A 'monopoly' is defined as 'control or advantage obtained by one supplier or producer over the commercial market within a given region. A 'pure monopoly' is where the supplier or producer is the single seller of a specific product or controls 100% of the market.
The law in Kenya has been drafted meticulously to ensure that no single business entity has an unfair advantage over its competitors and that monopolies do not kill competition. This is one of the methods employed to encourage industry growth and healthy competition among players in any market.
Some of the key challenges associated with monopolies include:
- higher prices;
- inefficiencies; and
- lack of incentives to come up with new and innovative products.
However, some advantages associated with monopolies include the ability to channel numerous profits into research and development, resulting in better products and services. Monopolies can also compete globally with competitors in a different field, as they are not subject to inefficient local competition.
There are instances whereby monopolies grow primarily by virtue of their efficiency and innovative new products. In such circumstances, a monopoly will grow as consumers approve of the products and services that are rolled into the market.
Safaricom (Kenya's dominant telecoms service provider, with a 67.4% market share) has faced challenges since the Communications Authority of Kenya proposed regulations aimed directly at declaring Safaricom a dominant player due to its control of the telecoms industry.
Under the Kenya Information Communications Act,(1) the Communications Authority can recommend punitive action against an offending party. However, the authority must prove that there has been abuse of dominance by the offending party before recommending such action. The regulations provide for checks in the form of a declaration of dominance; other market players can therefore remain comfortable conducting their businesses.
The authority intends to introduce new regulations that would significantly affect the manner in which an entity can be declared dominant. Under the proposed regulations, the authority would not be required to provide any reasons as to why an entity ought to be declared dominant.
Safaricom's chief executive officer has suggested that such a move is akin to punishing success. Safaricom acquired its dominance as a result of innovation and astute leadership.
Whereas the main aim of the new regulations is to ensure a level playing field in the telecoms sector, most critics are of the opinion that it would punish companies that have found innovative ways of securing the lion's share of the market.
The authority proposes to do away with Section 84S of the Information and Communication (Amendment) Act 2013, which requires that the authority prove any abuse of dominance before declaring an entity dominant. Such a declaration would result in a strict business environment, whereby the affected party would be forced to comply with stricter regulations.
The regulations propose that the authority would have the power to declare any entity that holds more than 50% of the market dominant. Some key stakeholders are of the opinion that such a move would be against best international practice. Certain requirements that need to be considered before declaring an entity dominant include whether a dominant position is expected to persist indefinitely and whether the Competition Act and the Information and Communications Act would be insufficient to remedy the wrong.
If the proposals are passed into law, there would be a serious outcry, especially from entities that have gained dominance through hard work and innovation rather than through dubious means. The proposal could be interpreted to mean that entities would be forced either to limit innovation and efficiency or face punitive action, a fact which could have serious implications for the manner in which business is conducted in Kenya.
Under the proposed regulations, any operator in the telecoms industry found to have abused its dominance in any way shall be subject to a fine not exceeding the equivalent of 10% of its gross turnover for the previous year and for each financial year that the breach persists.
The authority contends that the regulations are necessary to create a conducive business environment in the telecoms sector. It argues that such regulations could encourage other players and service providers to conduct business in fair competition with Safaricom.
While Safaricom must abuse its dominance to face punitive action and be said to contravene existing regulations, the other players in the industry face major challenges in attempting to match up to market power that it enjoys. This makes it difficult for them to compete, which ultimately affects the market: the big grow bigger and the small grow smaller.
The regulator argues then that the situation can be remedied only by putting in place regulations to ensure that there is a level playing field.
Consumers ought to be the beneficiaries in this situation, as guaranteed under Article 46 of the Constitution, which states that:
"Consumers have the right:
a) to goods and services of reasonable quality
b) To the protection of their health, safety and economic interests."
Care ought to be taken to ensure that the progressive nature of the Constitution is protected, particularly social and economic rights.
For further information on this topic please contact Anne Njoroge or Paul Thuo at Njoroge Regeru & Company by telephone (+254 020 261 2531) or email (firstname.lastname@example.org). The Njoroge Regeru & Company website can be accessed at www.njorogeregeru.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.