Safaricom dominance: What I learnt from a Communications Authority public consultation meeting

A competition report did not consider how forced infrastructure sharing would affect telecom firms.

 

IN SUMMARY

  • A study assessed the competition in Kenya’s mobile telephony industry to determine whether a state of dominance existed and if any firm had abused that position.
  • It appeared as if the Communications Authority views public engagement as a nuisance to be completed quickly. Considering that the study has been going on for at least two years, it was essential to provide standard information sheets to enable the public to be prepared for meaningful engagement.
  • The consultant cautioned in the report that cross-operator charges may be a hindrance to consumers and therefore should be disallowed. The more controversial matter is whether agents ought to be allowed to use their float from the operations with one operator to facilitate payments for others.
  • The most controversial prescription discussed at the meeting is sharing of infrastructure, because it suggests that while one firm may have taken risks to invest in its infrastructure, the competition should be allowed to use that infrastructure to build competing services.

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Two weeks ago, the Communications Authority published a notice about a public event to disseminate the results of a study that it commenced two years ago. The study assessed the competition in Kenya’s mobile telephony industry to determine whether a state of dominance existed and if any firm had abused that position.

A colleague and I attended the event due to institutional interest in the regulation of the industry. While I appreciated the advertisement that alerted Kenyans to the meeting scheduled for February 20th, I question whether the style of the meeting elicited the best public and professional inputs among those who attended.

Separate from the short notice, a more serious omission comes from the casual nature of the notice. It stated the purpose of the meeting, and included a venue and commencement time. Curiously missing was information on the findings that would be the subject of discussion.

Did the convener of the meeting expect professionals to attend a meeting and contribute to the contents without any indication about the specific findings and the arguments? In my view, this is a classic set-up intended to limit insights from the public, because they would be making comments on a report that they have very limited knowledge of.

DISCOURSE DIMINISHED

It appeared as if the Communications Authority views public engagement as a nuisance to be completed quickly. Considering that the study has been going on for at least two years, it was essential to provide standard information sheets to enable the public to be prepared for meaningful engagement. This failure affected the quality of the discourse, with the result that the response of the audience mainly consisted of platitudes, very basic observations and some partisan, if undisguised feedback.

There’s much to be said for the style but it is essential to delve into the substance of the meeting. Earlier iterations of the same report contained some proposals on the industry and these were my main concern.

Some proposals last year included a recommendation to compel the industry leader to separate two business heads with the aim of fostering greater competition in both areas. The report presented at the meeting under reference unequivocally walked away from that prescription.

Following from their other findings, it is evident that that original prescription to compulsorily divide Safaricom would not have solved the competition issues that they found and most certainly would have had no value for consumers of money transfer or conventional telephony services. That aggressive policy measure did not have strong justification to begin with and was rightly omitted.

INADEQUATE INFRASTRUCTURE

A second important finding relates to the argument that there are diverse systems of mobile money transfer in Kenya. The proposal for interoperability or a shared platform for mobile money transfers is a sensible solution in principle. Indeed, the representatives of the market players seemed to agree that there is no technology barrier to making this work even if I think that it is not a panacea for enhancing competition.

Still, the consultant cautioned in the report that cross-operator charges may be a hindrance to consumers and therefore should be disallowed. The more controversial matter is whether agents ought to be allowed to use their float from the operations with one operator to facilitate payments for others. It remains unclear whether this matter should be regulated at all because it should be left to licensed operators to decide through guidance to agents.

Thirdly, the report stated that the inadequate infrastructure in parts of the country not only constrains market competition but also limits access to telecommunications services. It identifies seven counties with inadequate infrastructure in which to expand services and proposes a mechanism for sharing base stations. This implies that any telecom firm in with operations in the seven counties would be compelled to share and be compensated at rates that are determined by the industry regulator.

FORCED INFRASTRUCTURE SHARING

This was the most controversial prescription discussed at the meeting, because it suggests that while one firm may have taken risks to invest in its infrastructure, the competition should be allowed to use that infrastructure to build competing services.

This prescription presupposes that infrastructure investments should be accessible uniformly and that it is a major constraint to services in the seven counties. It seems sensible to want to provide cost-effective services but the report did not consider how forced sharing would affect the incentives of firms in this industry and the rest of the country in the future.

My next blog post will discuss my views on the chosen approach to fostering competition and the implied regulation of selected prices for segments in this industry.

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame

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