IN a number of countries, telecoms companies that provide mobile payments services have established positions of significant market power. This has raised concerns about potential abuses of dominance regarding which there have been several interesting developments in Kenya and Zimbabwe.
The Competition Authority of Kenya (CAK) recently investigated market leader Safaricom, for charging unregistered users of Safaricom’s M-Pesa high tariffs and pressurising M-Pesa agents who offer rival products following a complaint laid by rival firm, Airtel.
In its defence, Safaricom argued that forcing it to open up its agent network would be unfair because it had invested billions of shillings to develop it. The CAK reached a conclusion in which it has ordered Safaricom to open up its M-Pesa agent network to rival mobile money firms.
The relatively high tariffs that Safaricom was charging customers to send and receive cash from other networks were illustrative of high barriers to entry and the limited growth of competitors. Given Safaricom’s position of market power, it has a strong incentive to maintain proprietary control of the use of its platform and the results of this could be monopoly profits, exclusion of competitors, and high switching costs for consumers considering a switch away from Safaricom.
While Safaricom should be given the opportunity to earn returns on its investments in network infrastructure, these returns should have a direct relationship with the level of investment made and should not amount to an accumulation of additional monopoly rents for the dominant incumbent.
The recent collaboration of Airtel with Equity Bank to offer a mobile banking service is set to present a competitive threat to Safaricom. Equity Bank’s 9.1 million customers are expected to gain access to their bank accounts via their mobiles once its Mobile Virtual Network Operation (MVNO) starts operating. Subsequently, Safaricom announced new tariff reductions in August, the timing of which suggested that it was likely to be a competitive response to the new entrants in the market.
The new tariffs are shown in the table below together with a comparison of different African countries. M-Pesa Kenya tariff reductions mean that they are now the cheapest in the $1-$10 range for transfers to registered recipients. Zimbabwe is relatively expensive for transactions of $10 and upwards to both registered and unregistered recipients but relatively cheap at very small transaction sizes of $1 for registered recipients only.
In Zimbabwe the Competition and Tariff Commission (CTC) is investigating whether Econet through its Ecocash mobile money transfer service has contravened the competition law. Econet declined to allow banks access to its Unstructured Supplementary Service Data (USSD) platform for channeling their mobile banking service.
Instead, it encouraged them to use its Ecocash platform although it has since agreed to allow them access but on a separate USSD platform from the one it uses, and at a higher cost.
The bankers’s gripe
Banks are of the view that not only are the prices too high but they are also discriminatory against non-Ecocash users. This conduct may be part of a strategy by Econet to protect Ecocash’s market share, and grow Econet’s strong position in the mobile services (voice, sms, data) market due to network effects.
Network externalities are defined as products for which the utility that a user derives from consumption of the good increases with the number of other agents consuming the good, which means that it is beneficial for customers to join the dominant network.
In Zimbabwe, Econet has a high market share in both the mobile services and mobile money transfer markets. Ecocash’s success can be at least partly ascribed to a combination of network effects and lack of interoperability between Ecocash and the other available mobile payments platforms.
In this case there is likely to be a further advantage to Econet from maintaining Ecocash as a separate platform and not allowing it to interoperate with the other platforms. This is through reducing customer switching in its traditional mobile services markets such as voice and data which are more lucrative.
Essentially, this is because you need to be an Econet subscriber to interact with an Ecocash and it is cheaper to be a registered Ecocash user when transferring funds to other Ecocash users. Customers are therefore induced to remain loyal to Econet as well.
Having said this, in such situations, mandating interoperability involves a tradeoff between allowing firms to recoup initial investments made, particularly when there was risk involved, and reducing monopoly profits that dominant firms could be accumulating through excluding rivals.
In both of the cases discussed above, the dominant firms could argue against interoperability on the basis that they invested a substantial amount in the mobile money infrastructure, but the question is - should that come at the expense of competition? And at what point will they have been adequately compensated for any risk incurred?
In order to ensure that incentives to innovate and invest are protected, this tradeoff needs to be weighed up, however, firms should not be able to exploit their market power and exclude potential rivals indefinitely on the basis that they once made a risky investment.
If this happens, consumers lose out.
-The authors are economists at the Centre for Competition, Regulation and Economic Development (CCRED), University of Johannesburg