LETTERS: Increasing competition in the telco industry

Well-known American author Robert Greene specialised in self-help content that was initially a hit with inmates and celebrities. One of his books, ‘‘48 Laws of Power’’, has remained popular globally, after its original publication in 1998.

The 47th law in the book underscores the importance of ‘not going past the mark that you aimed for – in victory, learn when to stop’. This text would have been timely for the telco industry particularly, had Mr. Greene published it in the early 70s or 80s. This would have been apt for the story of AT&T, a government-sanctioned monopoly in the United States; a telecommunications behemoth.

AT&T traces its roots to the Bell Telephone Company founded in 1880 by Alexander Graham Bell, whose successes are well known. This company evolved into the American Telephone and Telegraph Company by 1885. Almost a decade later, with more evolution, it became AT&T Corporation, which would later be slapped with an antitrust lawsuit, the United States versus AT&T, resulting in divestiture of its subsidiaries into independent entities.

A little back story. AT&T had built a not–so-flattering reputation of having little interest in selling network access to alternative service providers. With its protected standing intensifying in the 1970s, the Federal Communications Commission (FCC) was compelled to allow limited competition in long-distance services. Local service, however, remained off-limits to competition. In 1974, the US Justice Department filed an antitrust lawsuit against AT&T based on complaints by MCI Communications Corp. and other long-distance service providers. The case, dragged on for close to a decade before it was determined by Judge Harold Herman Greene (Clearly the Greenes do have it).

In 1982, however, AT&T crumbled under pressure for a settlement with the government and FCC. The dominant player was required to divest its local operating companies and limit its services to the long-distance market.

The firm was however allowed to continue manufacturing telephone equipment. Need it be said that introduction of competition into the long-distance service yielded dramatic consumer benefits through lower prices and improved service quality, thereafter? In recent years, ironically, AT&T has been the principal advocate compelling US telephone companies to provide network access to rivals, itself included, at below-cost rates.

This story is relatable to the Kenyan context, with its very own 1970s AT&T-styled entity – Safaricom PLC. In its annual report for the year ending March 2019, the Kenyan telco indicates that it injected slightly more than Sh600 billion into the economy in that year. This would in essence make this telecommunication giant one of the single-biggest contributors, if not the biggest, to Kenya’s GDP.

Channelled into the economy, these massive monies created jobs and value chain opportunities, besides paying taxes to Caesar and dividends to the company’s shareholders. At face value, this may paint a rosy picture; an organisation carrying out its social duty to promote sustainability and the principle of shared value.

Analysys Mason, an independent consultant hired by industry regulator, the Communications Authority (CA), is on record having cited the other two market players, Telkom Kenya and Airtel Kenya, as being amongst the least profitable mobile operators in emerging markets.

Their intended merger is it self facing potential headwinds; the Public Investment Committee came out guns blazing, in opposition, only days before the month-long notice, that followed issuance of intended gazettement by CA, lapsed. Will the two smaller players be granted approval? Will they be forced to disintegrate out of the telco space, as has been the case of other entrants? This is as close as any sector can get to a monopoly. In fact, it would behoove the dominant player to see this intended merger realised. After all, it’s almost certain that power brokers react when an industry hits rock bottom. You see, as was the case with AT&T, Lawrence W. Reed aptly posits in his 2001 speech to the Detroit Economic Club: “The creature of government was dismembered by government, demonstrating yet again that government has nothing to give anybody except what it first takes from somebody, and a government that’s big enough to give you everything you want is big enough to take away everything you’ve got.”

In the end, as we preserve the principle of a socially acceptable business and elate at the illusion that is homegrown success, let us also take in the reality of a duopoly and reduced competitive pressure. Whether this manifests itself in loss of consumer welfare through increased prices, limited choice, stunted market development and slower investments in improved technology is not for us to forecast.

David Keitany telecommunications specialist.