Vested in­ter­est is driv­ing a pol­icy regime that favours Sa­fari­com

Nairobi Law Monthly - - Cover Story - 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 non­is­sue 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.^

The Con­sti­tu­tion, safe­guards against dis­crim­i­na­tion on any grounds. At any rate, what Sa­fari­com is do­ing is un­con­sti­tu­tional – and goes against in­ter­na­tional best prac­tice”

In­for­ma­tion CS Joe Mucheru.

Newspapers in English

Newspapers from Kenya

© PressReader. All rights reserved.