Are the proposed telco regulations unfair to Safaricom?

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A shop with products from all the Kenyan telcos. Photo credit - whiteafrican.com/

In a perfect world, being ahead of your competitors is encouraged and more often, rewarded. The culture is cultivated in school where the top performing pupils get to go to good secondary schools and eventually get to do great courses in colleges. Those who are good in sports or other curriculum activities go on to represent their schools in different levels (sub-county level, county level and later national level). Employees who do well are rewarded with promotions and better pay. Companies that do well are rewarded by more customers resulting in more profits.

The world is however far from being perfect. Thanks to the proposed Amendments to the Tariffs Regulations and Fair Competition regulations that are to be discussed in Parliament, we are going to witness a situation where being ahead of your competitors gets you penalised. The proposed set of 14 rules include a Fair Competition and Equality of Treatment clause that empowers the Communications Authority (CA) to automatically declare any communication firm with a market share of more than 50% as dominant.

A shop with products from all the Kenyan telcos. Photo  credit - whiteafrican.com/
A shop with products from all the Kenyan telcos. Photo credit – www.whiteafrican.com/

In the previous regulations, a dominant player had to abuse dominance for punitive action to be taken. However, in the new regulations, a company does not need to abuse dominance for such measures to be taken. Safaricom has a subscriber market share of 67%, mobile money transfer service of 77%, voice traffic 84%, SMS 96%, and mobile data subscription share at 71%. This effectively places Safaricom as a dominant player in most key product categories, subjecting the firm to a more restricted business environment in terms of marketing and pricing.

Among the rules, according to the proposals, is that the dominant player will require a 45-day tariff approval process while its competitors can change tariffs at will, so long as they give a day’s notice. What this means is that, when it comes to tariff changes, Safaricom’s competitors will always have an edge over Safaricom.

As Safaricom CEO, Bob Collymore, pointed out, “This (the proposed regulations) goes against international best practice on the Fair Competition and Equality of Treatment and the Tariffs regulations and sets the stage for worrying penalties at the behest of a competitor who is not willing to innovate.”

He further added, “It will unfairly skew the market in favour of an operator that appears reluctant to invest in this country and who has been slow in responding to customer needs, thereby distorting the free market and discounting the value of market competition.”

His Airtel Counterpart, Adil El Youssefi, on the other hand argues, “The problem is that the dominant player is making all the profits which puts Airtel and other small players in a very difficult situation as it becomes hard to sustain ourselves. The dominant player, therefore continue to get stronger as they have the ability to invest more into their network.”

The regulator will also have powers to set prices for any firm declared dominant. It is bad enough if the CA sets prices for all the players, but setting prices for one player while the rest can charge as they feel like is, in my opinion, is not only wrong but also goes against the normal practice in a liberalised economy where price is determined by supply and demand forces.

Another rule that will affect Safaricom is the requirement to run separate accounts for each segment of their business. This means that Safaricom will be required to maintain separate books of Accounts for each of its services such as M-Pesa, mobile phone services and data services. Safaricom’s competitors will however not be required to do the same. Services such as M-Pesa have enabled easy transfer of money from one person to another. Moreover, it is because of M-Pesa that mobile banking has taken its roots in the country. It is estimated more than half of all people using mobile banking are Kenyans. It is therefore, quite difficult to envisage Safaricom splitting from M-Pesa or the other way round.

If you ask me, it is paramount to giving a gun to someone who is to fight an opponent whose hands are tied mainly because the opponent is bigger. Without looking into the fact that the bigger opponent may have spent time practising so as to get to his size. As Mr. Collymore pointed out, “(being on top) is a position that has been earned through prudent management, deep customer insights and massive investment in infrastructure. In addition, we have continuously invested in our customers; we roll out innovative products and services that aim to transform their lives.”

Safaricom customer base is as a result of their vigorous marketing and innovative products. While they are launching their 4G network, their competitors are launching their 3G. They were the first to think about how to easily send money which gave fruit to M-pesa. You cannot even compare their customer care services with those of its competitors. Is it therefore right to penalise a dominant player who has got to that position by hard work? If he is not abusing his dominance, I think it is pretty unfair.

Fairness aside, penalising dominant players in an industry, essentially means that mediocrity will be rewarded. There will be no motivation for innovation from institutions that can grow, while those in industries where they have dominant players know that their competition will be penalised ever so often. Consequently, there will be no need to compete with the dominant player since reducing it’s market share will reduce the penalties on the player. Moreover, dictating the pricing mechanism of a dominant player can easily be misused even though it is the regulator doing it.

Regulation is important in any industry, especially if one of the players has massive influence that he can abuse. At the same time, it should not be used to punish success, especially where the successful player is not abusing its dominance.

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