Is Safaricom beyond Regulation?

Recently the Director General of CCK, the country's ICT regulator threatened not to renew Safaricom's license unless they improved the quality of their services. 

Safaricom, which makes over Sh1 billion per month is the largest and most successful enterprise in East and Central Africa.

With its world famous MPESA brand, Safaricom continues to dominate the local telecommunication market.  The recent CCK quarterly report shows that it controls approximately 75 per cent of the Internet data market and 80 per cent of the voice market.

How can you deny Safaricom a license to operate when it is connecting over 10 million subscribers to the Internet, is  transacting millions of shillings daily through its MPESA product and better still, it is paying the highest corporate tax in Kenya to the exchequer.

Add this to the fact that Safaricom is partly owned by many Kenyans – however small the value of this shareholding maybe – you clearly have a regulatory elephant in the room. 

It is very likely that around this time next year, Safaricom will have its license renewed - irrespective of whether or not it improves  its quality of service.

Quality of service is often the first casualty of monopolies and dominant players in any market.  A dominant player has the advantage, perhaps the benefit of dictating the price, quality of service and the innovation cycles of their products.

Safaricom has earned the dominant player role and can afford to dictate what quality of service you enjoy, what price you pay and how often it upgrades its services – irrespective of what the regulator says.

And this is not to say that the Regulator is weak or helpless. This is because in the first case, strong regulation involves facilitating a free and fair competitive environment rather than frequently intervening in the market. 

In such an environment, the customers will vote against poor quality and high prices by shifting to the competitors - forcing a dominant player to improve services and drop prices in order to retain them. 

The Regulator never has to say anything since the hidden hand of a competitive market automatically moderates the behavior and profit appetite of a dominant player against the aspirations and desires of customers for affordable and better services. 

By the time the Regulator is being forced to intervene and publicly speak about quality of services, it means that this market moderation dynamic is not working – a situation economists call market failure.

In market failure situations, the dominant player in a free market economy will maximize the profits without too much concern about the customers – since they know the customer will not move or the cost of moving to the competitor is too prohibitive.  In Kenya, that cost is defined as “MPESA”, the killer flagship product of Safaricom. 

No one in Kenya can dare move out of Safaricom since they will lose the internationally acclaimed ecosystem of services that MPESA provides. 

Forget that MPESA is mostly down on all Fridays - courtesy of peculiar Kenyans – they will simply put up with it as they patiently wait for it to come back.

All traditional regulatory options such as providing competitive environments, providing number portability, issuing quality of service warnings, financially bailing out competitors have failed and will continue to fail to address these regulatory elephant issues in the room. 

Clearly, CCK must therefore think outside the box in order to fairly balance the successes of a dominant player against the aspirations of customers wishing to experience better services.

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