Matiang’i backs Airtel in push to break up Safaricom

ICT secretary Fred Matiang’i (left) with Communications Authority of Kenya director-general Francis Wangusi in November last year. PHOTO | FILE
ICT secretary Fred Matiang’i (left) with Communications Authority of Kenya director-general Francis Wangusi in November last year. PHOTO | FILE 

A battle for control of the vibrant telecommunication industry has sucked in ICT Cabinet secretary Fred Matiang’i.

In a move that would jolt the industry and raise questions about the independence of the sector regulator, Communication Authority of Kenya (CA), Mr Matiang’i wrote a letter last year demanding a brief on what the watchdog was doing in preparation to declare Safaricom a dominant player.

The letter received by the regulator on December 23, 2014 was written to CA Director-General Francis Wangusi and copied to his chairman, Mr Ben Gituku.

“The Kenya Information and Communications Act section 84W gives the Communications Authority of Kenya powers to declare a service provider to be dominant if their market share is at least 50 per cent of the relevant gross market segment,” Mr Matiang’i noted.

“This is, therefore, to request you to provide information on the consideration of the exercise of your powers as provided for in the Act, to address the issue of dominance in the telecommunications sub-sector of our industry. I look forward to your prompt advice on this matter.”

The latest industry statistics show that Safaricom controls all segments of the market — voice (75.6 per cent), SMS (93 per cent), mobile data (70 per cent) and mobile money (66.7 per cent).
Of the three players in the business — Orange, Airtel and Safaricom — Safaricom is the only one that has consistently reported profits.

Airtel Kenya, the country’s second largest telco controlling 16 per cent of the market, has been pushing to have Safaricom declared dominant in order to give the other players some breathing space.

Once declared dominant, Safaricom would operate in a more restricted business environment in terms of marketing, pricing and in an extreme scenario, be required to split the business into separate and independent units. Airtel has since made a submission to CA demanding that it invokes the same power and declare Safaricom dominant.

“The fact that Safaricom signed the settlement agreement clearly demonstrates that Safaricom acknowledges and accepts that they are indeed dominant in the mobile money transfer service,” Airtel notes in its letter.

“We are cognizance of the fact that the authority is the one mandated by the Act to declare Safaricom dominant and, therefore, submit our request to have Safaricom declared dominant in the mobile money transfer service.”

In his response to the minister, Mr Wangusi is categorical that while the law is clear on presumption of dominance for firms/operators with a market share threshold of 50 per cent, a lot need to be done before a decision is reached.

Mr Wangusi said there is lack of clarity on who, between the communications regulator and the Competition Authority of Kenya, should address the issue of dominance in the telecommunications business.

The current regulation on competition, published by the ICT ministry in 2010, equates dominance to abuse of the market. The regulator says this makes it difficult to declare a licensee dominant considering that the threshold of proof of abuse is very high.

“In a progressive application of competition law and economics, dominance in and of itself is an important regulatory issue that attracts regulatory oversight. Equating dominance with abuse of the market, as is the case with the current regulations makes regulating dominance in the country onerous considering that dominant licensees do not always abuse the market,” Mr Wangusi said in his reply dated January 8.

In an interview with Smart Company, Mr Wangusi said although Safaricom is a dominant player controlling about three quarters of the market share, the regulator does not perceive the company as abusing its position.

“You see, being creative and competitive is not abusing dominance in any way. You can’t cap someone’s innovation and creativity at a percentage so that you protect those who are not as creative and innovative. As far as we are concerned, there is fair competition in the industry,” he said.

CA says regulatory focus should be on quality of the service mobile firms offer to their customers.

“I don’t see any major competition issue in the telecoms sector in this country. What needs to be addressed in that sector is the service that these firms offer customers,” Mr Wangusi said.
Analysts say that poor growth strategies and lack of consistency in the implementation of growth ideas are some of the reasons Safaricom competitors have failed to earn profits.

For instance, Airtel, which has been the main driver of the dominance debate, has changed ownership and rebranded four times in the last 15 years during which it has had nine chief executives.

Orange, which rebranded from Telkom Kenya, has had six chief executives in 14 years while yuMobile, which exited the market last year after it failed to break even, had been led by four CEOs over the six years it operated in the country.

Mr Wangusi said the regulator is critically looking at the question of dominance in the local communications industry.