[kictanet] Dominance issue in the Telco sector

Fri Feb 20 18:44:18 EAT 2015

And hasn't the market in Kenya achieved most of these obligations?

I urge the regulator to try out a different remedy in the form of declaring
Safaricom's competitors non-competitive.

In this light, they should then be urged to cede the resources they occupy
to a more competitive operator who will capture the hearts and pockets of
Kenyans.

As someone said, it is important to understand the market rather than rely
on "market studies".

On Fri, 20 Feb 2015 18:18 Ali Hussein via kictanet <
kictanet at lists.kictanet.or.ke> wrote:

> Listers An analysis on the dominance issue with case studies across the
> world.
> 1          The Kenya Information and Communications (Amendment) Act 2013
>
> The Kenya Information and Communications (Amendment) Act 2013 (the Act)
> states In Section 84W (3) that Communications Authority of Kenya (the
> Authority) may, by notice in the Gazette, declare a person or institution
> to be a "dominant telecommunications service provider" for the purposes of
> this Act.
>
>
>
> Section 84W (4) goes further to clarify what the Authority should consider
> in declaring an operator or institution dominant in subsection (4) as
> follow: -
>
> (a) the market share of the telecommunications service provider being at
> least fifty percentum of the relevant gross market segment;
>
> (b) the level of control over the communications infrastructure;
>
> (c) the level of technological advancement of the telecommunications
> service provider;
>
> (d) the scale of operations of the telecommunications service
>
>
>
> The Authority further developed Supplementary Legislation cited as  the
> Kenya Information and Communications (Fair Competition and Equality of
> Treatment) Regulations, 2010 "the Regulations". The Regulations indicate in
> section 7(1) that the Authority shall from time to time develop and
> publish, in the Kenya Gazette, guidelines to be followed when determining
> whether a licensee in a dominant market position in a specific
> communications market but this is not a precondition to determining an
> Institution as being dominant and therefore the Authority is mandated to
> declare an operator dominant under the current available Primary and
> secondary legislation.
>
>
>
> In regards to Dominance, the Regulations in Section 7 (2) and (3) further
> mentions additional criteria for deciding on dominance which include among
> others--
>
> (a) the degree of market concentration or the market share of the
> licensee, determined by reference to revenues, numbers of subscribers or
> volumes of sales;
>
> (b) the degree to which a licensee's prices vary over time;
>
> (c) the ability of the licensee to maintain or erect barriers to entry to
> the market, including, by means of control of essential facilities, access
> to superior technology, privileged access to resources or capital markets
> or superior buying or negotiating position, amongst others;
>
> (d) the ability of the licensee to earn supernormal profits;
>
> (e) the global technology and commercial trends affecting market power;
>
> (f) the licensee's power to make independent rate setting decisions;
>
> (g) the degree of product or service differentiation and sales promotion
> in the market; and
>
> (h) any other matters which the Commission may consider relevant.
>
>
>
> Section 7 (3) A licensee shall be in a dominant market position if;
>
> (a) it has the ability to materially raise prices without suffering a
> commensurate loss in service demand to other licensees;
>
> (b) it has the ability to erect or benefit from barriers to market entry;
>
> (c) the Commission has so determined a dominant market power report, after
> considering the circumstances and criteria set in these Regulations.
>
>
>
> In reference to the legal instruments cited above, the Authority has the
> mandate to declare an Institution dominant and our submission is dependent
> on these cited instruments to make a case for determining Safaricom as a
