Implementation of the Kenya Communications Act and Associated Regulations

Although the Kenya Communications Act (1998) was aimed at liberalizing the sector, it still conferred discretionary authority to the Minister responsible for Communications on when different sub-sectors would be introduced. For example, the exclusivity period of 5 years granted to the incumbent operator Telkom Kenya Ltd, means that full liberalization was going to take at least 5 years to be achieved. Similarly, the duopoly status of the mobile operators was not allowed by KCA 1998.

Some of the major aspects of the KCA (1998) that were only partially implemented have been identified in Table 4.2 below. The second national operator (SNO) license is yet to be issued almost 9 years after the KCA (1998) was operational.

Table 4.2: Examples of part ial implementations of KCA 1998

The Act The Reality Comment

Full-liberalization 5 year -Exclusivity of TKL for period 1999-2004

Time to change from monopoly;

tariff rebalancing period

No monopoly or duopoly Mobile operator duopoly Licensing of 3rd Mobile operator delayed

Price regulation for monopoly services

No leased line or Internet bandwidth price regulation of TKL

ISPs won the appeal in June 2004

Transparency of tariffs Transparency requirement not enforced

Lack of transparency distorts competition

Source: Author Analysis

The monopoly status of the fixed telecommunications operators was a major barrier to the growth of Internet usage. For example, the digital leased line network necessary for Internet services has had limited reach because of lack of investments. Consequently, the leased line prices have remained relatively high for the period since 1999. Figure 4.1 shows the prices of digital (64kb/s and 2 Mb/s) lines during the monopoly period from 1999-2004. During this period, it is noted that the prices were not falling in any significant way. In February 2007, the incumbent operator reduced the digital leased line prices by 50 percent because of competition from other licensed leased line providers that emerged after the monopoly period.

Figure 4.1 Prices of digital leased line by the incumbent operator

Source: Internet Market Analysis

Most of the leased lines are still concentrated in Nairobi (80 percent) and there is very limited geographical dispersion of Internet services as shown in Figure 4.2 below. Lack of full competition and incentives for extending services to other urban centres and rural areas has led to the limited growth of Internet services. However, mobile operators currently covering about 80 percent of the densely populated areas of Kenya have introduced mobile dial-up Internet services, which are expected to increase the geographical dispersion of Internet services in the country.

Figure 4.2: Geographical dispersion of leased lines in Kenya

2.4

Source: Kenya Internet Market Analysis Study 2006

Another factor that has contributed to the high Internet tariffs in Kenya, especially for leased-line based Internet services required by businesses and institutions (e.g. health and educational institutions), is the licensing regime adopted by the Regulator which has created a hierarchy of Internet access providers as shown in Figure 4.3 below. This figure depicts how

Kenstream digital leased line tariffs

the institutional structure contributes to increases in the cost of Internet services to end-users without adding value. In fact, the quality of Internet services is reduced because of the large number of customers who share the satellite bandwidth. Moreover, there is a large variation in the International bandwidth prices ranging from $625 per megabytes per second (Mb/s) to over $3,000 per Mb/s. The average International purchase bandwidth price is $2,200 per Mb/s, which means that the dominant Internet gateway operators are still purchasing bandwidth at about 3 times the minimum cost of $625. These high costs are passed on to the customers at a profit without any significant value addition and can only be reduced with increased competition of International gateway operators. It is noted that the average price of a low-quality 1 Mb/s Internet connection to an end-user is $5,200³². It is therefore clear that the licensing regime has a large effect on quality and price of Internet bandwidth to the end-users. (See Figure 4.3 below).

Figure 4.3: Hierarchy of Internet access providers

Source: Kenya Internet Market Analysis Study 2006

CCK also introduced the Kenya Regulations in the year 2001. This was the subsidiary legislation that is used to regulate prices, interconnection charges, and competition in the telecommunications sector. Although the regulations state that any monopoly services are subject to price regulations, the prices of digital leased lines were never regulated during the monopoly period. It is observed that this had a huge impact on growth of Internet services in Kenya because most small businesses found it expensive to have a leased line connection.

32 See the Kenya Internet M arket Analysis Study 2006 for more details.

Another example of partial implementation of regulations was the requirement in the KCR 2001 regulations that the dominant operator in the communications sector be gazetted. This has not yet happened despite the fact that one of the mobile operators is clearly the dominant operator by virtue of revenue generated. This has affected the way interconnection charges are established because the dominant operator is required to use only cost-based interconnection charges. Table 4.2 above highlights some of the important aspects of partial implementation of the Kenya Regulation of 2001. It seems obvious that the partial implementation of both KCA 1998 and KR 2001 have had a negative impact on the growth of telecommunications services and especially Internet services and applications.

In addition, partial liberalization had left mobile tariffs unchanged for a long period until 2003 as shown by Figure 4.4 below. The 2006 tariff data suggests that mobile charges are starting to fall due to changes in interconnection agreements and the planned licensing of the second national operator, which was expected in January 2007.

Figure 4.4: Trends in Mobile Tariffs in a Duopoly (Mobile Phone price of 3 –minute local call off -peak in US$)

Source: ITU Telecommunications Database 2006

4.4.3 Convergence of computing and telecommunications and Kenya ICT Policy