SPLIT IT UP
With the current trend, unless the competition agency takes immediate action to remove the barriers to entry and other anticompetitive behaviour, it may (in the not distant future) have to consider imposing price controls to counter the monopolistic tendencies of Safaricom. The only viable solution available to the competition agency is to split up Safaricom
t is a fundamental objective of competition policy that a country attains economic efficiency. One way of doing this is by introducing statutory regulations meant to stimulate economic growth, enhance competition and employment, and create a vibrant sector that provides quality services at a low cost. The objective is to create an open and vigorous competition – good for consumers because competition results in lower prices, new products of a better quality and more choice.
One factor of importance is the existence of a regulatory structure designed to deter and remedy anti-competitive harm. It is in consideration of this factor that the government is introducing new regulations that could lead to the break-up of Safaricom, the leading telecom company in Kenya. Safaricom is the premier brand in this country; it is Kenya’s Microsoft, Google, Coca Cola, and General Electric. It has sweeping and unfettered control of the communications terrain in Kenya such that it has thwarted competition and run roughshod over the consumer.
Safaricom argues that its dominant position was achieved through efficient business practices, innovation, superior products, distribution methods and greater entrepreneurial efforts. The smaller players in the industry believe that such arguments do not give the true picture of Safaricom’s phenomenal growth in the telephony industry. Safaricom is partially owned by the government of Kenya, and has abundant connections with political officials. This may explain its stranglehold on the telecom industry and why it managed to bully other players out of business. It may be the reason why Communications Authority, the industry regulator, and the Competition Authority have been cowed by the giant company from taking any anti-trust law action.
At the beck of dominant player
Anti-trust laws are generally established to address market dominance and abuse of such dominance. The law plays important role in addressing anticompetitive practices, including restrictions on access to distributions systems in local markets.
The smaller mobile operators say Safaricom is abusing its dominance. They have also been complaining that the giant telecom company has placed high entry barriers into the market and has refused to deal with them or allow them access to its essential facilities.
In most countries, including Kenya, the law specifies that a dominant position can be inferred largely or entirely on the basis of a large market share (The Kenya Information and Communications Act provides the regulator with the powers to declare a service provider to be dominant if its market share is at least 50 per cent of the relevant market segment). In others, statute would require consideration of entry conditions and other factors that influence the ability of firms with large market shares to exercise market power. In yet others, the mere carrying out of exploitative acts such as charging high prices may be treated as abuse. In some other jurisdictions, the law focuses on exclusionary conduct by a firm that harms the competitive process – that is, conduct preventing competing firms from entering or expanding or restricting room for fair competition in the market. It is worth noting that the dominant companies are subjected to a variety of sanctions, including fines and forced asset sales or splits.
The Competition Authority appears to be doing Safaricom’s bidding when it
claims that the giant telecom company does not abuse its dominant position. It is generally accepted that the action of a regulatory authority will, more often than not, heavily influenced the market. The regulator has a wide array of powers to curb companies’ control of markets, while opening more room for competition in the marketplace. It has the mandate to prevent, investigate and combat abuse of dominant position, anticompetitive practices, concentrations and other restrictions of efficient market functioning and take steps to guarantee competition. Inaction would mean that the market players are left to fight out between themselves. It would also mean that abuses would go uninvestigated and unpunished.
Enforcement of abuse of dominant provisions of competition law is chiefly about ensuring wider access to economic opportunities than if such conduct went unchecked. As such, addressing abuse of dominance under competition law relates to the dynamic and creative role of competitive markets, as part of rules-based frameworks for increased economic participation.
Safaricom provides multiple services including mobile money transfer – Mpesa is the world’s largest mobile money business. Eighty-seven percent of the country’s US$55 billion GDP passed through M-pesa in 2014, which translates to US$23 billion (Sh2.3 trillion). According to the Business Daily, Safaricom leads all segments of the telephony market, thus crushing its competition – Voice (75.6pc), SMS (93pc), mobile data (70pc) and mobile money (66.7pc). It is the only player in the telephony industry that has consistently made profits, giving it unrivalled market power, which in turn affords it the power to control the telecom industry to way it desires.
70 per cent of the Sh2.3 trillion (Sh1.6 trillion) that was transacted through Mpesa money remittance in 2014 was handled by Safaricom. M-pesa entails the deposit, payment and withdrawal of money by customers. Banks and hawalas are in such business. However, banks and hawalas are regulated by the Central Bank of Kenya (CBK) meaning they are subject to the CBK’S Prudential Guidelines and strict anti-money laundering and anti-terrorism financing regimes. It would mean that the company that handles more money than the majority of banks in Kenya is not regulated as a financial institution by CBK. Therefore the appropriate remedy would be structural measures which should include the breaking up of Safaricom to separate M-pesa mobile money business from the rest of its operations. The Mpesa business ought to be a separate and independent entity regulated by CBK. The current situation favours only the dominant player, Safaricom.
