Safaricom CEO Michael Joseph speaks to Andrea Bohnstedt about the new tariff regulations that, he argues, effectively impose price controls on Safaricom.
With the new Kenya Information and Communications (Tariff) Regulations 2010, the Communications Commission of Kenya (CCK) has effectively moved to impose price controls on mobile operator Safaricom: The regulations define Safaricom as a dominant licensee, and as such, it becomes a ‘regulated service’. As a regulated service, Safaricom is then obliged not just to inform the CCK of any promotions and tariff changes, but also to obtain their approval. Tariff changes, for example, need to be transmitted to the CCK 90 days before their launch, and need to be published within 30 days. CCK need to approve the planned tariff change, but are under no obligation to do so. CCK needs to be notified of promotions seven days in advance, and again needs to approve them.
Reacting to the regulations, Safaricom CEO Michael Joseph argues that there is a crucial element missing on in the CCK’s efforts to regulate competition in Kenya’s mobile telecoms market: Globally, a dominant player is only penalised if it abuses its dominant market position. And this is what the CCK has, seemingly deliberately, left out of the regulations: there is no definition of what constitutes abuse, and how this should be dealt with. Instead, Safaricom is penalised instantly by being subject to administrative and price controls by the CCK – a curious move since the competition has consistently tried to attract customers with rock-bottom tariffs.
And Joseph thinks that his counterparts on the government side have acted in bad faith: While the regulations were being drafted, he had repeatedly pointed out to Charles Njoroge, the Director General of the CCK, that abuse of an operator’s dominant position has to be defined. Njoroge, he said, had committed to do so, but this crucial part is missing in the gazetted regulations.
Perspectives
The competition, Zain, Yu and Orange, have taken out a full-page, paid-for ad to congratulate the CCK for creating a level playing field, an argument that Joseph has little time for, pointing out that the competitors were also trying to negotiate a removal of the 3G license fee of USD25m that Safaricom already paid, so clearly applied a flexible concept of what exactly a level-playing field was.
So far, clients have decided to stay with Safaricom even though the company has the highest charges in the market. Despite their efforts to gain customers through price competition, the competitors have not been able to increase subscriber numbers as quickly as they had anticipated, and this has turned into a very costly strategy. Joseph has cautioned repeatedly that this strategy will undermine revenues for everyone in the market. Kenya’s telecoms sector does not yet allow for number portability, but picking up a new connection is cheap and easy, costing as little as KES100.
There is no doubt that Kenya’s market structure is heavily skewed: Safaricom holds around 80% of the total market share. For customers and competition, this is clearly not an ideal situation. Yet the new regulations clearly offer little to address the critical question: How can the regulator fairly address this dominance without penalising the dominant operator for its achievements? Even in an environment with fewer governance problems than Kenya, these restrictions would add little value. Kenya, however, is notorious for entrenched corruption.
Zain (former KenCell and then Celtel) had the advantage of initially being the only competitor to Safaricom, but seemed directionless for several years, inefficiently managed, and made little of its head start. Before being taken over by Essar, Yu was introduced by Econet who suffered lengthy delays after problems with their intended local partner. Orange brand owners France Telecom are currently said to be in negotiations with the Government of Kenya to recover part or all of their purchase price for the 51% of Telkom Kenya over allegations of vanished assets , so it must come as a relief that the government, if reluctant to hand back any cash themselves, are at least willing to come to administrative and regulatory support of Orange.
Michael Joseph says he is ready to take the matter to court if need be. It might be time for the CCK to beef up their budget for legal advice: In addition to Safaricom, CCK can also expects multiple law suits from the media industry if they begin to enforce new regulations that require media houses to give up all but one of their broadcast frequencies (Kenya: New Broadcast Regulations a Blow to Media Investors ).
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What Safaricom has now in Kenya is for all intents and purposes a monopoly. With the landing of the fiber optic cable, and the opportunities that this portends for Kenya, the future is still a goldmine for the mobile telecoms industry in Kenya for years and years. With Safaricom as a dominant player, it will have power to impose unjustifiably high prices having the largest subscriber network. Not forgetting that in Kenya, the credit card will most probably suffice on the backs of innovative ideas like MPesa, the gravy train will last for generations.
In this particular instance; with all the fears I have of the Kenyan government, for the sake of the emerging professional Kenyans emerging who will need to rely more and more on their mobile devices to communicate and work, to the millions of Kenyan farmers, doctors, lawyers, nurses, teachers, students...the CCK is right.
Governments of emerging economies like Kenya sometimes need to step into the market for selfish reasons. To safeguard their citizens future interest, which may necessarily not align with a profit seeking company. Unfortunately, we all know of Kenya's government history, and that is a big risk. But one worth taking.
Safaricom will for years and years make profits in Kenya. It is fair to fight for your turf, but people of a country like Kenya sometime need some help to maintain a fair relationship with companies like Safaricom. This really is just a battle for the future market.