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Regulator drops plan to split up Safaricom

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A revised competition report by the telecommunications industry regulator has dropped the controversial proposal calling for the splitting of Safaricom into separate business units, drawing the ire of its rivals.

Airtel, Kenya’s second-biggest telecommunications company after Safaricom, hit out at the Communications Authority of Kenya (CA), saying failure to finalise the dominance debate and watering down of the report was hurting the smaller operators.

The CA has, however, defended the report, saying it was revised after wide consultations and input by all industry stakeholders.

The initial draft report leaked to the media in February last year had recommended designation of Safaricom as a dominant operator, which would have seen its voice and mobile money units split into stand-alone businesses that would compete with rival telecommunications firms.

Safaricom would also have been required to share its vast infrastructure with its competitors.

“We strongly think that the CA urgently needs to reassure all stakeholders of its independence and commitment to ensuring a properly regulated telecoms industry,” Airtel said in an interview.

Telkom Kenya is the country’s third-biggest telecommunications firm, while Equitel operates as a sub-licensee of Airtel.

CA data shows that at the end of September 2017, Safaricom had a market share by subscription of 71.9 per cent, after steadily rising in the past five years.

Meanwhile, the other smaller operators have seen up-and-down fluctuations in their numbers over the half-decade.

“Skewed market”

Airtel says that recommendations in the revised competition report, which the Business Daily has seen, do not go nearly far enough in addressing a skewed market structure.

“The proposed remedies are rather weak and not comprehensive,” said Airtel.
Telkom Kenya said the delays in acting on Safaricom’s dominance was detrimental to the industry.

“We can’t quantify the direct impact [of the delays] on Telkom. However, from a general perspective, the failure to deal with the issue of dominance in this industry is tantamount to having no regulation of competition in our market,” said Telkom Kenya in a statement.

Safaricom, which has consistently raised concerns that designation as a dominant operator and resultant action could be used to punish its success, maintained that the regulator must be cautious to avoid taking action that hurts consumers.

“We look forward to the completion of the competition study by the Communications Authority with the caveat that this report must not be used as a tool to reward inefficient operators,” the company’s chief executive officer, Bob Collymore, said in an email response to the Business Daily queries.

Airtel claims that the conduct of the CA over the issue of dominance, including repeated delays in conducting stakeholder workshops and failing to adopt a final report, has put the regulator’s neutrality in question.

The company says that delays in adopting a position on the issue of dominance are further skewing the telecommunications market and creating uncertainty for its shareholders.

The CA had commissioned consultancy firm Analysys Mason to carry out a study of the telecommunications sector, with specific focus on the competitiveness of the market.

Initially, Analysys Mason’s most significant recommendation to remedy Safaricom’s dominance of the mobile money business was mandatory interoperability by December 31, 2017 failing which the CA would impose a “functional” separation of M-Pesa — meaning that while the resultant entities would have the same shareholders and board, management would be different.

A later version of the study, circulated among stakeholders, jettisoned the proposal to split Safaricom while recommendations to institute mobile money interoperability have been watered down.

Instead of outlining set timelines and consequences for failing to institute interoperability, the latter report left the matter at the discretion of the regulator.

Consultations

Contacted for comment, the CA said that delays in adopting a final report were due to the need for extensive stakeholder consultation.

These consultations, the CA said, had also resulted in the changes to the dominance study, including the scrapping of the proposal to split Safaricom.

“It is, therefore, not factual that the report has been watered down as stated,” said the CA, adding that the report would be released before the end of January 2018.

CA director-general Francis Wangusi had last year said that the report would be completed by May while implementation was to begin in July 2017.

Changes to the initial document also include cutting down from 14 to seven the counties where operators would be required to provide national roaming services and where Safaricom would be required to share its towers.

Airtel does not fully dismiss the new document, saying that some of the recommendations make it a “good start” but argues that the regulator ought to listen to additional comments before finalising the report.

This initial draft report caused uproar, with the Ministry of Information assuring the public that the recommendation to split Safaricom would not be implemented, even before the study went through stakeholder review.

“Unusually high”

Analysys Mason had noted that Safaricom’s market share was “unusually high” for a three-player market and that previous interventions, such as mobile number portability and the entry of mobile virtual network operators (MVNOs), had done little to dent this position.

This situation made it difficult for new entrants to come to the market or for smaller companies to run profitable businesses. Essar exited the local market in 2014 and there is ongoing uncertainty over Airtel’s continued operation in Kenya.
While denying exit plans, Airtel recently said that it was open to “acquisitions or mergers”.

Credit: Business Daily

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