End of Safaricom Dominance


#1

earlier today i read an article in this blog that some specialist hired by CAK has recommended that mpesa the dominating mobile transfer service be detached from its parent company safaricom, which for me is a good idea.The point here is that when this happens safaricom will no longer dominate the mobile market but instead give other players a chance to grab the market share.
Personally i think this will be the end of safaricom dominance on the mobile market considering the fact that most of their customers have this perception of being stole n from but sticks around coz of the mpesa service. What are your thoughts on this?


#2

Spinning off Mpesa as a separate company is a good opportunity for them to innovate and work directly with Safaricom’s competitors. That’s a big win for us consumers.

On the other hand, Safaricom still makes profits off its mobile network services and will remain dominant simply because Airtel and Orange (the competition) are mediocre in comparison.


#3

I agree,safaricom will still remain dominant even with an MPESA spinoff,there is rapid growth in their data business and the voice/sms business is doing well.What Safaricom should now focus on is evolving from being a “dumb pipe” like other data operators and offer more value add services to their customers especially the rising customer numbers in their Fibre to the Home(FTTH) business.


#4

I don’t think functional separation of MPESA alone would be a threat. However combined with some other remedies in that report it may threaten Safaricom’s leadership position.

I think interoperability/infrastructure may just do the trick. Just think about it The reason why we can make a call to any network is because there is interconnection and the cost of interconnection is relatively low. So i can join Airtel even though its a smaller network compared to Safaricom and be able to make and receive calls. Now the biggest issue with the smaller networks is network coverage. Interconnection doesn’t help if you don’t have coverage. National roaming would remedy that. If the costs(for national roaming) are low, it can work really well with the only downside being that these small players may not see the need to invest in network coverage.
For mobile money, being able to receive money from and send to any mobile wallet would have a similar effect as interconnection in calling. It wouldn’t matter which mobile wallet you are on. Agents would also be “inter-operable” by having a single float system. These remedies sort out P2P, which i consider is the biggest source of MPESA customer loyalty. The others(B2P,P2B) will sort themselves out. For instance i’m already seeing Equitel paybills in petrol stations. Its just doing what the guys are doing.


#5

I dont think guys enjoy safaricom data and voice plans these guys ppl are there coz of this mpesa thing and one of such consumers who own a safaricom line coz of mpesa


#6

There is some truth to that especially where all the three operators have good coverage. In such a case the premium on Voice and data that Safaricom charges just doesn’t make sense. However, if you in a place where Safaricom gives you the best coverage you will definitely pay that premium. Airtel and Orange may be cheaper on let’s say data ( Orange offers you 15GB for Ksh 990 per week; 60GB for 4 weeks for only Ksh 4,000. That’s cheap) but that doesn’t help when you only get a 2G signal and you want to stream something. Safaricom beats them because they invest more.

Just look at the u.s mobile industry right now. The reason why T-mobile has been so successful in recent years is because they’ve really invested in the network(Open signal claimed its closing in on Verizon on 4G coverage). So if T-mobile launches a good tariff(e.g Binge on/One tariff), most people will be able to make use of it. They’ve been so successful with “unlimited plans” that Verizon has brought back unlimited plans to its customers. Look at India also; Reliance Jio. They’ve really invested in the network.

Back to Kenya, national roaming would a regulator’s solution to help the smaller players close the gap in terms of network coverage. For it to work, it needs to be cheap. If they close that gap then Safaricom’s premium pricing would no longer be viable.


#7

Why should the regulator get involved in what is in theory an open market?

Orange inherited government goodwill and significant resources from its mother parastatal, meanwhile Airtel has been around for as long as Safaricom (way back when Kencell had the better network coverage and Safaricom was the affordable alternative).

Let the market play itself out, there is so much room for growth.


#8

To some point i agree :handshake: that Airtel kinda got poor network coverage in some areas that is their downside now let’s focus on the competitive edge where the gov’t has influenced so much in terms of giving all tenders to safaricom from security to e-citizen safaricom got all these essentials if it was a free market others too should have been given a pie :cake: in other words safaricom runs and dominates on Mpesa


#9

With the current market conditions there is no way the market will sort out competition issues. Are you telling me that an operator who invests KES 25-35.0 billion annually in CAPEX can be “out-competed” by a player who can barely renew a license?

The regulator has a duty to protect consumers and ensure continued investments in the sector. If Safaricom continues to be dominant we may end up having no competition limiting consumer choice.


#10

What “significant resources” did they inherit? Copper wires? What resources did they inherit to help them compete in the mobile industry?


#11

Prime land across the country, management over the National Optic Fibre Backbone, the earth station at Longonot, trained and experienced engineers, infrastructure including that very expensive copper wire that you easily dismiss.

