[kictanet] [isoc_ke] Dominance issue in the Telco sector

Peter Wakaba peterwakaba at gmail.com
Sun Feb 22 14:51:19 EAT 2015


This is an excerpt from the CGAP blog
http://www.cgap.org/blog/10-myths-about-m-pesa-2014-update.

'More interesting still, Safaricom recently slashed P2P prices on low-value
transfers, while raising them at the high end. This was likely a response
to Equity’s planned launch of the FinServe MVNO, and may be based in part
on evidence that consumers sending large values will be willing to pay more
for the service
<http://www.cgap.org/blog/price-sensitivity-and-new-m-pesa-tariffs> than
those sending low values. It also raises the question of how high
Safaricom’s margins are, if they were able to reduce prices by as much as
67% overnight.'

Two points:
1. Safaricom was able to slash prices by up to 67% 'maybe' and 'allegedly'
to forestall successful market entry by competition.
This is detrimental to consumers by denying them a chance at a maybe better
service and opportunity to compare and make an informed decision.
(Safaricom is perceived as the main stumbling block to finserve Africa's
entry.

2. According to the same article in 2014,

' According to the Central Bank, mobile money contributes to 6.59% of the
total national payments throughput value
<http://www.gsma.com/mobilefordevelopment/new-infographic-mobile-money-and-the-digitisation-of-kenyas-retail-payments-systems>
(including both gross and retail) but a staggering 66.56% of the total NPS
throughput volume. This means that M-PESA is important, but does not
necessarily pose a systemic risk.'

If one player controls over two thirds of national payment, that may be an
issue for concern, no? you all notice the hullabaloo when M-pesa is or
Safaricom service is down as was the case recently in Karen and Lang'ata
areas.

when the same behemoth controls police security communication apparatus, no
matter how good and secure it may be, that IS putting all your eggs in one
basket.

Safaricom runs mostly on Huawei infrastructure (I think) so if all those
horror stories about the Chinese espionage and recent escapades by chinese
in parts of Nairobi ( the 76 facing cyber crime charges) then there is a
real case for concern.

and tehn there is the issue of mobile termination rates...



*Every morning in Africa, a gazelle wakes up, It knows it must run faster
than the fastest lion or it will be killed. Every morning a lion wakes up,
it knows it must outrun the slowest gazelle or it will starve to death. It
doesn't matter whether you are a gazelle or a lion. When the sun comes up,
you better start running. - In "The World is Flat" by Thomas L. Friedman.*

On Fri, Feb 20, 2015 at 9:15 PM, Ali Hussein via kictanet <
kictanet at lists.kictanet.or.ke> wrote:

