With over 29m users and a near 70% market share, Kenyan network operator Safaricom continues to play a dominant role in the booming telecoms market. Despite its enviable position, executives at the firm breathed a sigh of relief in August when the country’s Competition Authority (CA) cleared the firm of abusing its dominance in any of the business sectors in which it operates.
In a decision that forestalls any imminent action against the firm, CA director general Wang’ombe Kariuki expressed concern that ill-considered remedies could have wider economic implications for the country. And while the judgment was well received by Safaricom, it raises further questions about how the authorities can ensure a level playing field for telecoms services, protect Safaricom’s smaller rivals – and avoiding throttling one of East Africa’s corporate golden geese.
“It’s a very good decision for Safaricom because it means they can continue with their business and strategy,” says Nkonzo Hlatshwayo, competition partner at law firm Hogan Lovells.
“That doesn’t mean they can behave anyhow – dominant companies obviously have to adhere to certain principles, so for that reason they will continue to be vigilant to ensure they minimise any risk of another investigation against them.”
Indeed, the firm needs to be alive to multiple competition concerns in its home market. The CA’s judgment followed a draft study commissioned by Kenya’s telecoms regulator, which recommended that the firm share transmission sites with its rivals. Fierce controversy has also swirled around the future of M-Pesa, Safaricom’s market-leading mobile money service. Rivals have long complained that M-Pesa’s limited interoperability with their own transaction platforms and their exclusion from M-Pesa agent networks gives the firm an unfair advantage.
For now, Kenya’s regulatory authorities have desisted from punitive action, perhaps wary of derailing a business renowned for innovation. Instead, the CA appears to have settled on a limited brief of protecting consumers.
“In general if we look at a market regulator like the Communications Authority of Kenya, one of the key objectives is to ensure that the consumer or user of telecoms services is not disadvantaged,” says Dobek Pater, a telecoms expert at Africa Analysis. “They will act to ensure the consumer is protected from predatory pricing for instance, and poor quality products and services. As long as that’s delivered other questions are secondary.”
That narrow focus may not be enough to soothe Safaricom’s competitors, who, while publically stoic, are likely to be privately disappointed by the CA’s decision. Safaricom continues to dominate short messages and voice calls with over 90% market share. While main rivals Airtel and Telkom have been gaining ground in subscriptions, total subscriber numbers lag behind (see box below left). While the CA’s decision may force Telkom and Airtel to reconsider previously abandoned merger plans, analysts question whether Safaricom’s competitors have been unfairly treated.
“This outcome in my view is actually pro-competitive because it means that the authorities are looking at protecting the competitive process rather than competitors,” says Hlatshwayo. “The small guys must go out there and try as hard as they can to survive or take market share away from them. Being efficient and attracting more business with customers – surely that can’t be a problem. It only becomes a problem if you abuse that market size.”
While the Kenyan government could be accused of having a vested interest in Safaricom’s success – it owns a stake in the company and the firm is a major contributor to jobs creation and economic growth – Pater says that the government will challenge any future attempts to transgress regulations. He believes that the government will persist with attempts to encourage Safaricom to increase M-Pesa’s interoperability with competitor platforms in order to create a more level playing field in mobile money. “On the one hand government is happy because it has a successful company, on the other hand they will remain mindful that Safaricom doesn’t decide it’s a power unto itself… It would be beneficial for the country to have interoperability between those platforms. That’s something the market regulator will certainly watch closely and make sure happens.”
Beyond hoping for that – or a future regulatory regime focused more on concerns around market share than market abuse – Telkom and Airtel’s immediate options may be limited. Engaging in costly litigation with mixed chances of success could distract from efforts to increase the competitiveness of their businesses and attempts to boost subscriber numbers. “If the regulator tasked with reviewing this does not come to your aid in many cases you just have to go back to the boardroom and sort yourself out, create the necessary competitive strategy and move forwards,” says Hlatshwayo.
While the outlook may appear bleak, hope lies in an ever-evolving market defined by technological change and quick reversals of fortune. Safaricom itself rapidly rose from a medium-sized operator to a dominant player by successfully capitalising on the explosion in mobile money transactions and the booming market for cheap data. Future moves towards blockchain technology, content distribution and fixed broadband services could allow Safaricom’s competitors to fight back. “I think when it will start becoming more competitive is when we see greater evolution of fixed broadband through fibre. But I think that there’s also a case for considering greater regulated infrastructure sharing among operators,” says Pater.
“One is to make sure Safaricom doesn’t become too dominant, but also to ensure there’s no unnecessary duplication of infrastructure so operators can use capital expenditure to build new networks and expand into areas that are underserviced. There is an argument for more regulation but I expect the market to become more competitive as the socio-economic situation improves and moves to fixed broadband expand.”
While the rise of new technologies is likely to open up new space for Safaricom’s competitors, technological change is unlikely to make things easier for already challenged regulators. “They are involved in a very dynamic market with incredible innovation so it’s difficult to say if one’s dominance today will be good enough for the future,” says Hlatshwayo. “Anything can happen but from what we know [Safaricom] enjoys that dominance at present.”