Is Communications Authority running out of options?

The regulator stares on as Safaricom's success simultaneously portends failure to economy.

 

IN SUMMARY

  • Declare dominance, but do not punish success. This has been Safaricom’s rallying call each time the Communications Authority attempts to intervene in the Kenyan telco sector that has been dominated by Safaricom in the better part of the last decade.

  • A market failure is said to have occurred when there is no effective competition, there are high barriers to entry or there are inadequate laws to deal with market failure.

  • The spectacular success of Safaricom is simultaneously and potentially a single point of failure for the Kenyan economy.

  •  It seems that the regulator may continue staring at the big, green elephant in the room, but may not be having the right regulatory interventions on how to tame it.

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Declare dominance, but do not punish success.

This has been Safaricom’s rallying call each time the Communications Authority attempts to intervene in the Kenyan telco sector that has been dominated by Safaricom in the better part of the last decade

Safaricom, with its flagship product M-Pesa, has without doubt transformed lives and put Kenya on the global map where financial and digital inclusion is concerned.

MARKET FAILURE

So why would anybody, particularly the regulator, want to slow down Safaricom and take away its shine under the guise of promoting competition? 

This seems to be Safaricom’s view each time the regulator attempts to correct what is obviously a market failure within the sector. 

A market failure is said to have occurred when there is no effective competition, there are high barriers to entry or there are inadequate laws to deal with market failure.

In the case of Kenya, lack of effective competition seems to be the issue, with Safaricom’s competitors always getting the brunt of its superior marketing, entrenched product scope and wider geographic reach across the country.

Indeed Safaricom has no apologies to make for this since they have invested heavily in infrastructure across the country and have every right to reap the benefits.

But beneath this reality is the stubborn fact that for better or worse, the Kenyan economy is powered by Safaricom or MPESA, its money transfer service. 

MPESA SUCCESS

The latest regulatory reports show that during the last quarter, of the close to two trillion shillings exchanged over mobile money platforms, more than 77 percent was transacted by Safaricom’s M-Pesa.

This maybe great business for the Safaricom shareholders, but it remains a risky business for a whole economy of a nation to be dependent on the success or otherwise of a single multinational.

In other words, the spectacular success of Safaricom is simultaneously and potentially a single point of failure for the Kenyan economy.

Perhaps this is the perspective the regulator is taking, rather than one of intending to punish an otherwise successful company. However, the regulatory options for managing this single point of failure seems to be drying up over the years.

MOBILE NUMBER PORTABILITY

Initially, the regulator introduced something called mobile number portability, where subscribers could move to competing telco providers while retaining their regular or original mobile number.

Basically this reduces the switching costs a subscriber incurs. However, number portability was and remains a massive failure, with less than five hundred subscribers out of the potential forty million subscribers taking advantage of this feature every quarter.

The potential number portability users prefer to stick with the more expensive Safaricom services due to the need to continue using its more versatile, cross-industry and geographically spread M-Pesa service.

The regulator then introduced mobile money interoperability, which allows subscriber to receive money directly into their mobile wallets – irrespective of the origin or source of the sending provider network.

The jury is still out on the success of this feature.  However, the impact is likely to be subdued to the fact that cashing out the received money is still restricted to the parent subscriber network or mobile money agents.

DOMINANT PLAYER

With over one hundred and fifty thousand mobile money agents spread across the country, Safaricom agent network is five times bigger than its closest rival. So unless the highly contentious ‘mobile-money-agent-interoperability’ is effected, mobile money interoperability may not live to its huge promise.

Most recently, the regulator has been toying with the idea of declaring Safaricom a dominant player with a view to kicking in the subsequent stringent regulatory controls. This would include tighter restrictions on Safaricom’s tariff regime, promotional activities, infrastructure sharing amongst others.

NO WAY OUT

It is unlikely that this will result in the desired regulatory outcomes since such approaches work best in a traditional telco market setting, but may actually be counterproductive in an Internet -

driven or platform-based Telco markets. 

It seems therefore that the regulator may continue staring at the big, green elephant in the room, but may not be having the right regulatory interventions on how to tame it. 

Mr Walubengo is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT. Email: jwalubengo@mmu.ac.ke, Twitter: @Jwalu 

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