Think tank warns plan to curb telecom prices could kill competition

IEA chief executive Kwame Owino speaks at a media briefing on April 4, 2018. Looking on is Stephen Jairo, an assistant programme officer. PHOTO | SALATON NJAU 

By BRIAN NGUGI

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Summary

• The Communications Authority of Kenya (CA) plans to implement the findings of a study it commissioned in the wake of mounting concerns that the operating environment was stacked against smaller telecom firms.
• The Institute of Economic Affairs says the proposed retail interventions that restrict the range of tariff adjustments and promotions would be counterproductive as they would inhibit innovation.

Institute of Economic Affairs (IEA), a policy think tank, has warned that the proposed introduction of price regulation in the telecoms sector will stifle competition and reduce network investment especially from the dominant Safaricom

.

“The proposals related to restrictions on tariff innovation, standardisation of all tariffs and reduction of schemes are inconsistent with promoting a competitive industry and would harm consumers,” IEA said in a report.

“The proposals would increase the cost of services to consumers. This is because the operators would have to adjust tariffs towards the highest costs for all consumers without the ability to pass savings back to clients whose use is efficient,” said the IEA report.

Telecoms sector regulator, the Communications Authority of Kenya (CA), late February said it plans to implement the findings of a study it commissioned in the wake of mounting concerns that the operating environment was stacked against smaller telecom firms.

“...Tariffs of players found to be dominant in specific relevant markets, will be regulated. However, the impact and need for these remedies will be reviewed after some period, to determine whether they’ll still be appropriate and necessary,” said CA in February in a statement.

Analysys Mason, the consultants that the CA hired to study telecoms market dominance, have tried to address the concerns by proposing active regulation of Safaricom’s standard tariffs and permanent loyalty schemes, but Safaricom has dismissed the move as retrogressive.

READ: Call tariffs rise looms in planned price controls

Both Airtel, the second largest operator, and Telkom, the third, welcomed proposals to regulate tariffs, but Safaricom warned that the move could be counterproductive as it could lead to an increase in calling rates.

“Safaricom standard tariffs, permanent loyalty schemes and promotions (including non-tariff promotions such as lotteries) should be capable of being profitably replicated by a reasonably efficient competitor,” the IEA report says.

Airtel and Telkom Kenya have accused Safaricom of using its market power to lower prices to a level that condemns competitors to losses.

IEA, however, said the proposed retail interventions that restrict the range of tariff adjustments and promotions would be counterproductive as they would inhibit innovation.