DOM­I­NANCE

Nairobi Law Monthly - - Contents - DAVID MATENDE

Sa­fari­com has got choke­hold on a large sec­tion of the Kenyan econ­omy, and rep­re­sents a dan­ger­ous sin­gle point of fail­ure on the part of govern­ment and reg­u­la­tory agen­cies. Ac­cused by ri­vals of abus­ing its dom­i­nant po­si­tion through ringfenc­ing cus­tomers within its net­work, both go­ing against in­ter­na­tional best prac­tice, as well as deny­ing con­sumers the free­dom of choice.

As Or­ange, Air­tel and other strug­gling mo­bile ser­vice providers stare at an­other year of measly re­turns, an em­bold­ened Sa­fari­com will con­tinue paint­ing Kenya green

Avis­i­tor to Mwilonje, a small trad­ing cen­tre in Vi­higa County, would as­sume that the peo­ple here love green as al­most all shops are painted in that colour.

A closer scru­tiny, how­ever, will re­veal that the shops are ac­tu­ally branded in the colours of the “the bet­ter op­tion”, Kenya’s dom­i­nant mo­bile phone provider and re­gional tele­com be­he­moth, Sa­fari­com. The scene in Mwilonje is repli­cated in other trad­ing cen­tres and towns across Kenya.

This supremacy is not about to be chal­lenged; if any­thing, it is ex­pected to es­ca­late, thanks to new laws that clev­erly thwarted ef­forts to de­clare Sa­fari­com a dom­i­nant com­pany by yank­ing away that power from the ICT reg­u­la­tor, Com­mu­ni­ca­tions Au­thor­ity (CA), to the fledg­ing Com­pe­ti­tions Au­thor­ity of Kenya (CAK).

This law, passed sur­rep­ti­tiously along­side oth­ers in a con­tro­ver­sial om­nibus bill, has not only sparked hue and cry in the tele­coms sec­tor, but also damp­ened the spir­its of mi­nor play­ers, no­tably Air­tel and Or­ange. It will now be even more dif­fi­cult for them to com­pete against the Sa­fari­com jug­ger­naut, and some may be forced to re­think strat­egy.

Al­ready, Air­tel has started lay­ing off staff, with the first batch of 60 be­com­ing job­less last month. There is talk that the com­pany, owned by In­dian group Bharti Air­tel, may fold its Kenyan op­er­a­tions, al­though the com­pany, which is Kenya’s se­cond big­gest mo­bile phone sub­scriber, has de­nied this.

Stripped of pow­ers to in­de­pen­dently mon­i­tor dom­i­nance and act against its abuse, CA has now been left with a nar­rower man­date of li­cens­ing new play­ers and al­lo­cat­ing fre­quen­cies.

The pass­ing of the Statute Law (Mis­cel­la­neous Amend­ments Bill), 2015, which con­tains the changes in the regulation of the tele­com in­dus­try, was the cli­max of a pro­tracted war pit­ting reg­u­la­tor CA, the Min­istry of In­for­ma­tion, Com­mu­ni­ca­tion and Tech­nol­ogy, and Air­tel on the one hand, and Sa­fari­com and CAK on the other re­gard­ing dom­i­nance.

Pres­i­dent Uhuru Keny­atta promptly signed the law in De­cem­ber, leav­ing a de­feated CA lick­ing its wounds. CA, a con­sti­tu­tional au­thor­ity, will now suf­fer the em­bar­rass­ment of con­sult­ing CAK be­fore mak­ing a dec­la­ra­tion of dom­i­nance and even when as­sess­ing crit­i­cal in­dus­try fac­tors such as Sig­nif­i­cant Mar­ket Power (SMP).

It all be­gan about two years ago when Air­tel and other smaller tel­cos started cry­ing foul, ac­cus­ing Sa­fari­com of suf­fo­cat­ing them. The cries reached a crescendo mid last year, with Air­tel boss, Adil El Youssefi, ac­cus­ing the gi­ant com­peti­tor of “anti-com­pet­i­tive be­hav­iour”. Youssefi claimed that the mar­ket leader’s brawny style had en­sured that other play­ers never made profit, lead­ing to the ig­no­min­ious exit of some, such Es­sar, the Yu net­work op­er­a­tor, as well as France Tele­com , which plans to aban­don Telkom Kenya.

“We have been try­ing for over five years and have not made one dol­lar in profit.

