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February 23, 2019

Safaricom Must Avoid Monopolistic Tendencies

Safaricom, the listed telecommunications provider, this week continued its amazing journey, announcing that in just six months, it generated Sh61billion in revenues or Sh10billion a month. That works out to well over Sh300million daily!  After paying for its expenses, the company found itself with over Sh10 billion in cash that it could choose to give to shareholders or donate to charity without affecting its operations. That is called free cash flow.  This is the result of hard work, smart investments in technology and people and a drive to excel.

It is what has seen it become the most profitably company in the region and the largest taxpayer.  It is also undisputedly, the dominant telecommunications provider with monopoly like numbers in all categories it does business in except fixed internet.  Businesses have thrived of it; over 78,000 Mpesa agents countrywide, dealers, suppliers, banks and so on.  But in as much as it has trail-blazed in so many areas, Safaricom must also remember that quite a good number of great minds reside outside of its premises.

  These are innovators who either because they don’t work for Safaricom or have not been offered the chance, develop their own products that many Kenyans can find useful and innovative.  The fact that they ride on Safaricom’s ecosystem does not mean that Safaricom can crush them whenever it chooses. 

A recent example is when an IT firm OnFon Media developed a system for trading Bonga points, the points that accrue to a Safaricom user when they load and use its airtime under a loyalty programme.  They can be looked at as being similar to Nakumatt’s or Uchumi’s points for loyal customers.  For Safaricom’s Bonga points, one can redeem them for various items including phones, tablets, airtime and so on.  What OnFon did was develop a trading platform with the code *981*400# for these Bonga points where they would buy them from users for 20 cents and sell them to buyers for 35 cents.  Trade had been brisk until Safaricom shut down the code.  Now it is well within their right to withdraw their loyalty programme but that shutdown is anti-innovation. 

First of all as some contributors on online forums have pointed out, the Bonga points do not belong to Safaricom but to the person who has accumulated them through regular purchase of its airtime.  Secondly, it is the right of its subscribers to share these with friends as they wish, they could even trade them. 

Let us not forget, that as much as Vodafone likes retelling the story of how it invented Mpesa, it was because of people sharing airtime or sending voucher PIN numbers to their relatives at home who would redeem these at the local shopkeeper for cash (discounted of course) that the concept of transferring money over the network arose.  I personally remember my sister sending me airtime in 2005 which I converted into money from remote Marsabit. She was in Mombasa.

This is a full two years before Mpesa pioneered.  Likewise, Kenyans have seen an opportunity to trade in these Bonga points. That is innovation. It should be encouraged not snuffed out. Likely, it was not just Safaricom’s but also Nakumatt’s and any other loyalty programme out there that OnFon eventually wanted to trade for the simple reason, it had identified a need and innovated technology to address it. 

At this point, I would like to recall the case of the break-up of AT&T in 1984 by the US Department of Justice.  Although it resembled and acted like a monopoly, that was not the main reason it was broken up. It was broken up because it was stifling technology.  Many innovators would come up with products that needed the pervasive AT&T network to function and it would lock them out. 

One example is the magnetic tape that was developed to work in answering machines that callers could leave messages on. Scared people might shun the telephone for being recorded, AT&T shut down the research which produced a product that would go on to revolutionize the music, video and IT industry.  Only such revolution came decades after the original development in 1934.  Similar tendencies have tended to be seen in Mpesa. Despite handling a good chunk of Kenya’s GDP (Mpesa transacts Sh94billion every month), this system remains largely closed to outside innovators. 

Like the pipeline it is, once Know Your Customer (KYC) rules are established, it should pipe my money to its destinations without further discussion. This is what banks also do. If I am selling charcoal or illegal game meat, the technology should work to only ensure my transactions are accurate not to know how much profit I make and from where.  It is thus not feasible that any innovator who has a great online product and wants to use Mpesa to transact should first discuss this idea with Safaricom and even agree on profit sharing.

It should only offer a neutral payment system that the innovator can use alongside other payment systems like the banks and cash over the counter.  Just like Safaricom when using Huawei technology and IBM servers to run its businesses has no obligation to share its gigantic profits with them for enabling it earn them in the first place, it equally should not share in profits of an innovator who is merely using its platform to sell services.

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