Kenya Must Not Separate MPESA From Safaricom; Platforms Thrive On Dominance

Kenya Must Not Separate MPESA From Safaricom; Platforms Thrive On Dominance

It is a big irony: digital dominance delivers better value to customers. Yes, the fact that Facebook has many users is the very reason it is valuable to people. Go and build a better technically superior version of Facebook, many would not care unless you can onboard many people in it. It is an elemental component of the Internet which is driven by the positive continuum that more users deliver better experience, and that leads to more users. Simply, Facebook’s best feature is that it has many people in it. Remove the people, it has no business.

It is under this same construct that I make a case that breaking MPESA from Safaricom in Kenya will hurt MPESA users. The fact is this: MPESA is immensely useful because the telecom company which powers it has many users. That is why MPESA is successful. Safaricom controls 67% of the market, Airtel has 19.7%, Telkom holds 8.6% and Equitel is at 4.4%, according to the Communications Authority of Kenya latest stats.

Ever since Analysys Mason released a report recommending that Safaricom is declared dominant and its mobile money entity separated from its core business, Kenyan telcos have been pushing to have these recommendations or at least part of them implemented.

It has been reported that Telkom, Airtel and other telcos have separately lobbied Member of the National Assembly to push for an amendment to the Kenya Information and Communications Act to declare any telecom with more 50 percent market share is declared dominant.

“We are in a situation where one player has a market control of 65 per cent, bigger than all the other players combined. It is unfair for the rest who are seeing diminishing revenues and can hardly keep up operations,” said Prasanta Das Sarma, Airtel Kenya’s CEO when he appeared before the National Assembly’s ICT committee.

The Kenyan government is right: there is no need to punish MPESA/Safaricom because what they are doing is not necessarily going to hurt consumers. If the competitors want to win, let them innovate and find new categories to dominant. But asking for the break-up of MPESA from its parent is not the best path.

Provided MPESA and Safaricom are not involved in any abusive tendencies in the markets, Kenya should not break them. Moving MPESA from Safaricom will make it harder for MPESA to innovate and evolve. It will be the same thing as separating iOS from iPhone hardware (in Apple) where one company makes iOS and another one makes the hardware. The reason MPESA is a category-king product in the business is because of the close affinity with the operator which ensures that solutions are delivered at the highest quality and user experience.

Competition in Digital Platforms

The way digital platforms work makes them special. They all tap into the duality element where they are both products and platforms. The value comes from the dominant market share they have and the ability to build moats preventing competition. If you want to make them operate as industrial age companies like Unilever, P&G, and Pepsi with regards to competition, you would run into trouble as you will mess them up. Yes, you will take away the very reason why customers like them. Also, their dominance can be ephemeral and very tangential – new apps can easily emerge.

Because of this inherent platform-element, these great companies have duality in their natures: they are both products and platforms at the same time. Facebook has an app (web and mobile) which is a product. That app is also a platform which enables other applications (including 3rd party apps like WordPress plugin) to be built upon.

You want to have many options for users to buy soaps in the markets, making sure one company does not dominate in that physical product. The fear is that if you have only one brand, prices will go up, and users will be hurt as the company may not invest on innovation. Also, in a case of controlled products like electricity where government gives licenses to utilities to provide services to users, the prices are regulated to avoid the utilities which are local monopolies, from increasing them arbitrarily since choices are limited. Utilities need the quasi-monopoly to invest on infrastructure which can only be recouped over decades.

But for digital platforms like MPESA, Facebook, LinkedIn, Twitter and Instagram, you cannot apply the same principles. While buying soap in a market is not influenced by the number of people buying at the same time, using any of these digital solutions is dependent on others using them. So, if you break MPESA from Safaricom which supplies the users, you have destroyed the soul of MPESA. Not many people care about the name. They only know that more value will come because everyone is on Safaricom.

The key to innovation here is that if MPESA has won the specific flavor of mobile money, others should go and pivot something new. There are many things still out there (like blockchain money) which are yet to be invented or perfected. Possibly, they would find a niche and dominate there. They cannot use regulation to win in this way. That is why Kenya should not touch the MPESA/Safaricom alliance. The only losers will be the users.

My point is based on the U.S. interpretation of competition where the focus is on users. For example, if there is only one company that offers a service and users are not hurt, U.S. government will not be concerned. But in Europe, competition is looked from the angle of market players where even though users are not affected; the region wants other companies to have a share in the game. Technically, even though you are taking good care of users, you may need to reduce the goodies to accommodate other industry players. I do think the Europe’s model is faulty in the digital world. I prefer the American model: if you win, and continue to be fair to users, enjoy the benefits. Others can go and find new spaces and dominate. That is how innovation advances.

All Together

The Kenya government is correct by reminding the players that it cannot help them by breaking MPESA from Safaricom. Airtel and others should innovate and pioneer new areas of mobile payment, transfer, remittance, etc. MPESA pioneered the current framework of mobile money, and must be allowed to enjoy the fruits of its efforts provided it is not abusing the dominance by hurting users.

“We are a free market where the market corrects itself naturally without government intervention. Why would you want Parliament to punish success when one player is doing better than the rest of the telecommunications firms?” asked Mr William Kisang, chair of the National Assembly’s ICT committee.

He went further to address Airtel, telling the CEO that they need to invest more in things like a clearer network, better mobile money services and anything else that will attract customers to them before demanding regulations.

Mr Kisang said it all well: find your own path. There are many things yet to be invented in the Kenya telecom sector. Do not punish success and innovation with mindless regulation.


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