Kenya Minister Opposes Regulations to Break Up Vodafone Unit

  • Government wants to encourage innovation, grow companies
  • Regulator reviewing report that declared Safaricom dominant

Kenya’s government opposes using regulation to force East Africa’s biggest mobile operator Safaricom Ltd. to be broken up, after a draft study found the company is dominant in the country’s telecommunications industry, Information, Communications and Technology Secretary Joseph Mucheru said.

The government disapproves of measures that would stifle innovation as it wants companies to expand by investing in new products and technology, Mucheru said in an interview Friday in the capital, Nairobi. The country has existing laws that can be used to stimulate competition without having to introduce new regulations, he said.

A draft report by U.K. advisory group Analysys Mason, commissioned by Kenya’s regulatory Communications Authority, found that Safaricom is a dominant player in the mobile-money and mobile communications sectors and stated that, unless steps are taken to improve competition, the company should be broken up. Analysys Mason declined to comment, referring all queries to the regulator, which said it’s reviewing the study as it considers steps to enable Safaricom’s rivals to compete better. Safaricom is 40 percent owned by Newbury, England-based Vodafone Plc.

“As the government, we do not support regulation that splits companies based on innovation,” Mucheru said. “To say that any company that innovates something -- they are likely to be penalized by law -- I believe, is unfair.”

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Kenyan opposition lawmaker Jakoyo Midiwo last month proposed introducing a law to force Safaricom to be split, a plan that Chief Executive Officer Bob Collymore called “plain stupid.” The company hasn’t yet responded to an emailed request for further comment.

Safaricom is Kenya’s biggest mobile provider with a 69 percent market share, according to the Communications Authority. Its closest rival is the national unit of Bharti Airtel Ltd., with 17.5 percent, while it also competes with Helios Investment Partners LLP-owned Telkom Kenya. Safaricom’s M-Pesa mobile-banking product is also a significant market leader, processing about 851 billion shillings ($8.2 billion) of transactions during the third quarter last year, about 79 percent of the total value of mobile-money transactions in Kenya.

About 17.6 million Safaricom customers use M-Pesa, more than a third of the country’s 46.8 million population. The platform allows users to buy groceries and pay utility accounts, while enabling people in remote rural areas who don’t have access to financial services to send and receive money using only their mobile phones.

The Communications Authority, which falls under the ICT Ministry, expects to publish the final version of the Analysys Mason report in two months, after it’s been reviewed by licensees and Kenya’s antitrust authority, the regulator said by email on Friday. Airtel Kenya has previously asked the regulator to break-off Safaricom’s mobile-money unit and allow it to be run by an independent entity to foster greater competition.

‘Punishing Innovation’

“It would be a shame if we now started punishing innovation by just legislating without taking into account our future and where we want to go in a more globalized market,” Mucheru said. “I believe that is a decision that a board and company can take. It does not have to be taken through regulation.”

Safaricom shares were down almost 1 percent by close of Monday’s trading session, the sixth consecutive fall. At 16.75 shillings, their lowest level since April 13, the company is valued at $6.5 billion. By comparison, MTN Group, Africa’s biggest mobile-phone company, has a market capitalization of $17.7 billion.

Breaking up the company risks “untold consequences” for Kenya’s financial system, Linus Gitahi, chairman of Nairobi-based brokerage AIB Capital Ltd. said in an opinion article published in the local Daily Nation newspaper on March 1.

“M-Pesa is a critical nerve supporting the money transfer system,” he said. “Ripping away M-Pesa from Safaricom would leave both in severe distress.”

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