How to break up Safaricom's dominant position

Kenya’s telecommunications sector is regionally and globally celebrated as one of the most progressive and successful. This is in terms of the number of subscribers, geographical reach and profits.

At the heart of this success is, of course, Safaricom, a telecom company that started off as a voice service provider, moved into an internet service provider, a mobile money provider and most recently plays in the transport sector as Little Cab.

The success of Safaricom has always been contrasted with the not so successful journey that its competitors have had to endure. Airtel, Orange Telkom and most recently Equitel have all tried to rise up to the same level with little success.

Over the last decade or so, statistics reports show that Safaricom has held a market share of between 65-80 per cent in all the sub-sectors of voice, data and mobile money.

Safaricom attributes this to its innovative culture that makes it stay ahead of the pack by dropping an increasing number of new products, while improving on the old ones.

Whatever the reasons, the regulator stands accused of presiding over a market failure where the success of one dominant player cannot be replicated by others.

EFFECTIVE COMPETITION

Put differently, the regulator has failed to come up with a winning formula that guarantees effective competition. The key word here is "effective".

Basic competition can be observed in the number of players in a market, but effective competition depends on how the subscribers in that market are distributed across each of the players.

In other words, a market with ten players can actually be less competitive, than one with only two or three players — depending on the market share each one enjoys.

Using this principle, it is clear that the Kenyan mobile sector has not been as competitive as it should be. The regulator has acknowledged this by throwing all types of intervention at this reality.

Some of them include the introduction of the so-called "Mobile Number Portability" — where users can move to a competitor's network without losing their original subscriber number.

However, less than three hundred subscribers ‘vuka’ or move every quarter in a market size of thirty million subscribers. Clearly mobile number portability has failed and whoever is maintaining the number portability contract must be enjoying free money.

THIN-SIM TECHNOLOGY

Another intervention came in the form of the controversial "thin-SIM" technology. This technology allows subscribers to overlay their SIM card with SIM card data from another competitor.

Thin-SIM technology essentially turns your SIM card into a dual SIM card – avoiding the need to buy two handsets in order to enjoy the services of two different operators.

Equity Bank aggressively took to this approach in order to break Safaricom's mobile money dominance. Two years down the road, it is clear that this intervention has also not shaken Safaricom's dominance in the mobile money sector.

The last intervention from the regulator on Safaricom's dominance came in form of some regulations that were supposed to be gazetted in order to enable the regulator to micro-manage Safaricom's tariff processes.

This move was dealt a major blow when the Competition Authority reminded the Communication Authority that they held the last say on matters of dominance and any consequent actions thereof.

WHAT NOW?

So what next for the regulator?

Apparently, they have hired a consultant to do a study that would establish whether there is market dominance and if this has been abused. Sounds like the classic script for avoiding the elephant in the room.

The answer to breaking Safaricom's dominance and ushering in effective competition lies in opening up its M-Pesa flagship product. M-Pesa is their ‘stronghold’, the glue that ties together all their products into one gigantic and ever expanding ecosystem.

Obviously the regulator must be aware of this fact but would dare not open up M-Pesa since they know Safaricom would not take such a proposition lightly and will likely bring out the big guns to deal with such a threat.

But M-Pesa has grown into a critical national resource and should be treated with the same open-access principles that apply to resources like the submarine cables in Mombasa.

Unless and until this issue is sorted out, Kenya will continue to shine but still fail to reach its peak potential in a communication sector that exhibits theoretical competition rather than effective competition.

Mr Walubengo is a lecturer at the Multimedia University of Kenya, Faculty of Computing and IT. Email: [email protected], Twitter: @jwalu