‘Punished’ for success? East Africa’s largest telco Safaricom battles tough law amid political dispute

Also on the horizon is a new competitor for its world-renowned and cash-minting mobile money product, M-Pesa

SAFARICOM Ltd., East Africa’s biggest mobile-phone operator, criticised draft legislation it says seeks to punish the company’s dominant market share, amid reports Kenya’s state lawyer blocked the proposed law.

The planned rules are “defective” and have been compiled without using “relevant procedures,” Stephen Chege, Safaricom’s corporate affairs director, said in an e-mailed response to questions Wednesday in the capital, Nairobi.

Regulations mooted by the Communications Authority of Kenya propose penalising any telecommunications company with a market share of more than 50%, which will be required to inform rivals of planned price increases, according to Safaricom.

The company has a 67% share of Kenya’s mobile market. The proposed law will also enable the regulator to declare a company dominant if it earns “supernormal” profit, according to a draft of the bill.

Attorney-General Githu Muigai told the Information, Communication and Technology Ministry to withdraw the draft law from debate in parliament because his office wasn’t consulted prior to its submission, the Nairobi-based Business Daily newspaper reported today. Muigai didn’t immediately respond to an e-mail sent by Bloomberg requesting comment.

Due procedure wasn’t followed in crafting the regulations, while the “consultation process was flawed as Safaricom’s input was largely ignored,” Chege said.

“These regulations are defective and set bad law as they seek to remove the tests for abuse of dominance and in effect punish significant market share,” he said. “Questions should be asked why the ICT ministry should seek to pass such regulations.”

New product
Safaricom, 40% owned by UK carrier Vodafone Group Plc, is East Africa’s biggest company by market value. It controls about three-quarters of mobile-money transfers through M-Pesa, a system in which subscribers can make cash transactions using their mobile phones. The product generated 26.6 billion shillings ($263 million) in revenue for Safaricom in 2014.

M-Pesa faces competition from a new product by rival Bharti Airtel Ltd.’s Kenyan unit, known as Equitel. Airtel Kenya and Equity Group Ltd., the country’s largest bank by customers, jointly started Equitel earlier this year, seeking to tap into M-Pesa’s market share by foregoing transaction charges.

Equitel targets 5 million customers by year-end, compared with 1.2 million in June, Equity Bank Chief Executive Officer James Mwangi said August 3.

Safaricom welcomes “healthy competition,” Chege said.


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