Lessons for Safaricom from Microsoft case

On May 18, 1998, the Justice Department of the United States, together with 19 states, filed a suit against Microsoft Corporation, charging the company with unlawfully maintaining a monopoly in the operating systems market through predatory and anti-competitive behaviour.

Among other things, the plaintiffs cited unlawful exclusive dealing arrangements, unlawful tying of Internet Explorer to Windows 95 and Windows 98, and unlawful maintenance of a monopoly in the PC operating system market, as well as attempted monopolisation of the internet browser market — all in violation of the Sherman Antitrust Act.

On April 4, 2000, the District Court found Microsoft liable on the first two counts: unlawful exclusive dealing arrangements and tying its web browser to its operating system.

At the same time, the judge ironically ruled that the company’s marketing strategies to outdo Netscape, its competitor, did not have sufficient effect to violate the law.

To remedy the Sherman Act violations, the District Court provided for the company to be split into an operating systems business and an applications business, a ruling the company appealed. The case finally ended in a court decree in 2002 curbing some of Microsoft’s practices.

This case is a good precedent that can be applied to the regulation of Safaricom’s market dominance. Like Microsoft, Safaricom is a monolith, controlling 84 per cent of the Kenyan telecommunications market. It controls all segments of the market — voice (84 per cent), SMS (96.4 per cent), mobile data (70 per cent), and mobile money (66.7 per cent).

The company is currently standing in Microsoft’s position due to Airtel’s long-standing push for M-Pesa to be split into an independent platform. The latest in these intrigues is Airtel’s enlisting of the support of the Senate Committee on Information, Communication and Technology. The Information and Communications Regulations Bill, 2015, is expected to be tabled in Parliament.

Is the company culpable of anti-competitive behaviour? Its population penetration has enabled it to achieve the critical mass, which has made it difficult for others to enter the market.

To understand critical mass, we need to understand one important feature of the Kenyan telephony market; network effect.

This is a phenomenon where a good or service becomes more valuable when more people use it. The internet has demonstrated this clearly.

Initially, it was the preserve of scientists, but as more users came in, the number of websites increased. There were also more people to communicate with and it became “viral”. Critical mass is, therefore, the number of users required for significant network effect.

Network effect has its own inefficiencies in the form of congestion. In the telephony market, network effect can lead to insensitivity to consumer complaints, consumer exploitation, and deliberate practices to bar competitors.

This can be rectified by either imposing restrictions or splitting the monolith firm. Airtel is all for splitting of its rival. However, since a court decree worked for Microsoft, it can also work in this case. This is especially so considering that the country needs big businesses to spur growth. 
The writer is an economics student at Kenyatta University. [email protected]