Retail Mobile Communication: Does the Dominance Remedy Justifications Make Sense?

Over a month ago, Analysys Mason released the long-awaited report commissioned by the Communications Authority, which was set to be announced early in 2017. Unfortunately, when the report came out, it clearly posited that Safaricom PLC is indeed dominant in the Kenyan telecommunications sector.

Different voices, some for, while others against Safaricom dominance have been raised, but what is the catch? Clearly, and this is a factual statement, there is no telecom company in the country that can compete on the same level with Safaricom PLC. Not with the massive investments and strategies it has implemented to be where it is.

According to Mason Analysys, Safaricom dominates the communication market with a share of more than 70 percent, contrary to its competitors as at September 2017 while Airtel’s market share was approximately 15 percent and Telkom Kenya 8 percent. Based on the figures, the report concluded that under the circumstances, the company can behave independently of its competitors. But this, in essence, raises a lot of questions in terms of what has hindered the other Telco’s to invest and perform like Safaricom PLC. But again, this is a story for another day.

The report among other things put forth several remedies to curtail the progress of the company’s dominance in the industry. Among the actions recommended included splitting M-PESA service and mobile communication as independent entities, a move which – if implemented – apparently shows how a company can be punished for its efforts in investments, innovation, and social growth.

The idea to split Safaricom into its constituent services was premised on the fact that the company had grown in leaps and bounds regarding service offer diversification. The report fails to capture the fact that Kenya’s law recognizes the existence of dominance but only considers regulatory actions where there is evidence of its abuse and adverse effects on consumers and competing firms.

The report does not clearly establish that either of these standards was met and the recommendation that there should be no adverse action against any firm in the industry is sound policy advice. This alone raises a lot of questions. Is it wrong to be innovative, strategic, push the boundaries to succeed? If someone is unhappy with my success and I have not broken any law, should they use the same laws to harass me?

Let’s pick a specific angle for instance; mobile communication. It is one of the five retail markets identified by the report in which Safaricom PLC was found to be dominant.

Which is why Analysys Mason came up with some draconian prescriptions suggesting that in retail mobile communications, Safaricom PLC should provide 2G, 3G and 4G roaming on its network to other Tier 1 mobile operators in 7 counties identified, which are the same as those for regulated infrastructure sharing.

The report justifies the move by stating that national roaming is a wholesale remedy that is used to address competition concerns in the retail mobile communications market.

As if that wasn’t enough, another suggested remedy deals with tariff control. For one, regarding replicability of retail markets, Safaricom’s loyalty schemes, promotions, and standard tariffs should be capable of being profitably replicated by a reasonably efficient competitor.

At least five days before launching a new tariff, loyalty scheme or promotion, Safaricom PLC should provide a justification that the proposals can be replicated by a reasonably efficient operator, for which the key parameters (market share, cost structure etc) will be defined by the Communications Authority. Is this not simply giving away your marketing strategy to get more customers and to retain those already on board?

Other remedies regarding mobile communications dominance by Safaricom PLC includes the prohibition of on-net discounts. Here, it was proposed that the company should not be allowed to charge different rates for on-net and off-net calls or messaging to any customers under any circumstances and it was stated that “all Safaricom advertising marketing materials referring to tariffs, promotions, and customer loyalty schemes should make it clear that on-net and off-net tariffs are the same and that bonus airtime may be used for on-net and off-net calls and message.” This sounds very repugnant to the essence of what marketing is.

It doesn’t stop there; the remedies further suggest a prohibition on individually tailored loyalty schemes and promotions. What this means is that Safaricom PLC may not offer loyalty bonuses or promotions for which the qualification criteria require different levels of expenditure or usage by different subscribers in the same category. This would be discriminatory.

Putting these, and other remedies into perspective, one can’t help but wonder if the move isn’t an act of desperation, one that is over-ambitious and ideally irrational and repugnant to what marketing is all about. Any sane individual would know that regulation of market dominance should be based on what we call conduct remedies in plain terms. This deals with regulations on product bundling, price discrimination, and exclusionary practices.

One can, therefore, expressly state that this remedy, if implemented, will serve no particular purpose regarding competition or allowing the other telecom companies better their gr