Between a rock and a hard place: Why is CCK pushing Safaricom so hard?

Communications Commission of Kenya on Friday gave Airtel Kenya and Safaricom the nod to proceed with the transaction to buy out Essar Telecom, but not without spelling out raft of strict terms that it hopes will improve competition and cut dominance in the industry. PHOTO/FILE 

In Summary

• Is it, really, fair to ask rivals to share shops and distribution networks? Some of the conditions are blatantly impractical.
• Perhaps due to intrinsic incompetence, regulators tend to approach their work with brawn

By Jaindi Kisero
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Whichever way you look at it, the Communications Commission of Kenya has asked Safaricom to choose between a rock and a hard place.

Honestly, I don’t expect Safaricom to agree to share agent outlets and SIM card registration centres with it’s rivals.

 

Is it, really, fair to ask rivals to share shops and distribution networks? Some of the conditions are blatantly impractical.

And, in a market-place that has only recently witnessed the entry of a player offering leasing services for physical infrastructure, including tower and base stations, the requirement that the dominant market player must share towers and base stations with its rivals will surely be a bitter pill to swallow for Safaricom.

Fortunately, the dominant market player has a choice. If it gives up on buying yuMobile’s assets, the stiff conditions will not apply.

A brief background to the saga. The fourth player by market share, yuMobile is closing down. So, in February, it entered into a deal with the only two successful businesses in the market, Airtel and Safaricom, to purchase its assets.

Under the agreement, Airtel was to purchase subscribers, while Safaricom was to buy the spectrum currently under the ownership of the troubled company.
The agreement also had a deal for employees of yuMobile: 150 employees were to be absorbed by Safaricom, while 35 were to go to Airtel.

OLIGOPOLISTIC POSITION

On receiving the application, the chief executive of CCK, Mr Francis Wangusi, appointed a seven-member technical committee to study the application and make recommendations.

The approach of the technical committee was to instinctively treat the issue as an attempt by Safaricom and Airtel to entrench their oligopolistic position in the market-place.

The committee argued that it did not make sense to concentrate scarce spectrum resources in the hands of one company.

Later, the board decided to modify the recommendations by pretending to accept Safaricom’s application, but in reality, introducing conditions they knew Safaricom could not accept.

READ: Safaricom now abandons plan to purchase yuMobile

In Kenya, regulation tends to be obsessed with control. Without doubt, Safaricom has acquired unassailable market domination. There are legitimate complaints about the quality of services it offers.

But we must accept that our main problem is lack of effective and transparent systems of regulating abuse of market-power.

Yet apart from CCK, we also have a full-fledged competition authority. Perhaps due to intrinsic incompetence on the part of institutions regulating over-concentration of market power, regulators tend to approach their work with brawn rather than brain.

Don’t we have over-concentration of power in the beer market? How about the cement industry or even the media?

In the soft drinks market, we have had competition issues between Coca Cola and its bottling plants for years.

TECHNOLOGY AND DYNAMISM

The super-market chains industry is beginning to evolve into an oligopoly.

Clearly, there is considerable doubt as to whether the regulatory framework for competition, mergers and acquisition is fit for he purpose.

In technology markets like the mobile phone industry that are subject to constant changes and innovation, I would not bother too much about the potential for Safaricom to evolve into an enduring dominant player.

Investment in technology and dynamism is what will eventually decide. A few years ago, one would have imagined that Telkom Kenya’s monopoly was unassailable and would endure for years. Where are they today? This is what technology and big investment in innovation does.

In the past, the dominant player in the manufacture of electric type-writers would fight very hard to entrench himself as the dominant player. He was wiped out by the advent of the computer.

In my view, Safaricom’s strength is not so much a testimony of its dynamism as the lack of dynamism elsewhere.

Regulation should focus on promoting innovation and investment in new technology.

The regulator must put the accent on how to address low-capital investment in network capacity and coverage.

jkisero@ke.nationmedia.com