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How economy suffers when you can’t text, browse or make calls

Safaricom CEO Bob Collymore [Jonah Onyango/Standard]

In the three months to December 2016, the value of M-Pesa’s transactions stood at Sh892.8 billion, about 77.5 per cent of the total amount transacted by all providers

In 2015, Nigeria’s telecoms regulator made a decision that sent the continent into a spin. The Nigerian Communication Commission (NCC) slapped MTN Nigeria with a record $5.1 billion (about Sh526 billion at the current exchange rates) fine for failing to meet a 12-month deadline to de-activate unregistered SIM cards.

The Nigerian government had embarked on a campaign to switch off unregistered SIM-cards used for illegal activities including by agents of the Boko Haram militia that had terrorised parts of the country with kidnappings and bombings.

MTN Nigeria, which commands the leading market share (39 per cent against Airtel’s 23 per cent, Etisalat 15 per cent and Globacom 23 per cent), failed to deactivate 5.1 million unregistered SIM cards on its network. The NCC stated that while other service providers complied, MTN did not despite a 12-month deadline. This prompted the NCC to fine the South African-based firm 200,000 naira (Sh67,000) for every unregistered SIM card.

In Kenya, if the regulator is to implement such stiff penalties for failure to meet set licence operating conditions some players might not survive.

On Monday this week Kenyans woke up unable to send and receive money, send text messages or make phone calls following an outage on Safaricom’s network. Mid-morning, the company, the region’s most profitable telco, sent out a brief statement through it’s Twitter account; “Sorry we have a slight technical fault with the network services countrywide but the issue is being resolved.”

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Devastating effect

And at midday, the company sent out a press statement attributed to CEO Bob Collymore saying the source of the network outage had been identified and services will be intermittent while the outage is resolved. “This shouldn’t happen, it is unusual that both the main line and redundant fail,” CEO Bob Collymore later explained in a video message. “The technical team kicked into place immediately, we brought the network up temporarily but then it went back down again.”

M-Pesa handles like 78 per cent of Kenya’s mobile money transactions. Also 27.7 million Safaricom subscribers (accounting for 80.6 per cent of the voice market share) could not make/receive calls and browse the internet during the outage. Its rivals Airtel and Telkom Kenya have 6.7 million and 2.88 million subscribers respectively.

According to Communications Authority of Kenya (CA) figures, in the three months to December 2016, the value of M-Pesa transactions stood at Sh892.8 billion. This was 77.5 per cent of the total value of amount transacted by all service providers, which hit Sh1.15 billion. The figures show the extent of M-Pesa’s stranglehold of the mobile money transfer business in Kenya, meaning when it goes down, it has devastating effect on the economy.

For many, the network outage was a rare glimpse of what could happen in the event it suddenly became impossible to communicate through their mobile phones.

The industry regulator (CA) also added its bewilderment at the outage and has since given Safaricom a week to submit a report on what caused it.

“We have gotten a brief explanation but we are still waiting for a full explanation from them [Safaricom],” explained Mr Wangusi. “It took them some time to restore all services and we also want to know what sort of hitch it was and if it could have been avoided,” Wangusi said. “We cannot tolerate a downtime of one hour.”

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His words came just a few months after Treasury Cabinet Secretary Henry Rotich warned that the collapse of Safaricom’s M-Pesa service would cause widespread disruption in the economy, indicating the deep entrenchment of mobile money transactions in Kenyans’ daily lives. “Information technology accounts for about 0.9 per cent of GDP (2015) driven by financial innovation in mobile money transfer services,” explained Rotich in his Budget Policy Statement for the 2017/2018 financial year.

“The main telecommunication company driving this channel constitutes a significant share of the market as well as a significant proportion of corporate tax paid to the government,” Rotich said last year.

“Various financial products have been leveraged on this payment channel increasing the inter linkages between this technology and the banking sector. If this system was to be compromised, the impact would be substantial considering the linkages and the corporate tax revenue for government.”

Rotich further went on to caution that if the risk materialised, the impact on government including loss of deposits, loss of potential revenue and market confidence would put pressure on the Government to compensate the losses.

On Monday, this hypothetical situation became real and one restaurant owner speaking to the press about the effects of the outage summarised the frustration and helplessness experienced by millions. “I’ve had about 50 customers walk in and they say, “I don’t have cash, can I pay with M-Pesa?” and when we say the system is down they simply walked away,” said Pennina Auma, owner of Sarafina Foods, Nairobi CBD.

She further said as a result, much of the food prepared that day had gone unsold with the restaurant also unable to settle with suppliers through the normal mobile money. Safaricom’s own True Value report undertaken by KPMG South Africa in 2015 details the extent to which the economy has become dependent on the network.

“This study found that the value that Safaricom created for the Kenyan society in one year (2015) was estimated at around 10 times greater than the actual financial profit the company made in the same period,” stated KPMG in the report.

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With the firm raking in Sh38 billion in after tax profit that year, this means that Safaricom’s value to the economy in 2015 alone was some Sh390 billion. In 2016, Safaricom reported total revenue of Sh195.7 billion. The size of its clientele has made Safaricom a critical infrastructure service provider in the realm of Kenya Power and Kenya Revenue Authority (KRA) and last Monday’s network outage has seen ICT experts calling on the CA to take a more sober look at the telco’s place in the market.

Negligence or deliberate

“This matter underlines a key aspect that should trigger comprehensive assessment of the way critical infrastructure is managed in this country,” said Dr Matunda Nyanchama, an ICT consultant and head of Agano Consulting.

“Most of these competitors have common vendors and have implemented the same or similar technologies. A good example is where (say) both main and failover links for Safaricom fail; yet at the same time, Airtel/Telkom, have available links in operation. Safaricom traffic should failover to this capacity at pre-negotiated rates and vice versa.”

The CA had last month rejected a proposal by consultant Analysys Mason to hive off Safaricom’s M-Pesa. Preliminary findings into the draft report seen by The Standard indicates that Safaricom was found to be dominant on both voice and mobile money holding more than 80 per cent of the market share in both market segments.

“A downtime of more than one hour is unacceptable to us and our regulations are clear,” explained Wangusi. “If it is an act of God we cannot take action because it’s unavoidable, however, if it was due to negligence or deliberate, then we can fine them between 500,000 and 0.2 per cent of their gross turnover.”

Nigeria’s NCC and MTN last year agreed on a controversial settlement now set to pay $1.7 (Sh170billion) over the next three years. A third of what it was initially set to pay.

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