Safaricom loses fight to keep supply deals secret

Mobile service provider Safaricom #ticker:SCOM has lost its bid to block sections of the competition law that demand the firm reveal secret supplier deals to the market watchdog, parliamentary records show.

The National Assembly’s Committee on Finance and National Planning rejected Safaricom’s petition to remove a clause that makes it mandatory for companies to make business reports to the Competition Authority of Kenya (CAK).

The CAK says these reports are aimed at guarding against buyer power from dominant firms and includes sharing terms of payments, pricing of goods and services, interest payable as well as conditions of contract termination or variation.

Safaricom had informed the House committee that the rule would subject firms to onerous reporting obligations and that sharing terms of business contracts amounted to interference.

“Defining how parties should contract and the terms they should include in their contracts would constitute interference in the freedom of contract which is protected by law,” said Safaricom in its petition that was made public on Monday.

“Such provisions increase the risk of a buyer being accused of abusing buyer power due to unjustified complaints simply because they attempt to negotiate competitive terms with suppliers.”

Parliament rejected Safaricom’s concerns on the strength that there was no harm in sharing supplier contracts with CAK besides reporting to the telecommunications regulator, arguing that different State agencies look at different regulatory aspects.

“The proposal was rejected because the provision is a template that will be used to assess whether a company is abusing buyer power,” said the committee chaired by Kipkelion East MP Joseph Limo. “It will also encourage companies to pay suppliers on time.’’

CAK reckons that the rules are key in protecting suppliers from dominant buyers.

It argues that the law guards against delayed payments, unilateral termination of a commercial agreement without notice and a buyer’s refusal to receive or return goods without justifiable reasons and in breach of contractual terms.

The rule also gives the regulator powers to review firms that use their dominance to push suppliers to offer huge discounts, which ultimately help companies to offer their products at a lower price relative to rivals.

Safaricom is the biggest player in Kenya’s telecoms market, a position that has seen it control a large chunk of spending in the mobile telephony market relative to its rivals, Airtel and Telkom Kenya. Safaricom’s expenses stood at Sh155 billion in the year to March last year, which is multiple times the combined sales of Telkom Kenya and Airtel.

The company, 35 percent owned by South African group Vodacom and five percent by Vodacom’s major shareholder Vodafone, had 34.75 million users, 64.9 percent of Kenya’s total in September.

It dwarfs the two other operators in the mobile market: The local subsidiary of India’s Bharti Airtel and Telkom Kenya, which is owned by London-based Helios Partners.

The smaller operators have long argued that Safaricom enjoys a dominant position because it accounts for 90 percent of revenues in areas such as voice calls and text messages.

Safaricom has rejected the claims of dominance and has in the past accused the communications regulator of being preoccupied with helping the telco’s smaller rivals rather than focusing on consumers.

The telecoms regulator in 2017 ditched a proposal to break up Safaricom into separate telecoms and financial services businesses due to its dominant size.

An initial draft report on boosting competition in the sector, which was leaked in February 2017, had recommended the breakup of the firm that is Kenya’s biggest by market value and have the M-Pesa mobile money transfer platform run as a separate unit from the voice and data business.

The competition watchdog had earlier told Parliament that it had not found any evidence of Safaricom abusing its dominance in any of its business sectors, meaning there was no need for action by regulators.