> being dominant in the Mobile Retail Voice, Data,  SMS market and also in
> the Mobile Money Transfer markets.
>
>
> 2          The Relevant Market Segment
>
>
>
> In line with best practice worldwide and also based on previous market
> study done by PWC in 2010 for the Authority (then CCK) it is clear and
> evident that the Retail Mobile Voice, Retail Mobile Data, Retail SMS and
> Mobile Money Transfer are relevant market segments.
>
> Our focus will therefore be on the Mobile Retail Voice, Data, SMS and
> Mobile Money Transfer market segments.
>
>
> 3          Market Dominance definition in Kenya
>
>
>
> Market Dominance in Kenya can be determined based on the Act and the
> Regulations as identified above in item 2 above. Whereas globally there are
> other considerations known, we will use what is within the regulatory
> instruments available in Kenya.
>
>
>
> However for completeness, the Competition Act Chapter 504 Part C section
> 23. Also defines as dominance as follows: -
>
>
>
> Sections 23 (1) "dominant undertaking" means an undertaking which:
>
> (a) produces, supplies, distributes or otherwise controls not less than
> one-half of the total goods of any description which are produced, supplied
> or distributed in Kenya or any substantial part thereof; or
>
>
>
> (b) provides or otherwise controls not less than one-half of the services
> which are rendered
>
>
>
> This definition by the Competition Act is in harmony with the definition
> in the Act as it refers to half of total good s which aligns to the 50%
> market share specified in the Act.
>
>
>
> Our submission will therefore concentrate on the criteria in the Act and
> Regulations (which are yet to be amended in line with the Act) together
> with the Competition Act.
> 4          A case for Declaring Safaricom Dominant4.1         Degree of
> Market Concentration or Market Share
>
> The Commission through its consultation paper on the intention to declare
> regulated services, found that there was high market shares, concentration
> ratios and Herfindahl-Hirschman Index (HHI) 5,230 on Subscriber base and
> 6,758 on revenues against best practice of 1,800 which was a clear
> demonstration of lack of effective Competition in the mobile voice
> termination market and hence the need for regulatory intervention to
> correct market failure. While we appreciate that the market shares,
> concentration ratios and HH index might have changed since the consultation
> was done, we strongly feel that the mobile voice market is not effectively
> competitive and hence the need for regulatory intervention by the
> Commission. The current HHI based on number of subscribers remains well
> over 4000 which is still double the threshold for a concentrated market.
>
>
>
> The HHI thresholds in US and EU are defined as follows: -
>
>    - HHI below 1000 - a competitive market.  There are no
>    dominant competitors in this market.
>    - HHI between 1000 and 1800 - a moderately concentrated market
>    - HHI above 1800 - a concentrated market.  There are one or more
>    dominant competitors in this market.
>
>
>
> This HHI though not reflected as a requirement to determine dominance in
> the Kenya goes to reinforce our submission that Safaricom is dominant.
>
>
>
> Safaricom's market share has remained over 63% on the basis of mobile
> subscribers as can be seen from Table 2 and 78 % in traffic volumes for the
> period of January to March 2014. In terms of revenues it is about 80%.
> These figures are above the threshold that would lead to a rebuttable
> presumption of dominance. In established competition cases and also in line
> with the Competition Act chapter 504 in Kenya, sustained market shares of
> over 50% gives rise to a rebuttable presumption of dominance, while market
> shares of over 40% are suggestive of possibility of dominance. On the basis
> of market share alone, Safaricom holds a position of Dominance in retail
> voice, Retail Data, SMS and Mobile Money market and should be declared
> dominant. As per data provided below and also slide 30 in SFC H1 '15
