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Game Of Phones: Competition In Kenya’s Telecom Sector Hots Up

Game Of Phones: Competition In Kenya’s Telecom Sector Hots Up

By  Nick De Vlaminck | From Global Risk Insights

Since the beginning of the liberalization of the telecommunications sector, Kenya has seen fast internet and mobile phone growth. Between 2000 and 2006, the number of mobile phone users rose from 180,000 to 7.3 million people – an increase of more than 4,000 percent.

The fast-growing sector is characterized by competition between two operators: Safaricom, a 60/40 percent joint venture between the government-owned Telkom Kenya and Britain’s Vodafone, accounting for a market share of 67.4 percent; and Airtel, accounting for 22.6 percent.

Mobile Subscription per Operator

Of vital importance was the establishment of the Communications Authority of Kenya (CA). The CA licenses and regulates all systems and services in the telecommunications industry, manages competition, regulates tariffs for communications services, and monitors the activities of licensees to enforce compliance with the license terms and conditions.

One example of the rapid development of the sector is the rise of the world’s most successful and widely discussed mobile payment: the M-PESA money transfer service, launched in 2007 by Safaricom. In June 2010, M-PESA reported more than 10 million registered customers, who collectively transferred US$400 million that month alone. Since then, the service has grown continuously and opened up to other operators, now serving two in every five Kenyans.

The demand for telephone receivers and cellular telephones is expected to continue growing at a high rate. Growth in the telephone sector will continue to provide demand for telecommunication technologies. Although Kenya enjoys relative advantages over its neighbours, commercial, political, and legal risks are still important factors of concern for foreign and domestic businesses.


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In April 2014, the CA board granted approval to license three new telecommunications companies. With the country’s mobile phone penetration rate at 77 percent at the time, there was room for more providers to enter the market, according to Communications Secretary Matiang’i.

However, in January 2015, Essar, one of the major operators, concluded the sale of its Kenya-based yuMobile to telecom giants Airtel and Safaricom for $120 million. The network, IT, and office infrastructure was sold to Safaricom, while Airtel absorbed the 2.55 million subscriber base.

Although the CA had intended to enhance competition, in practice its decision had the reverse effect. Despite these changes, mobile penetration grew by 2.1 percent to stand at 82.6 percent, up from 80.5 percent in comparison with the previous quarter.

Evolution of mobile penetration

In a new effort to increase competition, the Communications Agency has proposed the so-calledDominance bill through the Ministry of Information. In this bill, Safaricom is deemed dominant and thus should not be treated as an equal to competitors in the telecoms industry; Safaricom could be subjected to different rulings regarding, inter alia, tariff changes.

This followed an earlier request from Airtel Kenya CEO Adil El Youssefi, who, triggered by ongoing price wars between Airtel and Safaricom, argued that the playing field was not even for all operators since Safaricom had over 50 percent market share. El Youssefi has already lobbied forcefully for the adoption and implementation of fresh market dominance rules since he took office on the 15th of April, 2014.

Safaricom’s CEO Bob Collymore has opposed the passing of the Dominance bill, accusing Airtel of pushing an agenda to erode the gains of the industry and stating that the company would cut its planned $400 million investment plan if Kenyan regulators impose penalties to limit its market dominance.

“If you start to slice the legs off this particular company, we’ll have to pull back on that type of investment,” Collymore said in an interview. “We’re all up for going through the process, defining the areas that we may or may not be dominant in, defining what the abuse is, and defining what the remedies are”. For Collymore, a lot is at stake: since the bill has been proposed in the Kenyan Parliament, Safaricom’s share has dropped by over 14%.

On top of that, amidst this fierce competition between Safaricom and Airtel, the High Court disbanded the CA’s Board due to irregular appointments. Subsequently, the Court of Appeal rejected on 15 July 2015 a government attempt to keep the Board in office. This judgment means that the Board never existed as a matter of law.

Accordingly, all business, contracts, agreements, appointments, instruments and decisions executed by the illegal Board or its agents are a nullity. The move leaves the appointment of the CA Director-General in balance, as he was engaged when the Board had been disbanded. There is a high likelihood that most of the Board’s decisions will be challenged.

This all fuels the uncertainty the Kenyan mobile communications market is now undergoing. The good-looking prospects are heavily curbed by the political climate in which shifting alliances are heavily influencing the market outlook. Safaricom’s strong position is really at the balance, and Kenya’s capacity to keep market powers in line is to be tested.

The ever increasing demand for mobile communications casts a promising future, but also raises the stakes for all major players involved. Interesting times most certainly lie ahead for Kenya’s telecommunications sector.