Orange is an institution the same way the original Bell was in the US. With the proper management, they still have the resources to take the market away from Safaricom.


#12

Prime land across the country-what does that have to do with the mobile sector, unless you want to be a real estate firm. If you are talking about land for the base stations, you can always lease land. Additionally, you can always rent tower space from independent tower companies. Networks architectures of the future such as Cloud RAN(C RAN) may also not need that much land/space.

Infrastructure/National Optic fibre Backbone-They just manage it on behalf of the government. Most players can use it for a fee. How much do they get from managing it? In recent years who between Orange and Safaricom has gotten most government IT contracts?
Copper wires? Well most telcoms are replacing copper wires with fibre optics. Safaricom has the financial muscle to either build its own state of the art infrastructure or lease it.

Trained and experienced engineers- Why would you need your own engineers when you can outsource network management to the likes of Huawei, Nokia etc.


#13

You are missing my point. Telkom has the in house expertise and the financial resources (through existing the land and infrastructure) to compete with Safaricom and separately the ISPs.

In the case of Airtel, the Kenyan business has had support from Vivendi, Zain, Celtel and now Airtel.

Why should the regulator show favouritism when obviously the problem is the way these “small players” are run?


#14

Its not favouritism. The CA is doing its job. Kenya is one of the most anti-competitive mobile markets in the world-the kind of market share spreads we have in Kenya are not found in majority of the countries. In an ideal market the regulator should come in to tackle the issue of abuse of market dominance. In my opinion, Kenya telecom sector is not ideal in terms of competition. Competition needs to be sustainable. What we have now is unsustainable competition i.e these small operators give you cheaper prices but they don’t make any profit. At some point the business will glide to a halt.

You mentioned support parent companies.Why would you pump in money in a business whose return on investment is negative. I agree at some point it was the way the companies ran the business(e.g Kencell focusing on higher end customers while the money was at the bottom of the pyramid). At the moment who would you say focuses on the bottom of the pyramid? Is it Safaricom,Airtel or Orange? Since they have similar products i would say the cheaper operators. But because Safaricom is so big(network effects) most people including those at the bottom don’t necessarily go for the cheaper options.

Scale also affects product innovation, talent acquisition and retention. Let’s say you have a good product for the masses and you need to partner with an operator. Who would want to partner with? A company that makes Ksh. 32.0 billion a year, over 25.0 million connections and a market share of 65.0% or an operator who has been making losses and is even considering exiting the market? I don’t know about you but i would go with the first one. I’m telling you Safaricom will keep getting bigger and bigger. The CA needs to make sure the competition survives.

The only bright spot for Orange is the change in management. I believe Helios understands the Kenyan market more than the french. However its financial resources don’t stand a chance compared to what Safaricom has.


#15

I can’t seem to get this whole ‘detach MPESA from Safaricom’. I have recently read from the papers that parliament plans to defeat such a move by CAK (thanks to serious lobbying by Safaricom, I think).
But my concern is simple: Why are we detaching MPESA? Has it broken any laws? Most importantly, has it abused it’s dominant position? You’ve got to justify. Otherwise all you are saying is, MPESA is too successful a product. Also, Safaricom has consistently argued that it’ll be punitive to do so - we are trying to punish success. That I create a really successful product, invest a lot of tech/efficiency - like when they had to migrate their servers, then the govt (through CAK) comes at me? Beats logic. Are abusing their dominance by breaking existing laws/standards? If not, let them be.


#16

My thoughts,> MPs always want a piece of a successful business whichever way, splitting MPESA means they can get a large chunk unlike now where it’s impossible.


#17

Totally doesn’t make sense to split Mpesa from Safaricom. It might sound theoretically possible but practically it doesn’t work. First there would be no Mpesa without Safaricom. It is Safaricom’s mobile network that made Mpesa successful in the first place. Mpesa’s customers and intellectual property all belong to Safarcom.

So the question is why are some people advocating for Safarcom/Mpesa seperation? It’s preciously because they feel they are victims of unfair anti-competition laws or monopolies. There’s no enforceable regulation that practically and business-wise makes it easy for third-party mobile finance providers to use Safaricom’s mobile network as an infrastructure.

In Uganda here, we had a company called Ezeemoney that took MTN to court over a similar thing. Read my post here (https://medium.com/@oquidave/what-ezee-money-vs-mtn-uganda-court-case-teaches-us-about-competition-in-uganda-e349cd82cee9#.rne8h4tm4) MTN as the largest mobile network with the largest mobile money subcriber base couldn’t allow Ezeemoney to run its independent mobile money service on its network. They literary frustrated their(Ezeemoney) efforts to pull it off till this day. Why because MTN as business wouldn’t play fair with its own would-be competitor although there was a lot in the case. This has been fairly the case with any other new mobile money service provider that wishes to use the Mobile network’s infrastructure to roll out mobile money services.