> presentation, SFC holds: 68%, 78%, 97% and 72% market shares in
> subscribers, voice minutes, SMS traffic and data users. Moreover, they
> control 88% of total revenues of the market. (See extracts below)
>
>
>
> In summary, Safaricom has retained highest market shares as follows: -
>
>    - Market share by Subscription (voice) 80% in 2010 to 68% in 2014
>    - Market share by Subscription (Data) 99% in 2010 to 71% in 2014
>    - Market Share by Voice Minutes (Voice) 80% in 2012 to 79% in 2014
>    - Market Share by number of SMS (SMS) 84% in 2012 to 96% in 2014
>    - Market Share by Revenues (Voice) 86%  in 2012 to 88% in 2014 well
>    over 80% market share in each Mobile voice, SMS and Mobile Data
>
>
> 4.1.1        Market Shares by Subscriptions
>
> *Number Mobile Subscriptions per Operator in Millions*
>
> *Month*
>
> *Safaricom Ltd*
>
> *Airtel Networks Kenya Ltd*
>
> *Telkom Kenya Ltd*
>
> *Essar Telecom (K) Ltd*
>
> *Totals*
>
> *2009/10*
>
> 16.24
>
> 1.83
>
> 0.55
>
> 1.49
>
> 20.12
>
> *2010/11*
>
> 17.35
>
> 3.61
>
> 2.73
>
> 1.58
>
> 25.28
>
> *2011/12*
>
> 19.01
>
> 4.91
>
> 3.12
>
> 2.66
>
> 29.70
>
> *2012/13*
>
> 20.15
>
> 5.22
>
> 2.13
>
> 3.05
>
> 30.55
>
> *2013/14*
>
> 21.93
>
> 5.07
>
> 2.69
>
> 2.56
>
> 32.25
>
> Table 1: Number of mobile subscriptions since 2010 to Jun 2014
>
> *Source: Extracted from CCK/CA published reports*
>
>
>
> Market Share by Subscriptions since 2010
>
> *Month*
>
> *Safaricom Ltd*
>
> *Airtel Networks Kenya Ltd*
>
> *Telkom Kenya Ltd*
>
> *Essar Telecom (K) Ltd*
>
> *Totals*
>
> *2009/10*
>
> 80.7%
>
> 9.1%
>
> 2.7%
>
> 7.4%
>
> 100%
>
> *2010/11*
>
> 68.6%
>
> 14.3%
>
> 10.8%
>
> 6.3%
>
> 100%
>
> *2011/12*
>
> 64.0%
>
> 16.5%
>
> 10.5%
>
> 9.0%
>
> 100%
>
> *2012/13*
>
> 65.9%
>
> 17.1%
>
> 7.0%
>
> 10.0%
>
> 100%
>
> *2013/14*
>
> 68.0%
>
> 15.7%
>
> 8.3%
>
> 8.0%
>
> 100%
>
> Table 2: Market Share by mobile subscriptions since 2010
>
> *Source: Extracted from CCK/CA published reports*
>
>
>
> *Source: Derived from Table 1 above.*
>
> Chart 2: Market Share by Number of Subscriptions
>
>
>
> Mobile Data Subscriptions by Operator
>
> *Operator*
>
> *2009/10*
>
> *2010/11*
>
> *2011/12*
>
> *2012/13*
>
> *2013/14*
>
> *Safaricom Ltd*
>
> 2,959,906
>
> 3,584,283
>
> 5,262,307
>
> 9,332,995
>
> 9,974,377
>
> *Airtel Networks Kenya Ltd*
>
> 10,000
>
> 496,509
>
> 1,074,764
>
> 1,597,481
>
> 1,880,644
>
> *Telkom Kenya Ltd*
>
> -
>
> 108,926
>
> 674,255
>
> 795,513
>
> 1,574,168
>
> *Essar Telecom (K) Ltd*
>
> -
>
> -
>
> 644,250
>
> 614,016
>
> 501,505
>
> *Totals*
>
> 2,969,906
>
> 4,189,718
>
> 7,655,576
>
> 12,340,005
>
> 13,930,694
>
> *Source: Compiled from CCK/CA published reports*
>
>
>
> Mobile Data Market Shares by Operator by Number of Subscriptions
>
> *Operator*
>
> *2009/10*
>
> *2010/11*
>
> *2011/12*
>
> *2012/13*
>
> *2013/14*
>
> *Safaricom Ltd*
>
> 99.7%
>
> 85.5%
>
> 68.7%
>
> 75.6%
>
> 71.6%
>
> *Airtel Networks Kenya Ltd*
>
> 0.3%
>
> 11.9%
>
> 14.0%
>
> 12.9%
>
> 13.5%
>
> *Telkom Kenya Ltd*
>
> 0.0%
>
> 2.6%
>
> 8.8%
>
> 6.4%
>
> 11.3%
>
> *Essar Telecom (K) Ltd*
>
> 0.0%
>
> 0.0%
>
> 8.4%
>
> 5.0%
>
> 3.6%
>
> *Totals*
>
> 100%
>
> 100%
>
> 100%
>
> 100%
>
> 100%
>
>
>
> Mobile Data Market Share by Subscription
>
> Source: CA Reports Extracts
>
>
>
> Source: Safaricom Half-Year Results Presentation 2014/2015
>
>
> 4.1.2        Market Shares by Traffic or Transactions
>
>
>
> Mobile Traffic Volumes by Operator since 2012 in Billion Minutes
>
> *Operator*
>
> *Year 2011/12 *
>
> *Year 2012/13*
>
> *Year 2013/14*
>
> *Safaricom Ltd*
>
> 21.75
>
> 22.61
>
> 23.88
>
> *Airtel Networks Kenya Ltd*
>
> 2.93
>
> 3.38
>
> 3.06
>
> *Telkom Kenya Ltd*
>
> 0.21
>
> 0.38
>
> 0.92
>
> *Essar Telecom (K) Ltd*
>
> 2.07
>
> 2.43
>
> 2.38
>
> *Totals*
>
> 26.96
>
> 28.80
>
> 30.24
>
> *Source: Compiled from CCK/CA published reports*
>
>
>
> Mobile Voice Minutes Market Share by Operator over a three year Period
>
> *Operator*
>
> *Year 2011/12*
>
> *Year 2012/13*
>
> *Year 2013/14*
>
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