Safaricom Dominance in the Telecoms Market is Instilling Fear in Regulators

According to experts on market competition issues, market power is considered a power over price and output. Each operator competing in differentiated products and services has degree of market power. Dominance however, is a legal concept and is generally understood to exist when firm holds significant market power (SMP), that is, a high degree of market power.

The main characteristics of a dominant firm (or a firm in a dominant position) in a relevant market is its ability to act to a significant extent independently of its competitors, customers and ultimately of its consumers. This frees the dominant firm from the pressures that normally shape a firm’s conduct in an effectively competitive market.

Competition and regulatory authorities would normally rely on market share and other competitive constraints and market factors including but not limited to pricing, constraints form existing and potential competitors, barriers to entry and expansion of relevant market and the degree to which the company commands the capacity to offset the effect of pricing offered by its competitors seeking advantage over it.

The Communications Authority of Kenya appointed an independent international consultant to make an independent assessment of the telecommunications market, and give it a report for its reference and action in the creation of a level playing field for all operators in Kenya.

In its report of the findings of its study, the consultant pointed out that the electronic communications networks are widely regarded as the backbone of the information society and are critical to the growth of the economy. They also pointed averred that ex-ante regulation is often required in nascent or growing telecoms markets in the interests of sustainable competition in network infrastructures and services.

They also pointed out that regulation is seen as temporary, needed only until normal market conditions develop, and is applied regardless of the technology, stimulating innovation, protecting the consumer, driving choice, improving quality of service, and ensuring that prices are reasonable. Their view on sole reliance on ex-post regulation is that it may result in significant harm to competition, noting that “the patient may have died by the time the ex-post penalty is applied, and the ex-post penalty does not directly have an effect on market structure.”

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The powers of the Communications Authority (CA) includes the promotion of competition, both ex-ante and ex-post as provided for in the Kenya Information and Communications Act, 1998 with its amendments in 2013 and 2014. There are also several approved regulations to guide the management of competition under KICA in 2010, including fair competition, tariff, interconnection, provision of fixed links, access and facilities and consumer regulations.

The CA’s regulations as approved by the Cabinet Secretary include powers to define a market, assess the level of competition in the market, determine dominance where competition act has 50% share of market threshold for presumption of dominance and to determine and impose remedies at the wholesale or retail level to address market failures in either market.

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All indicators from the quarterly market statics data show that Safaricom shows a strong presumption of dominance based on over 67% market share of subscribers, volume and value in the retail mobile communications market as confirmed by analysis of qualitative factors. All its competitors combined do not come close to even half of its market share. Besides, Safaricom boasts over 90% of the total revenues in the market.

The CA has failed to act on the matter of dominance for far, despite having the facts, the powers and even having spent taxpayers’ money on consultation and market studies to this end. Should someone at the CA be held to account for this omission, or commission or should the matter simply be let to pass and be seen as an obvious effect of the magnitude of the dominance itself.

The latest attempt at addressing the matter has been by the Parliamentary Committee on Information Communication and Telecommunication which conducted an inquiry into alleged cases of dominance and pricing of key services in the telecommunications sector in Kenya during the month of July and August 2018, holding consultative meetings with the operators in the sector. According to the committee, their action was triggered by “concerns have been raised on the alleged abuse of dominance in the telecommunications sector.”

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They were also to investigate mobile money services and rates, including transaction charges, transfer fees, loans and interest, airtime and data rates, including airtime loans and service fees.

The Competition Authority of Kenya through its director general had argued that the telecoms market should only be regulated using ex-post application where operators are punished only in the event that they abuse their dominant position. The regulator has argued that Safaricom is not dominant. They must have a reason for which they choose to stick to that position and not to consider ex-ante regulations as an option.

It is anticipated that the actions taken by any of the regulators and the parliamentary commit will have a significant impact in addressing the disparities in the market that affect negative effects of market that lead to instances where dominant firms like Safaricom charge high prices such as those for calling and sending money to consumers on other networks that are already clear on Safaricom, thereby give consumers less choice.

Other operators like Airtel and Telkom Kenya have made several efforts to enhance their market position against Safaricom by offering lower prices to consumers but these efforts have come to naught as Safaricom would match these prices overnight with massive price reductions disguised in consumer promotions.

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Whichever the position taken on Safaricom’s dominance, the outcomes of the efforts to regulate the market by the various forces remains a mystery to many, especially as the market data and laws leave no doubt about what should be done, and by who. It remains to be seen if and when the parliamentary committee will act on the matter, or if it will also fall short of its set goals just like the regulators have tended to this far.

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Written by Kahawa Tungu


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