Air­tel is likely to exit Kenya if the mar­ket struc­ture is not ad­dressed in terms of dom­i­nance,” he was re­ported as say­ing in Au­gust last year.

There has al­ways been bad blood be­tween Sa­fari­com and Air­tel even be­fore the call to de­clare Sa­fari­com dom­i­nant be­gan. Be­fore CA or­dered Sa­fari­com to al­low its mo­bile money agents to host ser­vices from other oper­a­tors, Air­tel had per­sis­tently com­plained about the su­pe­rior telco’s un­fair prac­tices. Sa­fari­com boasts over 20 mil­lion sub­scribers on its M-pesa plat­form, a suc­cess at­trib­uted to the close to 100,000 agents the com­pany has across the coun­try.

Bad blood

Af­ter win­ning the bat­tle over the host­ing of ser­vices, Air­tel smelled blood and now started to de­mand that CA reg­u­lates in­ter-op­er­abil­ity costs across net­works, ac­cus­ing Sa­fari­com of charg­ing dou­ble the price for cash trans­fers from M-pesa to Air­tel Money, a prac­tice it said was dis­cour­ag­ing trans­fers be­tween the two net­works. Air­tel did not stop there; it upped the ante by de­mand­ing that Sa­fari­com be split, see­ing that it leads by over 60 per cent in all seg­ments of the mar­ket.

“It is com­mon sense that Sa­fari­com needs to be split,” Youssefi told a Se­nate com­mit­tee in July last year. “Let M-pesa be a na­tional plat­form that is in­de­pen­dent, for the mo­bile user to freely choose their mo­bile net­work”, he sug­gested.

Sa­fari­com dom­i­nates all seg­ments of the mar­ket, con­trol­ling 76 per­cent of voice, 93 per­cent of short text mes­sages (SMS), 70 pc of mo­bile data and 67 pc of mo­bile money.

And when CA an­nounced that it was go­ing to li­cence Sa­fari­com to roll out high­speed (4G) In­ter­net coun­try­wide, Youssefi was not amused. He charged that giv­ing Sa­fari­com the 4G per­mit ahead of other tel­cos would “tie” con­sumers to one ser­vice provider.

“We do not agree with the way the valu­able 800HZ spec­trum was al­lo­cated to the dom­i­nant player to de­ploy the 4G net­work with­out a clear agree­ment with other play­ers on com­mer­cial terms …. If the dom­i­nant player launches the 4G net­work across the coun­try, con­sumers will not have a choice and will be lim­ited to only one provider,” he said.

As­sur­ances by the CA that 30 per cent of Sa­fari­com’s 4G spec­trum would be shared with other tel­cos did not seem to as­suage his fears.

“We have tried to talk to the dom­i­nant player (Sa­fari­com) about the com­mer­cial modal­i­ties, but they are not in­ter­ested. I do not trust them even one se­cond. They will not al­low us to use the 30 per cent spec­trum dili­gently,” he was quoted com­plain­ing.

Faced with th­ese com­plaints, the reg­u­la­tor, along­side the mother min­istry then un­der the in­de­fati­ga­ble Dr Fred Ma­tiang’i, moved with un­usual alacrity to reign in the run-away Sa­fari­com. It an­nounced that it was go­ing to in­tro­duce reg­u­la­tions that would de­clare Sa­fari­com a dom­i­nant player which would lead to the break­ing up of the com­pany into three units.

The pro­posed set of 14 rules in­cluded a Fair Com­pe­ti­tion and Equal­ity of Treat­ment clause that would have em­pow­ered CA to au­to­mat­i­cally de­clare any telecom­mu­ni­ca­tion firm with a mar­ket share of more than 50 per cent as dom­i­nant. Ma­tiang’i then ex­plained that this was part of an ef­fort to pro­tect against mo­nop­o­lies.

“Telecom­mu­ni­ca­tion firms need to be reg­u­lated to en­sure some play­ers are not stran­gled,” he said at the time.

Sa­fari­com, which is partly owned by Bri­tish mo­bile gi­ant Voda­fone but which has sig­nif­i­cant lo­cal share­hold­ing, among them the shad­owy Mo­bite­lea Ven­tures, cur­rently has more than 60pc of Kenya’s 33 mil­lion mo­bile users.

