Drawing the Line for Ex-Ante Regulation by the Communications Authority

The recent release of the Analysys Mason report, which apparently is quite concise in depicting the state of the mobile market in Kenya continues to conjure an emotive issue for the telecommunication companies in Kenya.

The report was based on the European market framework, with the surveyor claiming it presents the best global basis for the establishment of dominance in the Kenyan market. It is this same criterion that was employed in arriving at price regulation as a means of dealing with the dominance issue.

Among the issues tackled in the report includes the susceptibility of each market to ex-ante regulation; and the significant market power, in other words, dominance.

The report identified 8 wholesale and 5 retail markets. The retail market is defined as the points of interaction between the network operators and their users through products and services; whereas the wholesale market defines the interaction between the network operators and infrastructure providers.

So, what does ex-ante regulation mean? Normally, when there is a presumption of the occurrence of a bad conduct by an entity in the market or when the bad conduct actually happens, the regulation applies. Usually, when there is a likelihood of the bad conduct occurrence, market regulators apply preventive measures or what is known as ex-ante regulation.

However, the anticipatory nature of the market renders the regulation subjective. This is the reason why it involves lots of assumptions by the regulator.

When the bad conduct materializes or has happened, the regulator has enough evidence to apply remedial measures, this is referred to as post-ante regulation. In Kenya, the ex-ante regulatory domain body is the Communications Authority (CA) while the Competition Authority of Kenya (CAK) is the domain of the post-ante regulatory body.

By Susceptibility to ex-ante regulation, Analysys Mason meant that the regulator, if it sees ineffective competition and/or existence of higher and non-transitory barriers to entry to a specific market segment, should apply anticipatory intervention. This is particularly the case if one player is holding significant market power.

Moving on to the recommendations by the Analysys Mason report on issues subject to the regulation. It made some recommendations on wholesale markets.

Regarding Call and SMS termination on mobile networks, the report concluded that each mobile operator should continue to provide termination services on its network to any other network operator on a nondiscriminatory basis with rates set by the CA. It further directed that each operator should prepare an RAO detailing the commercial and technical terms that apply to call and SMS termination.

The recommendations also touched on call termination on fixed networks saying that “each fixed operator should continue to provide termination services on its network to any other network operator on a non-discriminatory basis with rates set by the CA. Analysys Mason also stated that each operator should prepare a Reference Interconnection Offer (RIO) detailing the commercial and technical terms that will apply to call termination by dominant operators.”

Lastly, on the wholesale market, Analysys Mason said that on USSD and STK access on mobile networks, “all licensed mobile operators should be required to provide USSD access on request to all licensed content service providers on a nondiscriminatory. Prices should be based on LRIC but, given the cost and time required to prepare a suitable cost model, if each operator were to agree voluntarily to a price below 1 shilling per session (or if charged per hop, a price reaching the equivalent result) then the CA should give due consideration to accepting this offer as a short-term alternative.”

The report claims that STK access for third-party providers would be desirable in terms of ensuring a ‘level playing field’ for all market players and proposed a more intrusive remedy that should not be made immediately since it could “raise practical implementation difficulties.”

The major findings of the report, prior to making the recommendations are that Safaricom enjoys a dominant position and there is a need for regulation. However,