Home > Mobile Telephony > Is CCK right to declare Safaricom and Orange dominant operators?

Is CCK right to declare Safaricom and Orange dominant operators?

‘A dominant position is a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of consumers.’
-European Court

On Tuesday the local regulator CCK declared two telephony operators Safaricom and Orange dominant operators and therefore subject to closer regulation than the non dominant ones. A dominant operator has market power which defined as the ability of a firm to independently raise prices above market levels for a non-transitory period without losing sales to such a degree as to make this behavior unprofitable. This is based on the fact that a dominant operator has the technological, financial and geographic power to unfairly stifle smaller competitors or skew market forces to act in their favour.  If the dominant operator has over 50% market share, then they poses ‘significant market power’ (SMP) and can be subject to anti-competitive regulations if they abuse their dominant position.

As expected This has been met with hue and cry from Safaricom and Orange CEO’s who say they should not be punished for their success and that they worked hard to get to where they are and that it is not their fault that they are dominant, Safaricom argues it worked hard to get to the position of dominance while Orange says it’s not to blame for being the only fixed  telephone provider (automatically making it dominant) and that CCK should have registered more fixed line operators. What they fail to see is that the holding of a dominant position is not prohibited by law, it is the abuse of dominance that is prohibited. On the other side of the spectrum, smaller operators welcomed this declaration as a step in the right direction in CCK’s mandate of provision of a level playing field for new and smaller players to have an equal shot at making it big.

As telecommunications markets become more competitive, many ways exist in which dominant operators can engage in anticompetitive behavior (e.g., predatory pricing, cross-subsidization, price discrimination, discriminatory provisioning of network facilities, overpricing of essential facilities and other network elements and services provided to competitors, unfair trade practices, tie-in sales, and anticompetitive service bundling). Regulators such as the CCK can anticipate many complaints from new entrants in this regard and it is extremely important that clearly defined rules are in place to deal effectively and transparently with such allegations.

CCK has several tools to deal with competition and abuse of dominance issues. Competitive safeguards applied to dominant operators may be:

  •   Non-structural, such as accounting safeguards employing cost allocation rules for various services; conduct compliance requirements and specific obligations; and explicit pricing rules. This is what CCK has done by declaring the two operators dominant meaning that CCK will have a say in their pricing and market expansion  plans.
  •     Structural, by requiring the establishment of a fully separate subsidiary to draw a clear distinction between the provision of competitive and non-competitive services; This is what happened when the US Department of Justice (DoJ) filed an anti trust law suit against AT&T that it was abusing its dominant position and asked it to split into smaller companies (known as baby bell’s) in 1984. I foresee this as the next step where CCK will ask Safaricom or Orange to split its voice and data businesses and operate them as separate companies/brands.

I strongly believe CCK took this action due to Safaricom’s behavior after the adoption of  lower cross-network tariffs by Airtel where it did not prepare its network for the increased cross-network termination traffic, This led to massive congestion and dropped calls. Safaricom did not also delete subscriber numbers of people who had migrated from its database leading to connectivity problems for ported numbers after Mobile Number portability (MNP) came into effect therefore denying ported subscribers the right to communicate as per the new constitution. See case filed by users here.

Is CCK Justified?

Regulators have the duty to step in when the normal operation of market forces is deficient or are unduly influenced by one operator.  It can also intervene in instances where one operator can cause a bottle neck in the entire telecommunication eco-system. In the EU an operator is declared dominant if they control over 50% of the market, in the US, an operator controlling over 40% of the market is declared dominant. Looking at the % market share owned by Safaricom and Orange in the mobile and fixed line businesses, they are way beyond being dominant and are ‘super dominant’ and super dominant operators actions have a monopolistic effect on the market.
I think CCK is therefore justified to make this declaration. This is because statistics show that regulators in countries that have taken this step have in the long run helped spur the growth of telecoms and the lowering of prices. If the US DoJ had not forced AT&T to split, long distance carriers such as MCI (now Verizon) and Sprint would not have had a chance to grow their market share. This dominant operator declaration has also had positive outcomes in Korea, Palestine, Australia and the UK.

This declaration is therefore welcome as it gives a life line to smaller operators who can now compete on equal footing with the big boys. However CCK should caution the small operators against their tendency to joy ride on the efforts of the big operators infrastructure and VAS as was the case when they ganged up and asked CCK to force Safaricom to make the M-Pesa money transfer platform open to all. This is the wrong approach, I expected them to enhance their money service offering or for them to sponsor a single SIM-free money transfer service that can work across all operators.

  1. August 19, 2011 at 5:23 pm

    I appreciate your thoughts on this Tom and this is squarely informed by the platform from which you speak-an ICT expert. My opinion is that there are many considerations to be made for CCK to come to such a damning conclusion-just to paraphrase Bob Collymore I actually also believe “Safaricom has attained market share based on fair competition on the back of innovation,investment in our brand and providing relevant services to customers” I speak from an advertising platform as that’s my forte-its open knowledge Safaricom has invested heavily in their brand building efforts and these have bore fruit and are in concert with the majority-adspend for Safaricom is 3.1 bln compared to Airtel 0.7 bln (Synovate estimates-which don’t capture al aspects of adspend e.tg outdoor, so it could be more for both). Safaricom have rarely been first of the block in terms of sim sales,innovation,and brand building. Right from inception-Kencel led Safaricom with almost twice the subsciber base, up until Safaricom introduced per second billing (one among a few of the key decisions which Michael Joseph in many interviews says marked a turning point in Safaricom’s fortunes). Lets compare these two companies in the decade that they have been in business-all going concerns-One has had only one visual brand alteration (retaining their principle colors)-the other has had four name and visual brand alterations-Kencel,Celtel,Zain and now Airtel (whilst altering colors all the four times), one has had 2 CEO’S at their helm, the other has had numerous CEO’s at the helm-now naturally with change of ownership means change of business strategy, so its fair to say there has been discordancy in the business strategy of Airtel. With it a loss of confidence by consumers. Consumers are predisposed to stick with the stable and consistent inspite the relative high charges that they are charged. Apart from change of ownership,management teams and brand identity, the attrition rate of inconsistency by competitors in the mobile phone sector is largely to blame for Safaricom’s seeming dorminance. In my view they will actually be punished for being avid in their business practice and taking advantage of competitor lapses, and yes to a large extent a weak regulatory framework that was not there and is now waking up to a reality that cannot be altered by punishing these percieved market dorminance acts

    • August 19, 2011 at 5:33 pm

      Thanks Mwema for your comments. However did you read the line that says “What they fail to see is that the holding of a dominant position is not prohibited by law, it is the abuse of dominance that is prohibited.” I am not saying its bad for Safaricom or Orange to be dominant, for sure the deserve it for the efforts they put to be at the top. The issue here is CCK thinks they are abusing this dominant position.

  1. January 4, 2012 at 8:42 am

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