Safaricom has offered to negotiate a settlement with rival Airtel in an abuse of dominance
M-pesa is in trouble as it offers rival Airtel a truce
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.
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% market share.
Safaricom’s market share in the mobile money market stands at 73% in terms of customers (18.1 million) and 88% 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 2 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 2% and 10% 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.
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.
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