We will not punish success, regulator says of Safaricom

Tuesday March 14 2017

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Competition and communications sector regulators are reading from the same script in response to proposals that have recommended the splitting of M-Pesa from Safaricom as part of remedies to raise competition among telecommunication firms.

The Communications Authority (CA) Tuesday rejected the proposal to split Safaricom saying that such a move would “punish success”.

Rather, the Authority said that it would pursue “modest” market interventions to level the playing field while also protecting market leader Safaricom.

“…I wish to allay fears that the Authority is planning to split the business of players who are alleged to be dominant and thus create disruptions in the market,” said CA chairman Ben Gituku in a statement.

A draft report on competition in the telecommunications sector, which was commissioned by the regulator suggested splitting M-Pesa from Safaricom-- if the industry does not achieve seamless cross-network mobile money transfers by the end of the year.

The CA also opposed a proposal by Gem MP Jakoyo Midiwo that also seeks to separate mobile operators from their mobile money business. The proposal would require telecom companies to acquire a new licence whenever they ventured beyond “telecommunication services.”

“In our view that kind of proposal is aimed at stifling competition, it is not good for our country,” said CA director- general Francis Wangusi at a press conference on Tuesday.

The CA said the draft report was going to go through stakeholder and public consultations before its adoption by the government.

When questioned on the logic of rejecting this proposal before stakeholder consultations, the CA said it would consider all proposals, but separating M-Pesa from Safaricom would be ‘a very remote possibility.’

Separately, the Competition Authority of Kenya (CAK) confirmed that it had submitted its review of the draft report, expressing views similar to those of the Communication Authority.

“On splitting the company, we don’t support such a thing. It is an extreme way of doing things,” said CAK director-general Wang’ombe Kariuki in an interview.

Although the CA is mandated with regulating competition in the telecommunications sector, it has to do so in consultation with the CAK.

The antitrust watchdog supports market and operator-driven solutions to ensure a competitive operating environment.

While the CAK supports mobile money interoperability, it thinks that the process of achieving this should be driven by the operators rather than government regulators.

The CAK has indicated that it prefers that the mobile network operators be allowed to set prices for infrastructure sharing based on market conditions.

The Analysys Mason report had suggested pricing the sharing of towers based on the long-term incremental cost (LRIC) of managing these towers.

The CAK and the CA are echoing statements made by Information Communication Cabinet Secretary Joe Mucheru, who has in recent weeks warned that splitting the Safaricom business would turn away investors.

Safaricom shares have taken a hit in the stock market after details of the draft report were released.

On Tuesday last week, Safaricom’s stock hit an eight-month low of Sh16.65. The stock has since been regaining ground with an average closing price of Sh18.25 on Tuesday.

Safaricom chief executive Bob Collymore on Tuesday said that the company had moved to reassure investors of its continued stability.

Mr Collymore said that the telecom firm had conference called at least 70 international investors since Friday. The proposal to split the company has excercabated prevailing investor concerns of market instability in an election year.

“... the shareholders are concerned about a few things, having seen their investments in the banking sector dive the way it did after the interest rates capping Bill, facing an election year here in Kenya and facing the current drought situation they are now wondering whether this proposed regulation is healthy for their investments,” Mr Collymore said in an interview.

The government has a 35 per cent stake in Safaricom while Britain’s Vodafone holds 40 per cent ownership.

The CA expects to have the report finalised before the end of May and it begin implementing its preferred industry interventions at the beginning of the new financial year in July.

The CAK has advised that the government define long-term and short-term priorities before putting the report into action.