival yuMobile’s assets under tough conditions.

Mr Collymore has to carefully weigh the possible impact of some of the set conditions on Safaricom’s business against any advantages the firm may derive from taking over yuMobile’s assets.

Telecoms sector regulator the Communications Authority of Kenya (CAK) on Friday set 13 conditions that Safaricom, Airtel and Essar’s yuMobile must meet to complete the planned takeover of assets – key among them the opening up Safaricom’s M-Pesa agency network to rival operators.

Francis Wangusi, the CAK director-general, told a Press conference that approval of the deal now depends on “Safaricom and Airtel submitting to the authority, for approval, a framework for sharing agent outlets for various mobile consumer services including money transfer services and SIM registration centres.”

“Approval of the buyout now depends on the three operators. Unless these conditions are met we are not going to approve the transaction and the faster they respond to the conditions the quicker we will conclude the matter,” he said.

READ: CAK grants conditional approval for sale of yuMobile

Safaricom has previously opposed such a move, arguing that building the network has taken it years of hard work and billions of shillings thus making it hard to take its rivals on board for a free ride.

“We invest in excess of Sh1.2 billion annually in building and maintaining the M-Pesa agency network to serve our customers better,” said Nzioka Waita, Safaricom’s director for corporate affairs, adding that by growing the agency network, Safaricom has demonstrated that there is ample opportunity for its rivals to recruit and invest in their own agents as a show of their commitment to creating jobs for young Kenyans.

Safaricom’s ring-fencing of the M-Pesa agency network from penetration by rivals has been so intense and effective that some of the telecoms operators have sought legal and regulatory action on the matter.

Second-placed telecoms operator Airtel has, for instance, filed a complaint with the Competition Authority seeking to compel Safaricom to allow its agents to offer Airtel money services alongside M-Pesa – by far Kenya’s most successful mobile money service.

The regulator’s decision to tie Safaricom’s buying of yuMobile assets to the opening up of the M-Pesa network to rivals means Mr Collymore must weigh the value of the assets that are up for sale against what his company gets from exclusive control of the M-Pesa network.

READ: Airtel and yu’s push to share M-Pesa agents rejected

Successive studies have shown that besides remaining as one of Safaricom’s fastest growing business lines, M-Pesa has been an invaluable asset to Safaricom when it comes to retention of customers, especially more recently as the market allowed easy migration of subscribers with number portability.

Most of Safaricom’s subscribers have found it difficult to change service providers mainly because of the inconvenience they would suffer accessing mobile money in a market that is more than 70 per cent controlled by M-Pesa.   

Agreeing to acquire the yuMobile assets in exchange for opening up the M-Pesa network would also amount to handing rival Airtel an easy victory in a battle the two operators have fought for years without a settlement.

Airtel has particularly been frustrated by the fact that the limited number of agents for its Airtel money service has made it difficult to shore up subscriber numbers despite the offer of free services across all networks.

Mr Collymore’s task is made even harder by the fact that Safaricom is particularly interested in yuMobile’s frequencies to improve the quality of its services ahead of the upcoming renewal of its operating licence in June.

The communications sector regulator has set quality improvement and payment of Sh2.3 billion fee as some of the key conditions Safaricom must meet to have its licence renewed, but quality improvement has been made difficult by current frequency limitations.

READ: Safaricom, CCK clash over licence renewal terms

This means Mr Collymore must decide whether it makes better business sense to pick up more frequencies, improve the quality of its services and soften the ground for the impending renewal of its licence or walk away from it and keep riding on the advantages that M-Pesa has afforded Safaricom in the marketplace while anticipating a bumpy ride to renewal of the licence.

The terms and conditions of Safaricom and Airtel’s acquisition of yuMobile assets released on Friday also require each of the two operators to pay the communications authority $5.4 million (Sh469 million) for the impending variation of the licence terms to synchronise the acquired assets.

Safaricom and Airtel are also required to submit for approval, a framework for hosting the Mobile Virtual Network while yuMobile is required to pay all outstanding regulatory fees amounting to millions.

Kenya’s four mobile operators have a total 93,211 mobile money agents, according to figures released in March 2013.

Safaricom accounted for the largest share of the total with 65,547, giving it a huge command of the market segment that has 17 million customers. 

Airtel intends to acquire yuMobile’s subscribers, GSM licences and Essar Telecom’s subscriber related contracts while Safaricom has expressed interest in acquiring yuMobile’s passive infrastructure located on 453 sites.

If successful, the deal will also see Safaricom take over the ground leases on which yuMobile’s passive infrastructure stands, yuMobile’s Data Centre situated in its existing office space, yuMobile’s existing office space and related infrastructure, yuMobile’s  right to use the spectrum and residual assets including IT infrastructure.

Mr Collymore declined to comment on whether his firm would accept or reject the offer under the set terms. 

“We need time to study both the conditions that CAK wants us to meet and most importantly the ruling made on Friday on the digital migration that said all decisions made by CCK after 2011 do not have any grounding in law,” Mr Collymore told the Business Daily in a telephone interview. 

For Airtel, any condition compelling Safaricom to share its M-Pesa agency network amounts to a big win because its subscribers will have the convenience of accessing cash from M-Pesa outlets.

M-Pesa had 17.1 million users by March 2013 who it provides with real time money transfers, pay bill, dividend payments and international money transfer services.

M-Pesa’s revenue has steadily grown to Sh21.8 billion in March 2013 from Sh7.6 billion in 2010.

Mr Wangusi said the authority had provided a transition period of six months to allow for a seamless transfer of the services between the parties involved.

The regulator also wants yuMobile to ensure that its subscribers retain their numbers and related contracts in the transition period. 

Airtel has been asked to submit to the authority the proposed Service Level Agreement (SLA) for subscribers it intends to acquire from yuMobile while Safaricom has to provide its proposed framework for sharing its overall passive and active infrastructure with other licensed operators and service providers.

The list of conditions that Mr Wangusi released on Friday also requires Safaricom and Airtel to submit their framework and implementation plans showing their commitment to facilitate national roaming to mobile subscribers on all mobile networks. 

Such facilitation should be on similar terms and conditions to all networks, the regulator said.