Safaricom: Competition report shows regulator’s fixation on price controls

What you need to know:

  • Even if the findings of insufficient competition in the industry were true, I found the report technically deficient in proposing regulatory tools that do not involve direct market intervention and price controls.
  • This report made many impressive technical arguments but the overriding concern for me is that its main policy reform measures would leave the Communications Authority with a very limited set of tools for regulatory work.
  • The report would provide a bungling regulator with is the confidence to continue with the unimaginative instruments of price controls and forced infrastructure sharing.

In my last blog post, I discussed my impressions of a recent public consultation meeting hosted by the Communications Authority of Kenya during which a report assessing the degree of competition in the telecommunications market was presented.

The summary of the piece was that the regulator may have intended to ensure the best outcomes from the consultation but these were undermined by the style and structure of the meeting.

Despite the fact that there are some lessons for the regulator to learn, several issues of substance in the report are worth highlighting.

The background to this long study is that there have been claims from competing firms that the market for telecommunications services in Kenya is dominated by Safaricom. This claim has been sustained by competitors though our survey has not revealed an equally strong assertion from consumers, whose interest should be central to an analysis of market dominance and its adverse effects.

TWO IMPRESSIONS

To its credit, the Communications Authority made a public declaration to undertake a study and to decide whether further regulatory reforms would be necessary.

Based on the substance of the report, one comes out with two impressions that summarise the future of regulatory policy. It seems that there is a strong appeal for price controls and need to direct market outcomes towards greater parity among contesting firms, all without reference to either consumers or the Competition Authority in Kenya.

This report brought to the fore the existing tension and absence of agreement between the Communications Authority and the Competition Authority regarding the authority to regulate conduct related to competition.

Judging from the terms of reference with which the consulting firm worked, it is not a surprise in my view that the outcome was a declaration that Safaricom is dominant in the most lucrative market segments.

And the finding of dominance is material and a regulator should be keener but the ethos of Kenya’s competition law is that dominance “per se” is no regulatory offense but that the material issue is whether that position of empirical dominance has been abused to the detriment of consumers. This is a finding that could only be made with an investigation by the Competition Authority.

REGULATORY PROPOSALS

Indeed, among the most curious matters that arose is whether the remedies proposed and the findings that informed them reflect the concurrence with the Competition Authority. This is a big issue for the country because the absence of the voice of the Competition Authority reflects another step in the systematic approach by regulatory bodies in Kenya to expand their reach beyond technical regulation and towards emasculating the Competition Authority.

As stated earlier, a second point of concern is in relation to the nature of regulatory proposals. The Communications Authority seems to be enamoured of price controls as a major regulatory policy instrument. Even if the findings of insufficient competition in the industry were true, I found the report technically deficient in proposing regulatory tools that do not involve direct market intervention and price controls.

For instance, there is the recommendation to restrict the introduction of new tariffs and individually tailored loyalty schemes and promotions. The preposterous part of this proposed solution is not just that it binds a single firm, but that Safaricom would have to provide justification that competing firms could replicate a similar initiative.

LACK OF IMAGINATION

How would this be possible? One would think that a firm should dedicate itself to pursuing a business strategy that is not easily replicated by competitors. But the consumers’ worry seems to be that the Communications Authority is convinced that a competitive market is one in which players have parity in customer numbers and revenue.

That cannot be true but it also suggests a regulatory policy that is drifting towards favouring a redistribution of revenues among competitors as opposed to one that expands the range of services and advantages to consumers.

This report made many impressive technical arguments but the overriding concern for me is that its main policy reform measures would leave the Communications Authority with a very limited set of tools for regulatory work. Indeed, what the report would provide a bungling regulator with is the confidence to continue with the unimaginative instruments of price controls and forced infrastructure sharing.

To my mind, Kenyan consumers of telecommunications services require a regulator that is capable of using the regulatory policy tools and approaches of this century because price controls and coercion may be what the regulator favours, but that reflects its lack of imagination and not that the sector’s challenges in competition are intractable.

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