Had they seen the light of day, the reg­u­la­tions would have forced the mo­bile gi­ant to sep­a­rate its mo­bile money unit, M-pesa, from its mo­bile phone ser­vices (voice and data) and in­fra­struc­ture busi­nesses, po­ten­tially weak­en­ing its po­si­tion in the mar­ket.

Sa­fari­com would also have op­er­ated in a more re­stricted busi­ness en­vi­ron­ment in terms of mar­ket­ing and pric­ing, with the reg­u­la­tor hav­ing pow­ers to set prices. It would also have been sub­jected to at least a 45-day tar­iff ap­proval process. On the con­trary, its weak ri­vals would be al­lowed to change their tar­iffs within a day’s no­tice.

There were also go­ing to be con­se­quences for any op­er­a­tor found to have abused its dom­i­nance or en­gaged in an­ti­com­pet­i­tive con­duct – such an op­er­a­tor would be li­able to a fine not ex­ceed­ing the equiv­a­lent of 10 per cent of its gross turnover in the pre­ced­ing year, for each fi­nan­cial year that the breach per­sists.

Piqued by th­ese ap­par­ent ef­forts to clip its wings, Sa­fari­com hit the roof, shout­ing that the reg­u­la­tor was out to pun­ish suc­cess. Through CEO Bob Col­ly­more, it ac­cused CA of craft­ing leg­is­la­tion that would au­to­mat­i­cally de­clare it a dom­i­nant op­er­a­tor with­out any ev­i­dence to show that it was abus­ing its dom­i­nant po­si­tion, con­trary to in­ter­na­tional best prac­tices. It lashed out at the reg­u­la­tor for ig­nor­ing its sug­ges­tions when draft­ing the law.

As adamant CA and ICT min­istry de­clared they were go­ing to take the pro­posed leg­is­la­tion to Par­lia­ment, Sa­fari­com re­ceived sup­port from an un­likely quar­ter: The Com­pe­ti­tion Au­thor­ity of Kenya (CAK), an­other con­sti­tu­tional agency of govern­ment came to its de­fence, say­ing that mar­ket dom­i­nance alone did not re­sult in mo­nop­oly.

“The CA should aim at be­ing pro­por­tion­ate in ap­pro­pri­at­ing ex-ante reme­dies

“BE­HIND THE SCENES CON­VER­SA­TIONS WITHIN THE TECH SEC­TOR SUG­GEST TO ME THAT EMER­GENT PLAY­ERS CHOOSE TO PLAY SAFE AND STAY OUT OF SIGHT OF THE DOM­I­NANT PLAY­ERS LEST THEY BE WHACKED INTO OBLIV­ION FOR DAR­ING TO DE­MAND A PIECE OF THE CAKE. THAT DOESN’T SERVE THE NEW PLAY­ERS IN TERMS OF FREE­DOM TO CON­TRIB­UTE, NOR DOES IT SERVE THE PUB­LIC IN TERMS OF AVAIL­ABIL­ITY OF CHOICE, COM­PET­I­TIVE PRIC­ING AND SER­VICE” – LUKALO OWINO

on to the dom­i­nant li­censee, con­sid­er­ing that the dom­i­nance po­si­tion may have been ac­quired through in­no­va­tion,” CAK chair Fran­cis Kar­iuki was quoted say­ing.

The au­thor­ity went fur­ther and wrote to Ma­tiang’i, ask­ing for re­vi­sion of the pro­posed set of 11 reg­u­la­tions, which it de­scribed as dras­tic. Sens­ing an ugly sce­nario, the At­tor­ney-gen­eral Githu Muigai stepped in early Au­gust and asked Ma­tiang’i to with­draw the reg­u­la­tions from Par­lia­ment. In a let­ter, the AG has also hit out at the min­is­ter and the CA for draft­ing the con­tro­ver­sial reg­u­la­tions with­out his in­put con­trary to the laid down law-mak­ing pro­ce­dures. .

“Ac­cord­ingly, I ad­vise that the Min­istry with­draws the reg­u­la­tions from the Na­tional As­sem­bly and sub­ject them to dis­cus­sions in all aspects as con­tem­plated by the MOU (be­tween CA and CAK),” the AG wrote.