Airtel, Orange and Yu the other players in the telephony industry are having difficulties breaking into the market. They complain of high interconnection fees and inaccessibility of Safaricom’s infrastructure. In competition law, high entry barriers send red flags indicating a need for closer regulatory scrutiny. But the competition agency has allowed Safaricom to prescribe and determine the rules in the industry. It is about a market race but also about dealing fairly with the competition. It prohibits anti-competitive behaviour.
The market needs resilience. But Safaricom has managed to lock consumers to its network, and if its services go offline, this country would be in big trouble. It is my considered view that this dominance, left unchecked, will inevitably lead to monopoly, at the expense of Kenyan people.
In any case, the “better option” is anything but that. Making a simple phone call has become something akin to a game of chances. Mobile users have become accustomed to high call charges, network connectivity and voice quality problems. The mobile services are unreliable and unpredictable. Phones behave as if they are switched off or engaged when they are not. The most common words you are likely to hear when making and receiving calls are from an automated voice telling the caller that there is a network problem or the number called is wrong or incomplete. When you make a call, your call drops or goes to a wrong number or straight to a voicemail because either there is no mobile signal, or where a signal may be present, it is not possible to connect or sustain a call. Most users will tell you they have experienced dropped calls, incomprehensible speech and voice quality that mimics speaking from the bottom of a water tank.
The ability to make or receive calls or text messages is the most important aspect of mobile phone reception. But is Safaricom making supernormal profit by cutting corners, compromising quality, charging calls it ought not to? How does it explain the routine calls break ups, glitches or misconnections, misdirection of calls, the inability of the users to sustain conversation for more than five minutes? Because of its market power, Safaricom has managed to get away with its abuse of dominance in the market.
Let us consider the definition of dominant position, including the factors that are taken into account to determine dominance, and what constitutes an abuse of dominance.
A dominant position is created when one or more firms in a particular market use their position to determine economic parameters such as price, supply, the amount of production and distribution, and by acting independently of their
competitors and customers with the aim of preventing effective competition.
The ability of a firm to have substantial influence on the conditions under which competition will develop and act largely in disregard of is an indicator of the dominance of such firm. Therefore the ability of a company to behave independently of its competitors, customers and consumers proves dominance.
Courts have equate dominance with the ability to raise prices above those that would be charged in a competitive market, or the power to control prices or unreasonably restrict competition or the ability to raise prices above the supply cost without rivals taking away customers in due time. It is the power that enables a firm to behave independently of competition and of the competitive forces in a market.
It is worth noting the factors that are often taken into account to determine whether a particular market player is dominant. Market share is one of the most important indicators from which the existence of a dominant position may be inferred. A finding of dominance is more likely if entry is difficult or there are no other firms of comparable size or capacity to counter the leader’s strategies. For example, a 40 percent market share, in the presence of significant barriers to entry, can constitute dominance, and firm with 50 per cent of a market share or more is presumed to have dominance.
Safaricom is undoubtedly in a dominant position considering its share of the relevant market, and its financial power [it made US$320 million (Sh32 billion) in profit in 2014]. The telco can singularly supply the market at lower costs than the two other companies can because of its large economic scale.
In general, the greater the market share of a dominant company, the more likely it is to exercise market power, and especially if significant entry barriers exist and depending on the size of the other firms in the market. Safaricom has strangled the competition due to the high entry barriers and the size of the competition. It has managed to deter entry by potential rivals, effectively uses restrictive business practices, suppresses competition by refusing to deal with the competition, raises the competitors’ cost of entering the market, including strategically advertising to such degree that it raises sunk-cost investments for the small rivals and potential entrants, and uses exclusionary abuses to ensure that there is no alternative for consumers.
Although Safaricom has over the years built an impregnable brand, it also has mastered the art of deterring entry through behavioural as well as structural barriers. There exists the argument that Safaricom has invested heavily in innovation and in developing superior products. Companies invest in research and development, innovation and creation of new products when there are incentives for such investments, including fair competition and equality treatment.
With the current trend, unless the competition agency takes immediate action to remove the barriers to entry and other anticompetitive behaviour in the telecom industry, it may (in the not distant future) have to consider imposing price controls to counter the monopolistic tendencies of Safaricom. The only viable solution available to the competition agency is to split up Safaricom, not unlike the breaking down of AT & T’s Bell System that was broken down into seven different companies in the 1970s, as well as America Movil of Mexico, and several European companies. Safaricom’s dominance in Kenya is akin to that of UK’S dominant telecoms provider, the 169-year-old British Telecom Plc (BT). Unlike in Kenya, the regulator Ofcom (Office of Communications) is now contemplating breaking up BT after its rivals accused it of abusing its market position and failing to invest in the broadband networks they rely on. Unlike Safaricom, BT has given its rivals unfettered access to its infrastructure.
The regulator and the competition authority must spin off the data, voice and M-pesa services into separate independent entities. They must also force Safaricom to give its rivals access to its facilities, including its outlets around the country, and zero rate the interconnectivity rates. Mobile users must be able to call other networks without incurring extra cost.
We must have a competition policy that maximises the scope of the market forces to work and ensure that regulated firms do not engage in anticompetitive practices.
British Telecoms, the largest player in the UK, has given its rivals unfettered access to its infrastructure.