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Midiwo amendment seeks to push telcos to split business

Gem MP Jakoyo Midiwo has proposed changes to the telecoms law that if passed would see telecommunication companies face stricter regulation and apply legal pressure on authorities to split Safaricom.

Mr Midiwo on Wednesday issued a notice of intention to introduce amendments to the Kenya Information Communication Act (KICA), which will require mobile phone operators that venture beyond telecommunication services to split their businesses.

“In addition to operating a telecommunication system or providing a telecommunication service… a person may engage in any other business provided that such person shall legally split or separate the telecommunication business from such other business,” the proposed amendments say.

Such a split would require the operators to have different accounting systems for each business, besides forcing industry regulators to issue different licences for each line of business.  

If passed, companies would have six months to comply with the new laws. Those that fail to comply would face fines of up to Sh10 million and/or imprisonment of top management for up to two years.

KICA defines telecommunication services as the conveyance of sound, images and data through electromagnetic, magnetic, electric or electro-chemical energy.

Depending on legal interpretation, Mr Midiwo’s proposals may lock out mobile money from the definition of telecommunication services, meaning that operators would need a separate licence, most probably from the Central Bank.

Mr Midiwo was, however, prevailed upon by fellow MPs to withdraw the proposals — seen to have far-reaching implications — for further consultation before a substantive Bill is drafted.

The MP had earlier indicated that Safaricom was his target.

In an interview with Reuters last week, Mr Midiwo said he would introduce amendments to banking and communication sector laws that would force the separation of M-Pesa from the rest of Safaricom business.

This is only the latest push to split Safaricom, coming a week after a leaked draft report on telecoms sector competition showed that the consultants had recommended the separation of M-Pesa from Safaricom unless the mobile money sector achieves interoperability by the end of year.

The Communications Authority of Kenya (CA) had hired Analysys Mason to study and compile a comprehensive report on the competitiveness of the telecoms market amid rising concerns that Safaricom’s dominance of the market is stifling competition.

The local telecoms sector has been punishing for smaller operators, forcing some such as India’s Essar to exit Kenya after years of non-profitable operations. The two other operators, Airtel and Telkom Kenya, are still operating in the red.

READ: Treasury report reveals fears over M-Pesa’s critical role in economy

Safaricom has been critical of proposals to split its business, arguing that they would introduce inefficiencies through duplication of support services. 

The telecoms operator also thinks that the government lacks authority to enforce such changes in a company’s structure.

Safaricom rival Telkom Kenya, which has in the past called for a levelling the playing field, yesterday took exception with Mr Midiwo’s proposals, arguing that they are not in the best interest of mobile operators, who are increasingly diversifying their products.

“This proposal therefore would not be in line with international best practice, taking into account the dynamics in this sector,” said Telkom Kenya.

Safaricom CEO Bob Collymore said: “It is impossible to form an opinion on what Jakoyo Midiwo wants to achieve with this push. Given the paucity of logic in what he is demanding, we have to ask what his real motivation is and the reasons behind this”

The company also said that if contributes hundreds of thousands of jobs to the economy and “will continue to transform lives”

Airtel Kenya did not respond to queries on the subject. Apart from mobile money, a range of services could fall within the purview of Mr Midiwo’s proposed law.

Kenyan mobile operators have been straying further and further away from traditional voice telecommunication revenue stream.

Safaricom has in the past indicated that it no longer considers itself purely a mobile service provider.

Airtel Kenya provides insurance services while Safaricom’s M-Tiba lets subscribers save money for healthcare. More recently, operators have also made millions from rising popularity of digital betting – another area of concern for Mr Midiwo.

He is, however, expected to meet stiff opposition given the recent pushback against any proposals to split Safaricom. ICT secretary Joe Mucheru at the weekend said the proposal was akin to punishing a company for its innovativeness.

This is a view that has been shared by some analysts. Although they’ve pointed out that a forced split would hardly be a death knell for Safaricom, Exotix Partners and Equity Investment Bank have in a new research note argued that targeting Safaricom would be counterproductive.

“… it will send a negative message, not only to innovative and successful Kenyan businesses that will have no incentives to improve and increase their market share,” Exotix Partners and Equity Investment Bank said in a research note. The research note also said that there must be evidence that Safaricom is abusing its dominance in the market before any action is taken. CA director- general, Francis Wangusi, on Monday said that the Analysys Mason draft report still has many stages to go before implementation.

Splitting the Safaricom business, he said, would be a “last resort” to dealing with concerns about lack of competition in the market. He said the CA’s “legal team was studying the Midiwo amendments” for their implications on the regulatory environment.

Apart from the recommendations directly relating to mobile money, the draft report by Analysys Mason also proposed tighter regulation of Safaricom promotions and loyalty programmes as well as greater levels of infrastructure sharing in marginalised counties.

Additional reporting by Edwin Mutai.

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