It was at this stage that the CA beat a re­treat and with­drew the pro­posed laws. Its Di­rec­tor-gen­eral Fran­cis Wan­gusi an­nounced that the au­thor­ity was go­ing to first hire an in­ter­na­tional firm to an­a­lyse the telecom­mu­ni­ca­tions and broad­cast­ing sec­tors be­fore mak­ing fur­ther sug­ges­tions. The study would iden­tify which firm was dom­i­nant in which mar­ket seg­ment in a mar­ket power re­port, and then find out which com­pany was abus­ing its dom­i­nance.

Wan­gusi had said it would take time to com­plete the mar­ket anal­y­sis and mar­ket power re­ports, giv­ing 18 months as the short­est pos­si­ble time. That was in Au­gust and it would there­fore not be un­til March 2017 that any dom­i­nance reg­u­la­tions would be en­acted.

But Par­lia­ment had ideas of its own. To­wards the end of the year, the House passed Statute Law (Mis­cel­la­neous Amend­ments) Bill, 2015 which prac­ti­cally stopped CA from in­de­pen­dently mon­i­tor­ing dom­i­nance and pun­ish­ing abuse.

The amend­ments to the Kenya In­for­ma­tion and Com­mu­ni­ca­tions Act, 1998 con­tained in the Mis­cel­la­neous Amend­ment Act 205 di­lutes the mean­ing of a dom­i­nant telecom­mu­ni­ca­tion ser­vice provider as de­scribed in the for­mer Act by adopt­ing the weaker mean­ing con­tained in Sec­tions 4 and 23 of the Com­pe­ti­tion Act, 2014.

Worse, the amend­ments, which specif­i­cally tar­geted sec­tions 84W (4) and 84W (5) of the Com­mu­ni­ca­tion Act ef­fec­tively trans­fer tele­coms sec­tor reg­u­la­tion­s­mak­ing role back to the ICT Min­istry, which many per­ceive as un­con­sti­tu­tional. Ar­ti­cle 34 of the Con­sti­tu­tion re­quires the CA to be free of govern­ment and political con­trol and in­de­pen­dent of com­mer­cial in­ter­ests.

It there­fore did not come as a sur­prise when CA im­me­di­ately crit­i­cised the amend­ments, with Wan­gusi com­plain­ing that trans­fer­ring the power to reg­u­late com­pe­ti­tion in the ICT sec­tor from Com­mu­ni­ca­tions Au­thor­ity, whose re­spon­si­bil­ity is to man­age com­pe­ti­tion ex-ante, to the Com­pe­ti­tion Au­thor­ity, which is es­tab­lished to man­age the com­pe­ti­tion for the en­tire econ­omy ex-post, would even­tu­ally un­der­mine the CA’S abil­ity to as­sert it­self as the ICT sec­tor reg­u­la­tor.

He also ex­pressed worry that the new laws would make it dif­fi­cult to im­ple­ment the out­come of a study by the in­ter­na­tional firm the au­thor­ity had sought t to hire to ex­am­ine Kenya’s telecom­mu­ni­ca­tion and broad­cast­ing sec­tors for mar­ket dom­i­nance and anti-com­pet­i­tive be­hav­iour.

Un­fair com­pe­ti­tion

State Law of­fice’s Se­nior Deputy So­lic­i­tor Gen­eral Muthoni Ki­mani agrees that Sa­fari­com is a dom­i­nant provider by any def­i­ni­tion but opines that it does not mat­ter who is charged with the re­spon­si­bil­ity of mon­i­tor­ing abuse. She says CA and CAK should find a way of work­ing to­gether to pro­tect the con­sumer. She, how­ever, doubts that CAK has the ca­pac­ity to carry out that man­date.

“Do they even have the tech­ni­cal ca­pac-

ity to mon­i­tor the telecom­mu­ni­ca­tion sec­tor?” she poses.

She thinks that the fair com­pe­ti­tion reg­u­la­tions are not ob­served prop­erly in Kenya, leav­ing dom­i­nant play­ers like Sa­fari­com to run amok and be­have in mo­nop­o­lis­tic fash­ion.

“Sa­fari­com tried to stop Equity Bank from en­ter­ing the mo­bile money trans­fer busi­ness, yet Equity was go­ing to give the ser­vice at no cost to the con­sumer, un­like Sa­fari­com which charges ex­pen­sively for the same ser­vice. This shows that the com­pany has a mo­nop­o­lis­tic at­ti­tude and does not be­lieve in fair com­pe­ti­tion”, she says.

