Mobile phone

A mobile subscriber uses her phone in Nyeri town.

| File | Nation Media Group

Why telcos face more regulatory scrutiny on service agreements

Service agreements among telecommunication companies in Kenya could come under increased scrutiny from the industry regulator, the Communications Authority of Kenya (CA) given ongoing massive multi-billion shilling investments in network upgrades.

With all major Mobile Network Operators (MNOs) in Kenya including Safaricom and Airtel Kenya keen on staying competitive by offering the latest technology such as 5G, the telcos are under pressure to upgrade and expand their network systems.

As a result, MNOs are confronted with increased capital and operating expenditure needs running into billions of shillings, in an environment where retail revenues per user are suppressed.

This piles pressure, especially on smaller MNOs to explore new ways in which the costs of investment can be shared.

Minor players mainly enter agreements on roaming and network-site-sharing services to control investment and maintenance costs.

Fair competition

A study commissioned by CA, however, captures concerns that have been expressed about the anti-competitive risks of such cooperation between competitors amid recommendations for deeper scrutiny by the regulator to ensure ‘fair and effective competition’.

For instance, the study report recommends that while roaming and network-site sharing service fees should be open-market-driven, the CA must keep track of all the deals to ensure compliance with principles of fair competition.

It says a monitoring framework is needed for transactions relating to network infrastructure sharing services, including tower sales and mergers involving any tower companies or MNOs to limit the risks of abuse of monopoly.

“Should the draft infrastructure sharing regulations proceed, the authority could consider including guidelines for licensees including on deadlines for responses to requests for site sharing and on a dispute resolution process, particularly concerning delays in site sharing approvals,” the study recommends.

Network sharing is an increasingly important means by which mobile services are offered in many countries. This trend has largely been driven by transition from voice to data, which has meant that operators are facing declining revenue with the same or greater infrastructure investment and maintenance costs.

Passive infrastructure sharing entails sharing “passive’ network elements such as the site and mast, whereas active sharing refers to the sharing of “active” network elements such as antennae.

The study suggests that as part of the monitoring framework, all site-sharing agreements concluded be filed with the CA, and quarterly reports are provided to the regulator with details on turnaround times for site approvals, pricing, and the total number of sites owned or operated by a player in the transaction.

The study points out that the quarterly reports to CA on network infrastructure deals should also include the number of sites that are shared, including how many licensees sites are shared with.

“The information on turnaround times for site approvals should include; the number of applications per quarter and which operators made the applications and the percentages; approved, till pending after 30 days and rejected. Reasons for rejection should be provided,” the CA study further recommends.

Similar tougher scrutiny is expected in the national roaming services segment where the CA study recommends tracking of potential anti-competition tactics.

“Where roaming is required and is requested in a manner that is consistent with time and geographic limitations, we propose that the authority monitors that there is no constructive refusal to supply or margin squeeze,” the study said.

“In order to comply with this, all roaming agreements should be filed with the authority and roaming providers should file quarterly reports on the locations, traffic volumes, and prices charged for roaming services,” it added.

This concept known as national roaming or network roaming occurs when traffic from one operator’s subscriber is carried and routed on another operator’s network, especially areas where they lack service coverage in Kenya.

This only requires an agreement between operators, including service fees, and is popular, especially in areas of low density where investments in several competing sets of infrastructure may not be financially viable.

The roaming services have become a contentious issue amid claims of uncompetitive practices, especially on pricing.

Some smaller telcos including Airtel Kenya, Telkom, and Jamii had for instance petitioned the CA to impose controls on the amount of fee charged on national roaming services—a demand that was mainly targeted at Safaricom with more than 5,000 sites across the country.

Common global practice

The CA-commissioned study however rejected the proposal and said national roaming fees in Kenya should track the common global practice where most agreements are commercially negotiated.

“We propose that roaming be supported in Kenya and in line with international best practice described in which roaming is time and geographically limited. We do not recommend imposing charge controls,” consultants said in a report from the CA study said.

Regulation 101 of the Kenya Communications Regulations 2001 provides for roaming services. It requires that all licensees enter into reciprocal agreements with any licensed party who requests roaming services.

Safaricom has opposed national roaming fee controls arguing that it would discourage innovation, competition, and the further development of the tower company market. Furthermore, prices depend on variable factors such as the cost of fuel and electricity.

The CA study concurred with Safaricom’s concerns and also pointed out that while roaming can be useful and cost-effective for smaller market players in the short run, roaming operators will always have a lower degree of coverage in the long run.

“There are benefits to smaller market participants in the short-run but this is not a sustainable solution. This opinion supports limiting roaming for entrants to a period of time,” the CA report said.

The CA study proposed that national roaming should be supported in Kenya where it assists with new entry or coverage in remote areas. Accordingly, any roaming agreements should be limited by time and geography.

“We recommend that active network sharing and roaming be made a requirement in relation to future universal service site subsidy processes that the Authority implements, where the Authority implements, where the successful bidder rolls our active network equipment,” the study said.

“Where roaming is required and is requested in a manner that is consistent with time and geographic limitations, we propose that the Authority monitors that there is no constructive refusal to supply or margin squeeze” it added.