[kictanet] IEA position on CA's Analysys Mason Dominance Report

Sat Apr 7 09:36:34 EAT 2018

 @Eng,
As usual, you raise very valid points below on this important public policy matter.
My view is that price controls are applicable -BUT - they are increasingly being overtaken by the realities of internet-driven technologies.  
They are for example still very relevant and applicable in the case of fixed line & (GSM) interconnection rates (how much operators pay each other to terminate calls). 
However, at a retail level, where internet based technologies are redefining distance & price, traditional price controls would be severely challenged.  
Think of Airtel giving its subscribers  free internet access to Facebook, while Safaricom does not. 
Should the regulator intervene and stop Airtel from doing what 'looks like' undercutting the market, or should the regulator force Safaricom to also give free access to Facebook service since compared to Airtel 'it looks' like they are overcharging the market in that niche content segment? What is the greater public good in this case?
Fundamental to the decision the regulator would take, is the question of how much is the 'right' price to charge for accessing such content? 
Using the cost+ tariff approach becomes murky because the costs related to delivering an internet driven service/product to a customer tends to be scattered across several different actors and does not neatly sit under one players domain. This property makes it harder for the regulator to appropriate cost of delivery, in order to effect the cost+tariff approach.
Even if regulator somehow managed to calculate the costs, the Operator may still opt NOT to charge the consumer and instead pass those costs to Advertisers - which is the classic business model for most of these content providers.
Since all teclom products are moving to the internet platform, my advice to the regulator is that they must begin to  develop new regulatory tools for the emerging internet realities since the traditional regulatory tools are going to be increasingly inadequate.
I put my thoughts on the same on the Nation Blog and would be keen to hear yours or other listers views on the same.

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WALUBENGO: Can we regulate telecoms market without price

Using price controls to manage an increasingly internet-driven industry is no longer tenable.
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walu.

    On Friday, April 6, 2018, 9:27:58 PM GMT+3, John Kariuki via kictanet <kictanet at lists.kictanet.or.ke> wrote:  

 Dear Onesmus,Listers,Let me give a few comments on the article by the "Standard".
1. "Pay Higher Costs."     There is nothing new about this.In 1997,the then KPTC, a monopoly, was forced to raise its tariff for local calls in order to ensure level playing field for the then new entrants including Safaricom. It was then called "cost- based pricing" and "tariff re-balancing". In other words KPTC was required to have cost-plus tariff because being dominant then and also being vertically and horizontally integrated it was likely to make it very difficult for new entrants to compete by such tactics lice cross-subsidization.It was also required to carry out "Accounts Separation" so that no "Market Segment" subsidized the other.
2."Price Controls not Effective"    Unlike other sectors,the telecommunications sector in most countries has been a monopoly- at one time called "Natural Monopoly".It has a very short history of effective competition.One result of lack of effective competition is presence of dominant players.Without price regulation public will suffer.3.Sharing of Towers.  This is public policy issue.Indeed international best practice and especially due to negative environmental impact of proliferation of towers .In any case land is a limited resource and there are limited number of good sites for radio towers. In fact all operators should be required to share-it is our country they are polluting and this should be minimized as much as possible.

4. Promotions and loyal schemes:    These need to be properly regulated as they are tools cleverly used  globally by dominant operators to undermine competition to the long term detriment of consumers.

5 Finally Onesmus on your comment on: should CA license and “regulate”” on competition” at the same time?Let me add      (a) Licensing is merely a tool uesd by CA for market entry. Aftrr market entry CA is a referee to ensure that rules are followed and has to cordinate regionally and globally to ensure the operators work harmoniously with minimum or no harmful interference with each other.It is an intense full time job.Regarding competition,CA is required by law to "PROMOTE" not merely"ENSURE" competition.This is because of the special nature of telecommunication market  characterized by huge barriers to entry including  high front- end costs such as license fees,spectrum fees ,network sete up etc. Let me give just one example: If motor dealers met to discuss pricing in a country,this would be considered "price fixing"punishable under Competition Law.Yet telecommunications operators often meet to fix prices-so called"Interconnection Agreements" without being seen to commit any offence!

Apologies for the lengthy comment!
John Kariuki

    On Thursday, April 5, 2018, 1:47:58 PM GMT+3, Consumers Federation of Kenya (Cofek) via kictanet <kictanet at lists.kictanet.or.ke> wrote:  

Dear All,

Greetings from the Cofek team!

We are requesting your kind response to the article below as carried by “The Standard” today. Your response would inform our view on the State of Consumer Protection Report on ICT sector in regard to this specific issue.We also hope that Mr Matano Ndaro, CA Director of Competition can also give us his take. 

By the way - should CA license and “regulate”” on competition” at the same time? Could it present a conflict of interest that the licensee of MNOs is also prescribing and enforcing competition? Kindly give us your feedback asap. 

You could soon pay higher costs for mobile services if the Communications Authority of Kenya (CA) follows through with plans to introduce price controls in the sector, economists have warned. 

The Institute of Economic Affairs (IEA) said yesterday the recommendations by UK-based consultancy firm Analysys Mason, especially on price controls in its study on market dominance laid the basis for tariff hikes. 

"Price controls are not effective and inconsistent with 20 years of industry liberalisation and most national economic policy," said IEA Executive Director Kwame Owino during a media briefing on analysis of the CA report on competition in the telecommunications sector in the country in Nairobi. 

"Reintroduction of price controls would be a major policy reversal.” The study presented early this year by Analysys Mason concluded that Safaricom has dominant market share currently standing at 70 per cent and 80 per cent in the mobile communications and mobile money market respectively and called for regulatory interventions. 

Among the recommendations was for Safaricom to share part of its tower infrastructure with other service providers for a period of five years at tariffs prescribed by CA. "Our analysis shows this dominance has been achieved because of the risk that firms have taken to invest in tower infrastructure," said Mr Owino. 

"Firms have different appetites for investment and compelling one firm to share infrastructure they’ve invested in at fixed prices is not defensible on economic grounds." 

The report had initially recommended Safaricom share its tower infrastructure with Airtel and Telkom in 14 counties where telecommunications infrastructure is lacking that were then halved to seven. 

Forcing infrastructure sharing among providers has also been criticised as only useful in redistributing income among existing players but stopping short of bringing costs down or improving product experience for consumers.   

The IEA boss further explained that some of the recommendations in the report could see the CA overreach its mandate as a regulator, stifling innovation and product differentiation among operators. 

“There is no policy justification to restrict the freedom of firms to engage in lawful marketing in any format,” said Mr Owino. “This is the most unreasonable proposal with no benefit to aid market competition but would harm consumers.” 

Analysys Mason had recommended the CA enforce a policy to limit Safaricom from promotions and loyalty schemes that can be replicated by other operators.

Kind regards,

Onesmus Mutungi

Program Assistant 

Consumers Federation of Kenya (Cofek)

Rehema Place, Block F Suite 45

P.O Box 28053-00200, City Square

Tel. +2540202615496, 3861718

Mobile: 0715555550, 0733180008

Email  : hotline at cofek.co.ke 

Web   : www.cofek.co.ke

COFEK – Restoring Consumer Confidence and Pride

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