She chal­lenges CA to “take the bat­tle to the next front” now that it has been given man­date to mon­i­tor com­pe­ti­tion in the lu­cra­tive but cut-throat telecom­mu­ni­ca­tions sec­tor.

In other ju­ris­dic­tions such as the UK and the US, fail­ure to com­ply with com­pe­ti­tion laws can have very se­ri­ous con­se­quences. In the UK, the Com­pe­ti­tion and Mar­kets Au­thor­ity (CMA) en­sures ro­bust en­force­ment of the com­pe­ti­tion rules, with higher fines and more crim­i­nal pros­e­cu­tions in ap­pro­pri­ate cases.

How oth­ers do it

Firms in­volved in anti-com­pet­i­tive be­hav­iour may find their agree­ments to be un­en­force­able and risk be­ing fined up to 10pc of group global turnover for par­tic­u­larly dam­ag­ing be­hav­iour as well as ex­pos­ing them­selves to pos­si­ble dam­ages ac­tions. Fur­ther­more, in­di­vid­u­als could also find them­selves fac­ing di­rec­tor dis­qual­i­fi­ca­tion or­ders or even crim­i­nal sanc­tions for se­ri­ous breaches of com­pe­ti­tion law.

In the US, Mi­crosoft, the world’s largest and dom­i­nant com­puter soft­ware com­pany, was at one time in the 1990s forced end its il­le­gal mo­nop­o­lis­tic prac­tices af­ter the Depart­ment of Jus­tice charged that the com­pany used un­fair con­tracts that choked off com­pe­ti­tion and pre­served its mo­nop­oly po­si­tion.

The com­pany was ac­cused of build­ing a bar­ri­cade of ex­clu­sion­ary and un­rea­son­ably re­stric­tive li­cens­ing agree­ments to deny oth­ers an op­por­tu­nity to de­velop and mar­ket com­pet­ing prod­ucts.

Com­ment­ing on the amend­ments, some con­sumers are of the view that fail­ure to stem dom­i­nance in the tel­cos sec­tor would im­pact neg­a­tively on the sec­tor.

Me­dia per­son­al­ity Rose Lukalo Owino wrote on a so­cial me­dia net­work: “The ques­tion that must be asked is whether that suc­cess of the tech sec­tor is en­cour­ag­ing or sti­fling the emer­gence of oth­ers, and fu­ture growth and ex­pan­sion, and in so do­ing serv­ing the pub­lic with newer, bet­ter, shinier op­por­tu­ni­ties. Be­hind the scenes con­ver­sa­tions within the tech sec­tor sug­gest to me that emer­gent play­ers choose to play safe and stay out of sight of the dom­i­nant play­ers lest they be whacked into obliv­ion for dar­ing to de­mand a piece of the cake. That doesn’t serve the new play­ers in terms of free­dom to con­trib­ute, nor does it serve the pub­lic in terms of avail­abil­ity of choice, com­pet­i­tive pric­ing and ser­vice.”

Ahmed Mo­hamed Maawy con­curred, say­ing that dom­i­nant play­ers in the tel­cos sec­tor were out to kill in­no­va­tion. “We were hailed for be­ing a “hot­bed of in­no­va­tion” re­cently. But if in­no­va­tors will be con­stantly suf­fo­cated – there is lit­tle to hope for in­no­va­tion to have pros­per­ity. Over­all the tech sec­tor is a ma­jor back­bone of our re­cent eco­nomic pros­per­ity.”

As Or­ange, Air­tel and other strug­gling mo­bile phone providers stare at an­other year of measly re­turns, an em­bold­ened Sa­fari­com will con­tinue paint­ing towns and mar­kets, vil­lages and ham­lets green, and smil­ing all the way to the bank.^

IN OTHER JU­RIS­DIC­TIONS, FAIL­URE TO COM­PLY WITH COM­PE­TI­TION LAWS CAN HAVE VERY SE­RI­OUS CON­SE­QUENCES. IN THE UK, THE COM­PE­TI­TION AND MAR­KETS AU­THOR­ITY EN­SURES RO­BUST EN­FORCE­MENT OF THE COM­PE­TI­TION RULES, WITH HIGHER FINES AND MORE CRIM­I­NAL PROS­E­CU­TIONS.

An M-pesa shop.

Sa­fari­com CEO Bob Col­ly­more.

Last year, Sa­fari­com tried to stop Equity Bank from en­ter­ing the mo­bile money trans­fer busi­ness.

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