> Walu
>
> I thought so too. Unfortunately can't disclose the author..But you can
> read between the lines...:)
>
> And add 2+2 and come up with 5. :)
>
> *Ali Hussein*
>
> +254 770 906375 / 0713 601113
>
> Twitter: @AliHKassim
>
> Skype: abu-jomo
>
> LinkedIn: http://ke.linkedin.com/in/alihkassim
> <http://ke.linkedin.com/in/alihkassim>
>
> Blog: www.alyhussein.com
>
> "I fear the day technology will surpass human interaction. The world will
> have a generation of idiots".  ~ Albert Einstein
>
> Sent from my iPad
>
> On Feb 20, 2015, at 6:37 PM, Walubengo J <jwalu at yahoo.com> wrote:
>
> Ali,
>
> this is a great report. Who is the Publisher, Date published and might you
> have the PDF copy?
> Market Failure is the central thrust here. Competition has failed to bring
> the market into equilibrium.
>
> Indeed the regulator has to strike.  But when (Timming), how (Regulations
> or Competition Authority)  and where (Application level (e.g
> MPESA)/Infrastructure level (e.g MVNO) or Corporate Level (e.g create
> mini-Safcoms)  is a very delicate issue that can go horribly wrong.
>
> walu.
>
>   ------------------------------
>  *From:* Ali Hussein via isoc <isoc at lists.my.co.ke>
> *To:* KICTAnet ICT Policy Discussions <kictanet at lists.kictanet.or.ke>;
> ISOC Kenya Chapter <ISOC at lists.my.co.ke>
> *Sent:* Friday, February 20, 2015 6:17 PM
> *Subject:* [isoc_ke] Dominance issue in the Telco sector
>
> 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
> <image004.png>
> Source: CA Reports Extracts
>
> <image006.png>
> 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*
> *Safaricom Ltd*
> 80.7%
> 78.5%
> 79.0%
> *Airtel Networks Kenya Ltd*
> 10.9%
> 11.7%
> 10.1%
> *Telkom Kenya Ltd*
> 0.8%
> 1.3%
> 3.0%
> *Essar Telecom (K) Ltd*
> 7.7%
> 8.5%
> 7.9%
> *Totals*
> 100%
> 100%
> 100%
>
> <image008.png>
>
> Chart 3: Market Share by Traffic Volumes in Minutes (2013/14)
>
> The above numbers clearly supports our submission to declare Safaricom as
> dominant in the Retail Voice, Data and SMS market.
>
> Mobile SMS Traffic by Mobile Operator in Millions SMS’s
> Operator
> Year 2011/12
> Year 2012/13
> Year 2013/14
> Safaricom Ltd
> 3,626.14
> 12,386.16
> 23,502.51
> Airtel Networks Kenya Ltd
> 494.01
> 632.10
> 731.61
> Telkom Kenya Ltd
> 75.02
> 74.25
> 92.35
> Essar Telecom (K) Ltd
> 100.21
> 140.58
> 117.55
> Totals
> 4,295
> 13,233
> 24,444
> *Source: Compiled from CCK/CA published reports*
>
> SMS Market Shares by Operator by number of SMS’s
> Operator
> Year 2011/12
> Year 2012/13
> Year 2013/14
> Safaricom Ltd
> 84%
> 94%
> 96%
> Airtel Networks Kenya Ltd
> 12%
> 5%
> 3%
> Telkom Kenya Ltd
> 2%
> 1%
> 0%
> Essar Telecom (K) Ltd
> 2%
> 1%
> 0%
> Totals
> 100%
> 100%
> 100%
> 5          Benchmarking – Case Studies5.1         Dominance Declarations
> in African Countries
> Recently the Nigeria Communications Commission declared MTN Nigeria and
> Globacom dominant following a study conducted by KPMG Professional
> Services. MTN was declared dominant in two market segment-Mobile Voice
> Market and Wholesale leased lines and transmission capacity whereas
> Globacom (Nigeria’s second National Operator) was declared the leader in
> wholesale leased lines and transmission capacity market.
>
> In its determination, Nigeria Communications Commission found that the
> mobile voice market was not effectively competitive and therefore ordered
> MTN (which has 44% of the mobile voice market) to charge same amount for
> on-net and off-net calls. We further wish to share with the Authority a
> list of countries in Africa which have declared some mobile operators
> dominant.
>
> *Country in Africa*
> *Name of Dominant Operator in country*
> *Market Share of Dominant Operator*
> *Year Operator declared Dominant*
> Nigeria
> MTN
> 44%
> April 28, 2013
> Congo B
> MTN
> Airtel
> 40%
> 38%
> March 2013
> Niger
> Airtel
> 61.4%
> 2013
> chad
> Airtel
> 53%
> 2013
> Rwanda
> MTN
> 57%
> 2013
> Burkina Faso
> Airtel
> Telmob
> 39.24%
> 38.36%
> 2012
> Senegal
> Orange
> 62.06 %
> 2012
> Gabon
> Airtel
> 45%
> 2013
>
> We wish to highlight to the Authority that Safaricom has more market
> shares than most of the operators declared dominant as per the table above.
> We therefore request the Authority to proceed with speed to declare
> Safaricom dominant just like the other regulators have done in their
> jurisdictions.
>
> 5.2         IFT (Federal Telecommunication Institute) Mexico
> In early 2014 America Movil and its operating subsidiaries- Telecel
> (Mexico’s wireless market leader) and Telemex (the dominant fixed line
> player) were declared by the IFC as a dominant economic interest group in
> the telecommunications market.
> Telecel’s market share at the time stood at 69 % and Telemex’s market
> share stood at around 85%.  The market concentration stood at 6382 points
> on the HHI with Mobile Market standing at 5334 point and the fixed
> telephony market stood at 4761 points on the HHI. According to the IFT a
> HHI score of more than 2000 points can affect competition. As the Authority
> will note the HHI scores are very much in line with the market
> concentration levels in Kenya.
> The regulator subjected them to the following regulations on the wholesale
> level:
> ·         Asymmetric interconnection rates
> ·         Access to passive infrastructure
> ·         Local loop unbundling
> ·         Mandatory National roaming Access
>
> The regulator subjected them to the following regulations on the retail
> level:
>
> ·         End to SIM locking of handsets
> ·         All services sold in bundles were required to be sold separately
> ·         Certain retail prices were to be reviewed.
> 5.3         Summary of obligations Imposed on Dominant Operators in other
> countries
> The following is a summary of Dominance Remedies implemented in various
> countries. It is important to note that Asymmetric Interconnection is one
> of the remedies, Account separation, infrastructure sharing and
> on-net/off-net equalization.
>
> *Country*
> *Obligations*
> *Ghana *
> •       Accounting Separation
> •       Collapse of On‐net and Off‐net Retail Tariffs. The tariff for
> on‐net and off-net will be the same, and subject to periodic review.
> •       Submission of Required Details: The Commission may require the
> dominant operator to submit details on specific aspects of its operations
> from time to time as the need arises.
> •       Asymmetric interconnect termination rate regime applies to new
> entrants as well as Operators with less than 5% of subscriber market share
> *Gabon*
> •       Interconnection
> •       Obligations of the quality of service, Obligation of
> non-discrimination  transparency;
> •       Publication of the catalog of infrastructure sharing;
> •       Accounting separation obligation and duty on the cost accounting
> of all benefits
> *Nigeria*
> •       Collapsed of on-net and off-net retail tariffs to discourage
> calling club effect;
> •        Accounts Separation;
> *Mexico*
> •       Asymmetric interconnection rates
> •       Access to passive infrastructure
> •       Local loop unbundling
> •       Mandatory National roaming Access
> •       End to SIM locking of handsets
> •       All services sold in bundles were required to be sold separately
> •       Certain retail prices were to be reviewed.
>
>  *Ali Hussein*
>
> +254 770 906375 / 0713 601113
>
> Twitter: @AliHKassim
> Skype: abu-jomo
> LinkedIn: http://ke.linkedin.com/in/alihkassim
> <http://ke.linkedin.com/in/alihkassim>
> Blog: www.alyhussein.com
>
> "I fear the day technology will surpass human interaction. The world will
> have a generation of idiots".  ~ Albert Einstein
>
> Sent from my iPad
>
> _______________________________________________
> isoc mailing list
> isoc at lists.my.co.ke
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