Columnists

Telcos regulator should change tack

CA

The Communications Authority of Kenya head office in Nairobi. FILE PHOTO | NMG

jaindikisero_img

Summary

  • In a telecommunications sector structured like ours, traditional anti-trust laws focusing on old concepts like ‘market dominance’, ‘abuse of market power’ or ‘concentration of market power’ may not be feasible.
  • Instead, a massive reduction of termination rates as the CA has ordered may just end up precipitating a disruptive price war that could hurt the health of the industry.

Hardly three months after he was appointed chief executive of the Communications Authority of Kenya (CA) Ezra Chiloba is flexing his muscles. The other day, he ordered cancellation of radio licences.

He followed that by announcing a massive 80 percent drop in mobile termination rates and directing that the new rates be implemented within seven days. Predictably, Safaricom has lodged a dispute before the communications appeals tribunal.

Mr Chiloba and the new board of the authority under the chairmanship of Kembi Gitura have started off on the right foot.

They are on point in their efforts to give this important national institution more teeth and to steer it back to performing its core mandates. But the biggest test for the new team will be how to maintain a regulatory regime that will continue supporting growth and investment in the the sector.

The world faces a future in which fifth generation (5G) mobile telecommunication is coming with a lot more capability than is available at the moment.

But when you look closely at the telecommunications sector today, you will see a clear dichotomy.

On one side, you have Safaricom, the profitable and dominant player which continues to vastly outspend its competitors in capex, innovation and new technology. On the other are two loss-making and investment-averse smaller players for ever accumulating massive shareholder loans in their books.

The biggest deals you will see happening in recent years on this side are asset-stripping transactions and increased interest and activity by vulture-like private equity firms.

Consider the following. You are in a high tech sector that is undergoing rapid change, you choose not to make any major investment in your business, you sell all your estate assets, you sell your towers, and you are not spending additional money on spectrum, but still insist that your biggest problem is regulation of competition.

In 2018, Telkom Kenya sold Extelecoms House — the multi storey building on Haile Selassie Avenue in Nairobi — to the Central Bank of Kenya (CBK) at a consideration of Sh1.15 billion.

A few months later, the company announced that it had sold 720 tower sites in a sale and lease back deal to the American Tower Company of the United States at a consideration of a whopping Sh16.9 billion. Airtel also sold its towers.

What is my point? In a telecommunications sector structured like ours, traditional anti-trust laws focusing on old concepts like ‘market dominance’, ‘abuse of market power’ or ‘concentration of market power’ may not be feasible. Instead, a massive reduction of termination rates as the CA has ordered may just end up precipitating a disruptive price war that could hurt the health of the industry.

When you look at the battles between anti-trust authorities with technology behemoths such as Facebook, Google and Amazon you will see that regulators are today more keen to secure and grant equal access to platforms to competing companies. Anti-trust authorities are no longer obsessed with breaking monopolies into smaller pieces.

My second point is the following; the regulator must avoid whimsical changes in the regulatory regime. There must be predictability in regulation. Was it really fair for the authority to wake up one morning to announce such a massive reduction?

The standard practice the world over is that before you reduce termination rates, the regulator must conduct a network market study where all stakeholders participate. Indeed, this is what happened the last time when the termination tariff were brought down in 2010.

Secondly, you don’t order that the new tariff must be implemented in seven days. The best practice is that you give it a glide path to allow gradual reductions.

In the 2010 incident, the authority ordered that tariff reductions be implemented within four years. Let’s wait and see how the tribunal handles the dispute.