Vested interest is driving a policy regime that favours Safaricom

TNLM Writer

In an interview with K24 TV, just after his appointment, Information Cabinet Secretary Joe Mucheru said his first order of business was to streamline the country’s ICT services. Because streamlining in this context had to include the telecommunications sector, the interviewer asked him what he intended to do about dominance, particularly in regard to Safaricom, which controls at least 70 per cent of the market. The CS replied that the market, any market, is about competition, and that dominance is a non-issue at the moment – not in those same words.

“If you look at the scale of where we want to take Kenya, the size of businesses we want to see, Safaricom is not yet there. And the market shows that. Helios, for example, is buying out Orange Kenya from France Telecom; why are they doing that in this environment (one supposedly dominated by one player)? Equitel, Equity Bank’s money transfer service, is growing faster than Airtel, on whose platform it is hosted; how are they able to do that if we are saying one partner is dominant?”

What the CS didn’t say is that Equitel is a product of Equity Bank, among the largest banks in the country, and that its business has nothing to do with Airtel. Equitel is pegged on Equity’s more than 10 million customers, and Airtel is just a host for its services. Regarding Helios, the choice of investment cannot possibly be pegged on the question of whether or not one market player is dominant. By bringing into the picture an investor who is yet to finalise the process of acquiring another, the CS was simply running away from the matter at hand, to which, in the end, he failed to respond.

Tied with his response, the CS went further to insinuate that the country doesn’t really need anti-trust laws because we are just not at the point where we need them yet. Even forgiving the naivety of such a statement from the head of a government ministry, that assertion is evidence of attempts by government to introduce and implement policies that serve to maintain the status quo, and impose a preconceived state of affairs, particularly in areas where government has got vested interest.

The National Treasury owns a 35 per cent stake in Safaricom, through which it has earned billions in revenue since the firm began operations in 2009. Given the scale of revenue that Government gets from Safaricom, besides taxes, it is inconceivable that the State would be willing to implement policies or apply laws (such as anti-trust laws) that would be detrimental to its interests.

Part of the amendments to The Kenya Information and Communications Act as amended by the Statute Law (Miscellaneous Amendment) Act,  2015 grants powers to the Cabinet Secretary in the appointment of the chairperson and members of the Regulatory Authority Board. The question then begs, why enrope the Executive in policy? What could be so important about the communication sector that the President would need to be involved in policy formulation and implementation? Reading the tenor of the amendments, their hushed and speedy passing and assent and the nature of the market, it becomes clear that government’s vested interest in Safaricom is the reason it intends to have a say in how the affairs of Safaricom are handled. This is perfect testimony of State intrusion in what is supposed to be a free-market situation.

Need for divestment

Government as well owns a 30 per cent stake at Orange Kenya, with the other 70pc belonging to France Telkom, which is in the process of selling its stake to Helios Investment Partners. This selective investment, at the expense of other players – such as Airtel and Essar Telecom – has created the notion that where the State has a stake it gives preferential treatment.

France Telecom, which has been the majority owner at Orange Kenya, has had an acrimonious exit from the country, with allegations that government had frustrated efforts to restructure and re-strategise in line with market requirements. This would have revamped its market presence – as a shareholder, government had to agree to proposals to realign the firm with the prevailing market situation.

“During the fourth quarter, due to continuing disagreements with the Government of Kenya, Orange concluded it was contractually unable to implement any solutions to the challenges facing the business without the latter’s agreement. This led the group to conclude that it had lost control over the entity,” its last financial report reads.

This “loss of control”, according to France Telecom, meant it no longer considered itself capable of taking certain decisions on its own as controlling shareholder. “Loss of control refers to the fact that Orange is unable, as a majority shareholder, to take decisions and implement certain solutions to Telkom Kenya’s financial difficulties,” Tom Wright, the corporate press officer at France Telecom’s Paris headquarters, told media.

The Kenya Information and Communications Act as amended by the Statute Law (Miscellaneous Amendment) Act, 2015 takes away the discretion of the CA to regulate monopoly, by requiring it to consult with the CAK. The previous law mandated the CA to automatically declare a player dominant once the prescribed market share threshold was exceeded. This is what the CA was about to do last year when the CAK threw its weight behind the dominant player, Safaricom, and scuttled efforts by CA to execute its mandate. In a memo written to CA Director-General Francis Wangusi, CAK boss Wang’ombe Kariuki stated that subjecting a business to restrictive regulations without proving abuse of dominance amounted to rubbishing the tenets of competition law and international best practice.

At a different platform, the CAK chair, responding to a question about dominance, was of the opinion that someone needs to complain for the Authority to investigate and then act on abuse of monopoly. The irony of this is that the CAK is the body with the legal backing – and the resources – to study industry trends, investigate and regulate monopoly. If it takes a complaint to trigger an investigation, why is the CAK the regulator, and how many complaints does it take to trigger an investigation?

Ring-fenced subscribers

As this was happening, there arose a war of words between Airtel and Safaricom, with the former backing the move to declare Safaricom dominant, and the latter scoffing at the attempts as a punishment to their hard work. Among the reasons given by Airtel for the claim of abuse of dominance was that Safaricom has refused to reduce interconnectivity rates for its customers wishing to make calls to Airtel subscribers, as well as high M-Pesa to Airtel Money charges. Then Information CS Fred Matiang’i backed Airtel’s claim, and was seen to be behind the CA’s attempts to declare Safaricom dominant.

Attorney-General Githu Muigai stepped in ostensibly to arbitrate between the contending parties but, as far as the affected parties are concerned, no remedy came out of that intervention. In fact, all it culminated to are the sneaky regulations contained in the Statute Law (Miscellaneous Amendment) Bill, No. 2 of 2015 for which, again, the smaller players have been up in arms about. In fact, the CA itself, and the Ministry of Information are on record as saying the Bill did not originate from them, and that they were never consulted. The AG cast himself as an arbiter, and wrote to Matiang’i and Wangusi, asking them to stop fighting Safaricom. If his intention was to bring harmony to the sector, isn’t it a little suspicious that no good seems to have come out of the truce he called for? Was “failure” on the AG’s part to resolve the contention deliberate?

While CAK and Safaricom maintain abuse of dominance hasn’t occurred, Equity Bank, in September last year, protested to the Central Bank of Kenya over a move by  Safaricom increase charges on bank-to-M-Pesa transfers, which would have raised the fees charged on Equitel — its mobile banking service. While the increase would have been blanket, it would have affected Equitel customers more because Equitel rides on Airtel money, and the cross transfer rates for M-Pesa customers making transaction to or from Airtel would have been slapped with impossible charges.

What this attempt by Safaricom reveals is that the operator has deliberately worked to ring-fence its subscribers from the competition, by making it attractive to stay within its network, while making it expensive to make calls to the rival network, or make transactions. This is especially true considering that the competition have made it very cheap to both make calls to Safaricom, as well as make mobile money transactions. It is free, for example, to send money using Airtel Money, to any network. For the competition regulator, therefore to claim that no abuse of dominance has taken place is to be openly mischievous.

The Constitution, under Article 27, safeguard against discrimination on any grounds. At any rate, what Safaricom is doing is unconstitutional – and goes against international best practice – to discriminate, as it does, against consumers just because they belong to a rival network, on its voice and money transfer platforms, through prohibitive interconnectivity charges, such that consumers are forced to stay within one network.