See mobile networks aren’t designed like the internet. In the internet, you have a vast ecosystem of none-overlapping players. ISPs such as Liquid telecom who provide the data pipes for transit of data packets are different from application providers such as Google, Facebook who build usable apps ontop of the tcp/ip and http protocol stack. They are on top of the internet ISO model. Now there’s no law that bans ISPs from creating their own social networks or any other internet application as much as the likes of Google from being ISPs.

Mobile networks aren’t built like that due to their proprietary nature. The mobile telecom runs both the network infrastructure as well as applications (sms,voice, mobile money) that run on the network. The whole stack is the product! Which is cause for several problems we have with mobile networks today. You can read my post on the whole thing here https://medium.com/@oquidave/telecoms-2-0-time-to-seriously-start-thinking-about-platforms-e19cee0dd180

In essence we are asking mobile networks to run like the internet. Mobile telecoms won’t accept because it’ll cut down on their profits. They will simply be reduced to mere data pipes like ISPs. They are already complaining about OTT services such as Whatsapp cannibalizing on their SMS & Voice revenues.

So that’s the problem, the whole thing isn’t designed from the ground-up for competition like the internet. It’s a design problem, not a regulation problem. What’s the solution? I don’t know. But what I know is that platforms are technology are fast changing. Fintech is making waves and it mainly uses the internet stack more than the mobile telecom stack. And just like Whatsapp naturally superseded SMS, Fintech will naturally evolve and superseded legacy, proprietary, network-locked financial systems.


#18

The IP belongs to Vodafone. Safaricom’s annual reports usually reads “Vodafone Group Services Limited (a wholly owned subsidiary of Vodafone PLC) which owns the M-PESA solution, has entered into a Managed Services Agreement with the Company (Safaricom) under which Vodafone agrees to provide the M-PESA solution to Safaricom as a managed service and Safaricom agrees to market and offer the M-PESA services throughout the country”

That is why Safaricom currently pays 5.0% of MPESA revenues to Vodafone. MPESA is also offered in so many other countries and Safaricom does NOT share revenues from those countries.

Functional separation has worked in some cases e.g Openreach/BT functional separation. Interestingly, OFCOM is moving forward to legally separate Openreach from BT to enhance what has already been achieved. So BT retail, BT wholesale and any other customer(e.g Vodafone) of Openreach would be treated equally.

I think most don’t get why the report suggests we separate(functional not structural) MPESA. The draft reports says this-I’m quoting a summary by Moses Kemibaro.

" In the event that wallet-to-wallet interoperability is not achieved by 31 December 2017 due to factors that the CA considers Safaricom could reasonably be expected to control, the report proposes that the Communications Authority should move to impose functional separation between Safaricom and M-Pesa."

We are separating MPESA so that Safaricom does not have an undue influence on the process of interoperability or any other initiative to enhance competition. Note also that the separation is occurring if Safaricom does not act in good faith to make sure interoperability works. So if Safaricom plays nice, the CA won’t need to impose functional separation.

Yes, technology changes fast but we can’t wait for technology to sort out all of the issues. At the moment, fintech also relies on what you are referring as the mobile telecom stack(the mobile money wallet). SMS is still very popular among users and most businesses still rely on it for alerts. Why? Because not everyone owns a smartphone. In fact the majority own dumb phones. So we have to deal with the situation as it is right now-the mobile infrastructure is still very important in delivering some these services. We therefore cannot allow a player to abuse its dominant position and we also have to take steps to prevent such abuse(ex-ante regulation)


#19

Technically that’s Vodafone. Now about Safaricom being dominant, they have got there out of several factors, some include their really great work ethic, drive and being high achievers; there is also the part where they’ve been able to be on the right side of the govt of the day, either by being a good tool, or just strategy; the other players have also been quite helpful in being late at quite a lot of things, hence giving the advantage to the big boy.

Anybody remember Airtel Unliminet? That rattled Safaricom, what did they do? They picked out that whole Unliminet team nearly to the man, and basically cloned out a successful youth lifestyle product from South East Asia, based off a debit card for a bank. Now I can’t say they are successful yet, most recent numbers had 1 million users for Blaze, but even Google and Facebook try out things, some stick, some don’t, but they don’t stop trying.

I recently had a chat with Safaricom head of Innovation, Victoria Ogeto, and she said we can expect interesting things coming out of their innovation hub, that’s coming later this year. The idea is to support startups that have interesting products, even those that are not in their core business. She said that we should not be surprised if Safaricom turned out not to be a mobile carrier in the future. There is that possibility when they follow the revenue source of the future.

What’s happening at Airtel?


#20

A year later story ya dominance is back.