Promising future in telecoms but stakes can only go up

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By Jesse Kisenya

The telecommunications industry in Kenya has been on a growth spurt and has expanded admirably in a short span. According to the latest regulatory data, Kenya’s mobile phone subscription now stands at 37 million, translating into a mobile penetration level of over 87 per cent.

This growth is driven by the players’ need to continue growing market shares, thereby promoting products geared towards luring and retaining subscribers to their networks. Players are investing heavily in technology to promote and facilitate innovation. Each operator looks to capture shares from the other through aggressive promotions and new value-added propositions, which are what drive spending behaviour.

As a consequence of this enormous growth, there are a number of factors that might undermine its further development as the stakeholders in the industry fight in an uncertain regulatory context to get the biggest possible share of the pie. The sector’s regulator, the Communication Authority of Kenya (CA), finds itself legislatively limited from ruling on issues such as market structure that continue to affect the sector.

While competition between players is intense, many argue that there is still room for additional market players and clear market structure to support the sector’s growth. Supporters of this position highlight the fact that the market should be able to sufficiently support multiple operators. But is this really the case? Why are some operators exiting the market? Kenya lacks clear-cut laws prohibiting anti-competitive behaviour, and the sector regulator, by its own admission, lacks the legislative powers to intervene on certain matters without parliament passing into law some of the globally known best practice remedial regulations.

The ICT sector is one which falls under what is known as network industries which exhibit high entry barriers such as high licensing and initial spectrum costs, capital-intensive infrastructure and therefore given that it has taken over a decade to develop the appropriate infrastructure, distribution channels and brand development for existing players to reach the current population coverage of over 80 percent, one can imagine how difficult it would be for a new market entrant to create any competition.

It worth noting that sector regulator CA lost powers to independently monitor serious issues facing the sector such as dominance and act against its abuse – leaving it with a narrow mandate. Early this year, Parliament stripped the CA of part of its mandate through the controversial Statute Miscellaneous Amendments Bill, 2015, which President Uhuru Kenyatta signed into law in December last year.

Under the new legal regime, the CA will have to consult the Competition Authority of Kenya (CAK) – which, by its nature, may not understand how this specific sector operates – before making a declaration of dominance and when assessing critical industry factors, such as significant market power.

Transferring the power to regulate competition in the ICT sector from the CA, whose responsibility is to manage competition ex-ante, to the CAK – established to manage the competition for the entire economy ex-post – will undermine the CA’s ability to assert itself as the ICT sector regulator. This inhibits its ability to intervene on matters that could promote competition, as well as creating conducive environment for all the players to feel confident enough to continue investing heavily in the sector.

It should be clear that the CA’s role should be to license and regulate all systems and services in the telecommunications industry, manage competition, regulate tariffs for communications services, and monitor the activities of licensees to enforce compliance with the license terms and conditions. The CA is also expected to ensure that customers have the right of choice to accessible, quality and affordable telecommunications services.

The ever increasing demand for mobile communications portends a promising future, but also raises the stakes for all major players involved. Interesting times most certainly lie ahead for Kenya’s telecommunications sector. It is crucial for the government and all the stakeholders within this industry to adopt policies that support more investment in order to sustain the growth momentum.

Writer is a communications practitioner with interest in the telecommunications sector

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