Rivals gnaw at Safaricom's market hold

Safaricom's market dominance is slowly but surely being whittled down by its competitors and new entrants in the lucrative telecoms sector after many years of stranglehold on the industry.

This is after it emerged that its market share has been chipped away quietly in the last decade declining by about 20 percent.

Statistics from the Communications Authority of Kenya (CA) show that the market share of East Africa's most profitable company has contracted to 63.6 percent, compared to the 80.7 percent in 2010. At this space, in another decade, Safaricom will have less than half of the market. 

Though it was previously seen as unassailable, the Competition Authority of Kenya (CAK) in a memorandum to the Senate standing committee on information, Communication and Technology last week, says the market share of Safaricom has been decreasing over time indicating lack of significant market dominance.

The rivalry watchdog says the current Kenya's telecoms landscape reveals that as at September last year, Safaricom had a market share of 63.6 percent, Airtel 27.2 percent, Telkom 6.2 percent, Finserve 2.7 percent and Mobile Pay 0.3 percent.

"Notably, there has been entry of players such as Finserve and Mobile Pay. The ease of entry is one of the parameters of existence of competition (and also potential competition) in the market," CAK says in the memorandum.

The Senate has been investigating monopolistic practices by Safaricom, whose rivals have claimed a strong grip on the sector, denying them a chance for fair competition.

New players

"In September 2010, the market share stood at 80.7 percent and has since dropped by 20 percent as at September 2020," the report adds.

This will offer a sigh of relief for Safaricom, which has been battling claims that it was abusing its market dominance to lock out new players and could put to rest efforts to cut down the firm to size.

Safaricom, which made Sh73.6 billion in net profits in the last financial year, which makes it more profitable than three of Kenya's top largest banks combined, has enjoyed near monopoly, raising concerns that it was abusing its market power. 

This saw exit of India-based investment Group Essar, which sold its yumobile brand to Safaricom in 2015 and exited on grounds that it could not compete here. Airtel, which has gone through various rebrands has on numerous occasions complained and even threatened to close shop in Kenya on grounds that the playing ground was skewed in favour of the market leader. 

The competition authority is now pushing to have third parties supply infrastructure. If this happens, then Safaricom's rivals may just be handed another fighting chance to eat into its market share.

CAK argues that from the very beginning, infrastructure provisions in the sector should have been separated from the mobile network operator.

"Primarily regulations should have been developed to ensure that third parties provide the infrastructure. Unfortunately, this did not happen," the regulator notes.

Closest rival

"It is with this reality that we opine regulations should be promulgated and enforced in regard to infrastructure sharing on commercial basis and incase of dispute, the sector regulator may act as the arbiter," CAK says.

Safaricom's market dominance date as far back as 2013 when its closest rival Airtel lodged complaints to the competition watchdog relating to restrictive agreements with its mobile money transfer agents (M-Pesa agents).

True to the complaint, CAK investigations established that Safaricom's mobile money transfer agreements with its agents had restrictive clauses that forbade selling, displaying or in any other manner promoting products and services of any entity in indirect or direct competition with Safaricom's M-Pesa services unless expressly permitted. It also barred exhibiting of Safaricom's branding together with that of its competitors.

The regulator says abuse of dominance was established due to the fact that the clauses prohibited M-Pesa agents from transacting in competing products whereas there was no significant investment made by Safaricom into the agents' businesses.

"Additionally, this restriction impeded M-Pesa agents, many of whom are small scale traders, from exploiting the full potential of cost incurred on rent, labour, electricity, among others," CAK explains.

The competition authority ordered Safaricom to immediately expunge all restrictive clause in the deals This decision enabled an estimated 173,259 Safaricom agents to transact the mobile money transfer businesses for other service providers. This provided consumers with more options and reduced the time taken and distance travelled by clients.

"The authority has since conducted compliance checks which have indicated that agreements between Safaricom PLC and its agents are free of clauses limiting the agents from trading in products from Safaricom's competitors," the memorandum adds.

Safaricom's dominance 

But it is the mobile money business that Safaricom continues to dominate against its competitors, giving it a big edge in the market. 

In the mobile money segment Safaricom has a market position of 27.6 million M-pesa customers against Airtel's 3.4 million. Despite players including Airtel and Telkom gaining marginally in their market shares, Safaricom remains the big player.

Safaricom served a total of 39.1 million subscribers, followed by Airtel at 14.6 million, Telkom at 3.8 million, Equitel at 1.7 million and Jamii Telecom 0.16 million as December 2020.

A firm can get dominance via­ employment of innovation and efficiency (organic growth) relative to its rivals. In addition, a dominant position may be attained through acquisition of competitors.

Continuous investment in Research and Development and increase in capital expenditure may sustain this position. However, some dominant firms may sustain their positions through abuse. For example, through predatory trade practices, exclusive contracts, margin squeezes, discrimination, among others.

CAK notes that this situation may be exacerbated in a situation where a firm has significant market power.

The remedies provided under the Act for abuse of dominance are criminal and civil, which include fines, imprisonment of up to five years and restraining the undertaking or undertakings from engaging in that conduct.

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