Business Daily.
Telecommunications
service provider Safaricom has offered to negotiate a settlement with
rival Airtel in an abuse of dominance dispute filed before the competition
regulator.
Correspondence between the two firms shows that
Safaricom agreed to settle the matter after Airtel accused it of flouting
competition rules by ring-fencing its popular mobile money service M-Pesa.
Airtel first wrote to the Competition Authority
of Kenya (CAK) on September 19, 2012 accusing Safaricom of charging higher
transaction fees for money sent from M-Pesa to rival platforms such as Airtel
Money.
“Kindly note that Safaricom has requested to
proceed with the above matter under the provisions of Section 38 of the
Competition Act No. 12 of 2010,” the regulator says in a letter dated October
25, 2013 to Airtel.
That section of the law says that ‘‘the
authority may at any time, during or after an investigation into an alleged
infringement of the prohibitions contained in this part, enter into an
agreement of settlement with the undertaking or undertakings concerned.’’
The agreement may include an award of damages to
the complainant or any amount proposed to be imposed as a pecuniary penalty.
“The authority is of the opinion that it is good
practice in any litigation process to enter into a settlement, as long as the
matter at hand is solved satisfactorily,” CAK wrote to inform Airtel of
Safaricom’s settlement offer.
“Note that we have not been provided with the
terms of the proposed settlement, but we have given Safaricom 21 days within
which to submit its proposals for consideration and appraisal,” reads the
letter dated October 30, 2013.
The law does not specify the amounts payable for
settlement of such commercial disputes, leaving it at the discretion of the
regulator and the feuding parties.
Any out-of-litigation settlement could amount to
millions of shillings based on the multi-billion-shilling transactions and
profits that Safaricom has generated from M-Pesa at the expense of rival
services.
Airtel is, however, seeking more than monetary
compensation and wants Safaricom to stop restrictions it has imposed on M-Pesa
agents.
Safaricom on Wednesday
declined to comment on the matter and instead directed theBusiness Daily to
the competitions authority.
The proposed settlement will be the first in
Kenya’s highly competitive mobile telecoms market that has long been hit by
accusations and counter-accusations of sabotage and unfair trading practices.
Airtel’s complaint is hinged on Safaricom’s
higher charges for cross-network money transfers and its policy of offering
M-Pesa services exclusively through its 78,856 agents.
Airtel argues that these practices are
pernicious given Safaricom’s dominance in the mobile money market with an
alleged 90 per cent market share.
Safaricom’s market share in the mobile money
market stands at 73 per cent in terms of customers (18.1 million) and 88 per
cent in terms of agents (78,856), according to the latest official statistics.
Market share in terms of value transacted was
not readily available, but Safaricom alone moves at least Sh2 billion in two
million transactions on a daily basis.
“Safaricom’s practices which are aimed at
restricting other competing providers from accessing so many outlets in Kenya
is detrimental to consumer welfare because it limits consumer choice to only
one product M-Pesa and is also in violation of the Act,” Airtel said in a
letter to the competition regulator dated September 19, 2012.
M-Pesa’s tariff structure shows that Safaricom
subscribers pay significantly higher fees to send money to customers on rival
platforms than those within the M-Pesa ecosystem. Sending money from M-Pesa to
a customer on a rival platform costs between double and triple the cost to
another M-Pesa subscriber.
It costs Sh237 to send Sh20,000 from M-Pesa to
Airtel Money while transferring the same amount to another M-Pesa user costs
Sh55.
The cross-network charges are, however, slightly
lower in terms of total transaction costs because subscribers of rival networks
do not incur any charges when withdrawing cash sent from M-Pesa.
This means that those sending money from M-Pesa
pay the withdrawal fee upfront on behalf of the recipients who cannot hold
virtual money with Safaricom.
Taking into consideration remittance and
withdrawal fees, cross-network cash transfers cost between two per cent and 10
per cent more compared to transactions among M-Pesa users.
It costs a total of Sh99 to send (Sh33) and
withdraw (Sh66) Sh5,000 among M-Pesa customers while a cross-network
transaction of the same amount will cost a Safaricom subscriber Sh105.
Safaricom is accused of using the variance in
charges to propagate what is technically known as a “club effect” where a
dominant player charges relatively lower fees for on-net services to gain
cumulative advantage.
There is currently no interoperability in
Kenya’s mobile money market, meaning that each company’s product is only
directly accessible to its customers.
Safaricom treats cash recipients in other
networks as “unregistered users” who can withdraw the money by presenting an
SMS credit notice to an M-Pesa agent.
Safaricom had initially planned to put up a
defence, but later changed its stance to offer a settlement whose details
remain unknown.
Access
The company had used provisions of the
Competition Act to call for a “Hearing Conference” that would have forced the
parties to discuss the dispute on October 29, 2013.
But it later cancelled the plan and instead made
an offer to settle the matter. CAK said it was comfortable with Safaricom’s
offer of a settlement, which the regulator was expected to have received on
Wednesday.
Airtel wants the regulator to impose a financial
penalty “as a deterrent against engaging in such practices in future.”
The company also wants CAK to compel its rival
to stop restricting access to M-Pesa.
But Safaricom has in the past argued that M-Pesa
is its proprietary product and that it should not be penalised for the massive
success in the money transfer market.
