Botched telcos merger a sign of uncertainty

I just don’t think the government is yet to find a clear strategy on how it wants the mobile telephone sector to pan out, especially after it torpedoed the planned merger of Telkom Kenya and Airtel.

Essar of India and their brand, yuMobile exited from the market four years ago. The international conglomerate, France Telecom, also exited from the market.

Shouldn’t we be thinking about how to guide the industry into consolidating and into becoming a sector with a few but more profitable players?

We need to debate whether or not the current situation where we have only one profitable mobile player is not in the long-term interest of consumers and the country.

The mobile telephone industry is a key part of the economy and is of critical strategic importance for the economy’s competitiveness. If well regulated, and if you introduce well thought out pro-competitive reforms, the consumer will get benefits such as low prices, choice, quality of service and a wider range of products.

Yet when you reflect on the matter and developments in this sector, the picture you see is that the idea of pro-competition reforms has been put on the back burner.

I say so because it is now more than three years since the publication of the telecommunications competition study that was conducted by the consulting house, Analysis Mason.

Telkom Kenya also presented submissions based on recommendations of their consultants by the name — Plum Consulting.

We debated about whether or not asymmetrical interconnection terminations rates were the most effective remedy for abuse of dominant market behaviour.

Then some made the case for the so-called “a bill and keep system”.

Three years later, the telecommunications competition study continues to gather dust.

In March 2019, all mobile companies appeared before the Departmental Committee on Communication, Information and Innovation to present views on competition in the sector.

That committee was inquiring into legislations and regulatory gaps affection competition in the telecommunications sub-sector.

We heard arguments strongly opposing agent inter-operability and the sharing of money float in a single wallet because it would expose the mobile money industry to systemic risk.

We were treated to arguments about the regulation of dominant or significant market power.

Opponents against the introduction of asymmetric mobile termination rates argued that they were not good tools for managing competition.

That adoption of zero mobile termination rates in a predominantly pre-paid market would lead to higher prices and unfairly disadvantage low-income households in rural Kenya who tend to receive many more calls than the calls they make and initiate.

Apart from the mobile companies, parties that made presentations before the MPs included the Communications Authority of Kenya, the Central Bank of Kenya and the Competition Authority of Kenya (CAK). The committee ended up making drastic recommendations. However, those recommendations appear to have been swept under the carpet.

What is my point in narrating all these stories? It is to stress the point about regulatory uncertainty in this critical sector.

With the collapse of the plans to merge Telkom Kenya and Airtel, the government must go back to addressing the state of competition in this sector. We have learnt a gripping lesson about the politics of mergers and acquisitions. Clearly, politics and regulatory uncertainty remains a big problem.

We saw the CAK imposing conditions that made the proposed merger of untenable. It ruled that the merger could only go through on condition that Telkom Kenya and Airtel would not engage in any M&A transactions for the next five years.

Even more significantly, CAK had introduced a condition prohibiting Telkom Kenya and Airtel from selling frequency spectrum licences.

The Attorney General demanded both a full financial due diligence on Airtel and a valuation of both Telkom and Airtel.

The strongest opposition to the proposed merger was a segment of the political elite that chose to view the transactions in national security terms. A key security committee concluded that the merger as “portending adverse implications on the government’s national security communications infrastructure”.