Wangusi backs off bid to check Safaricom power

The Communications Authority of Kenya (CA) has beaten a retreat on a contentious law that would have automatically declared Safaricom a dominant player subject to sanctions, saying it will first hire an international firm to analyse the telecommunications and broadcasting sectors.

Francis Wangusi, the CA director-general, said Thursday the study will identify which firm is dominant in which market segment in a market power report, and then find out which company is abusing its dominance.

Mr Wangusi conceded at a press conference Thursday that there are no mechanisms which spell out what constitutes abuse of market dominance at the moment, saying the report will solve that problem.

The market analysis and market power reports will not be complete for at least 18 months, he added, meaning the 10 proposed dominance laws, if enacted by Parliament, can only come into force in March 2017. 

The regulations had been expected to come into force by mid-June.

They include a Fair Competition and Equality of Treatment clause that would empower the CA to automatically declare any telecommunications firm with a market share of more than 50 per cent dominant.

The telecommunications regulator has deleted Section 3A in the previous law, which demanded that before the authority declared an operator dominant it had to prove that the operator was actually abusing its dominance. This, the CA said, has in the past four years made it difficult for it to punish those abusing their dominance.

Mr Wangusi said Thursday that market share can only lead to a presumption of dominance and that before a firm is declared dominant in a specific market, a study must be undertaken incorporating other factors as outlined in the draft regulation to establish the extent of competition.

A declaration of dominance, he said, is not meant to punish any firm, but that dominant firms attract more scrutiny because any anti-competitive action could be detrimental to the market as a whole.

“The regulations are not specific to the telecommunication market only but also include the ICT industry as a whole, including the broadcasting, postal and courier sub-sectors,” Mr Wangusi said.

The proposed market analysis is in line with advice from the Competition Authority of Kenya (CAK) and the Institute of Economic Affairs.

READ: Economists call for independent study on dominance

“The proposed dominant regulations can only be introduced after the sector regulator [the CA] has undertaken reviews of the telecommunication market taking into account that general principles of law, which generally guides Kenya’s current economic agenda,” Francis Wang’ombe, the CAK director-general, said in a letter to Mr Wangusi.

Under the proposed laws, firms face penalties that could run into billions of shillings if found guilty of abusing their dominant position.

This is after the CA amended Section 84T of the Kenya Information and Communications Amendment 2013 (KICA) and included a penalty of 10 per cent on the gross turnover for anti-competitive conduct.

While the KICA Act has detailed procedures on how a firm is determined to have engaged in anti-competitive practices, the proposed Fair Competition and Equality of Treatment law before Parliament has removed the need for the rigorous tests to be conducted by the the CA before a firm can be penalised.  

The fine is now indefinite for the period of breach, while in the original Act it was for a maximum of three years of continuous breach. 

Going with Safaricom’s financial results for the year ended March 2015, when the firm made Sh163.4 billion in total revenue, the mobile giant could face a Sh16.3 billion penalty if the law is enacted as is and Safaricom is declared dominant and found to have abused its position.

The principal Act requires “the licensee to pay a fine not exceeding the equivalent of ten per cent of the annual gross turnover of the preceding year, for each financial year that the breach persists”.

Safaricom CEO Bob Collymore said the huge penalties require all stakeholders to understand the process of identifying what abuse of dominance means.

“The penalty is big because the abuse of dominance is a serious issues,” Mr Collymore said. “What concerns Safaricom most is not the penalty. Rather it is the process (by) which the regulator has proposed in the regulations to declare and penalise those found guilty.”

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Safaricom is the market leader in almost all segments by market share; voice (67.1 per cent), mobile data (65 per cent) and SMS (91.6 per cent). All have contributed hefty revenues in an environment in which the company’s two main competitors, Airtel and Telkom Kenya’s Orange, are making losses.

The proposed regulations have been forwarded to the National Assembly, but Attorney-General Githu Muigai asked ICT secretary Fred Matiang’i to withdraw them for his input.

If the new CA 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 increments.

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 regulations will also empower the CA to publish the proposed tariffs for regulated services in the Kenya Gazette and invite consumers and rival firms to comment on them.

This proposal has been opposed by the CAK which 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.

Dennis Kabaara, a telecommunications analyst, said the regulators need to work harmoniously and be more proactive in promoting fair competition and equality of treatment.

“To improve consumer access and promote market development, international experience shows that progressive regulation and competition policy — rather than a “big bang” change — is what works best,” said Mr Kabaara.

“As the Institute of Economic Affairs proposed, any study of competition in the market(s) must cover both policy (like the 10 per cent of the gross income penalty) and transactions (to assess dominance).”

The CA is following in the footsteps of other regulators across Africa that have implemented anti-competitive regulations.

In Ghana, for example, the regulator declared MTN dominant, ordered it to separate its accounts, and collapsed its on- and off-net tariffs. MTN was also made to introduce asymmetric interconnection rates and floor pricing.

In the DRC, Airtel was declared dominant and the regulator introduced a pricing floor.

In Nigeria and South Africa, the regulators separately declared MTN dominant and the telecoms operator was asked have separate accounting, and collapse its tariffs.