Bob Collymore, CEO, Safaricom; Adil El Youseffi, CEO, Airtel; Vincent Lobry, CEO, Orange Telkom: Interview

Interview: Bob Collymore, Adil El Youseffi, Vincent Lobry

How can usage of value-added services be raised?

BOB COLLYMORE: Kenya has an extremely vibrant technology environment, and this has done much to attract innovators and entrepreneurs to the market. Now the industry is looking to add to its traditional money transfer service, which has been the huge value-added initiative so far. By eliminating cash transactions, you can boost safety in certain professions, such as delivery services, or eliminate the ways for money to get lost in payments to the government. The opportunities and benefits are many.

ADIL EL YOUSEFFI: The success of mobile money in Kenya is an anomaly and has yet to be replicated in other countries. It caught everyone off-guard – even the banks – and it is now a major part of the economy. The next phase will see diversification within this realm and the addition of more products within the mobile money space. Besides this, other apps and voice-over-IP services are increasingly being used, but their penetration rates pale in comparison to the number of users of mobile money services.

 VINCENT LOBRY: Kenya has the most vibrant mobile money industry in the world. However, the big obstacles to growth in mobile money are the sizeable distribution networks that are necessary and the lack of interoperability among the various operators. As for other value-added services, their use is still quite limited, but growing. The sector seems to be more focused on growing its customer base, as well as on the quantity of voice and data services that are used.

What will be the likely effects of the Universal Service Fund (USF) on the telecoms sector?

LOBRY: It is important to have a strong regulatory authority that will be able to invest USF assets in a way that achieves the highest benefits possible for Kenya. USFs have met with problems in other countries when they have not been used in the correct manner. If the USF in Kenya can be utilised in a way that benefits all operators and levels the playing field, that would be a good thing. Network sharing should be pursued in order to allow investments in underdeveloped areas.

EL YOUSEFFI: There has been no impact as of yet. Infrastructure sharing will be mandated in many new areas, and if done correctly the USF will allow us to enter locations that we would otherwise not go into. All service operators will have the opportunity to offer their services in these new areas, so everyone is quite excited about the roll-out. In terms of timeline, however, it is quite unclear when it will happen.

COLLYMORE: The USF has yet to really be rolled out, but I am hoping that it will extend coverage to parts of the country that are currently not covered. While we currently have around 92% of the country covered, most of the remaining areas are those in which a commercial return is impossible. We would like to see the USF used to extend coverage into places where commercial opportunities are not really realistic.

To what extent is spectrum being used efficiently?

EL YOUSEFFI: Kenya currently does not make proper use of its spectrum. The most efficient allocation involves the regulator having an auction where the highest bidder gets the spectrum. This is especially important for key frequencies, like 800 MHz, which is the prime spectrum for 4G services around the world.

COLLYMORE: One way to ensure spectrum is properly utilised is a “use it or lose it” policy, as it is a rare commodity. For a long time, all the operators had the same amount of spectrum despite differences in the size of their subscriber bases. We recently acquired a 4G frequency, which was done using a formula that determined market value, and that is what we paid. And also, this is not the only spectrum available.

LOBRY: As is done in other countries, spectrum in Kenya should be allocated through a transparent and open system, such as public tenders, where spectrum goes to the highest bidder. Not doing this in Kenya could cause issues later in terms of market sustainability, especially for the 4G market’s development.

What impact will the entry of new mobile virtual network operators (MVNOs) have on tariffs?

COLLYMORE: I do not see this having a big impact on tariffs, though I think it is good for the market. I see MVNOs targeting some niche markets, as they have done in most parts of the world. As for competition, I think having a single large player is not sustainable in the long term. However, I am a firm believer that Safaricom’s market strength is not determined by an abuse of that position: it is determined by investment. Market dominance is not in itself a bad thing, whereas abuse of that dominance would be a terrible thing. We would like to understand how to define an abuse, and what the penalties are for this. I do not think that in being declared dominant you should automatically be penalised. To do so discourages success.

LOBRY: The effect of new MVNOs will be marginal because tariffs are already very low. MVNOs may only be successful in niche markets. A big issue in Kenya is that to maintain market position, non-dominant operators are obliged to have lower off-net tariffs to keep their prices competitive, making it a challenge to remain profitable. This dynamic is more pronounced in mobile money. Anyone who wants an M-PESA account must have a Safaricom SIM card – and since M-PESA is essentially the country’s second currency, most people do. So instead of trying to be the only SIM, we are pushing double-SIM phones, the goal being to provide voice and data services alongside M-PESA. But in the long term it is very difficult to compete against a dominant operator without a clear and fair regulatory scheme, and the current state of the market is not sustainable in the long term.

EL YOUSEFFI: Some see the entrance of MVNOs like Equitel as a sign of a healthy market, but their entry is driven by the need to maintain market share in segments like mobile money. Kenyan regulators need to step back and decide what the purpose of mobile operators will be in this country. If we are saying that mobile services will be the gateway to banking, internet, education, health, security and so on, then a huge chunk of the economy will depend on mobile providers. Operators will become strategically important, meaning the market needs to be more regulated. The telecoms sector in any country can require corrective measures; that is why there is market intervention. The purpose is not to punish success, but to ensure that other market players are economically viable.

What scope do you see for increased infrastructure sharing among operators in Kenya?

LOBRY: Coverage is a major challenge for operators. We work with the other operators and use their infrastructure through commercial agreements, but it still is challenging in terms of the bottom line and is something the government should look at regulating. We believe infrastructure sharing offers a valuable tool to the regulator, and they should consider enforcing non-commercial cooperation. National roaming should also be envisaged, under fair regulation.

EL YOUSEFFI: Today, there are regulations around infrastructure sharing, but it is not mandatory. The country already has a sizeable fibre and telecoms infrastructure network, and it would not be economically efficient to build our own network right next to existing infrastructure. The regulator should compel players to share infrastructure at cost plus, to ensure that they still make a return on their investment but to also ensure fair competition in the market.

COLLYMORE: Infrastructure sharing is already present in the market and based on commercial deals. The opportunities are there, and if our competitors want to accept it then they can. For example, we have a formula to share the 800 MHz spectrum, and we have made 30% of it available to other operators.