Business News

By Prof. Timothy Mwololo Waema

Executive Summary

(See full report at: 2007-kenya-telecoms-sector-performance-review)

This report reviews the status of the Information and Communication Technology (ICT) sector in Kenya in 2006. The report of the study is an update of a similar review carried out in 2003, which covered the period 1999 to 2003. This earlier review focused on the telecommunications sub-sector. The review on which this report is based covers the whole of the ICT sector and goes up to 2005, and 2006 where data was available. The study was carried out under the framework of ResearchICTAfrica! (RIA!) Network and the approach is similar to that adopted in the sector review of 2003. The data collection involved review of relevant second­ary data, review of websites of relevant organisations and targeted one-on-one interviews with experts and managers in the ICT sector in both public and private institutions. The data collected was analysed and forms the basis of this report.

The deregulation of the communications sector in Kenya was initiated by the 1998 Kenya Communications Act (KCA). The KCA repealed the Kenya Posts and Telecommunications Act and provides the current framework for regulating the communications sector in Kenya. The Act unbundled Kenya Post and Telecommunications into five separate enti­ties including Telkom, the fixed line operator; the Postal Corporation of Kenya (Posta); the regulator, the Communications Commission of Kenya (CCK); and the National Communications Secretariat (NCS). It also cre­ated an Appeals Tribunal for the purposes of arbitration in cases where disputes arise between parties under the KCA.

The key institutions that influence ICT policy formulation and imple­mentation are the Ministry of Information and Communications, CCK, NCS, Appeals Tribunal, E-government Directorate, Government IT Ser­vices, Parliamentary Committee on Energy, Communications and Public Works and Monopolies and Prices Commission. In general, ICT respon­sibilities are still distributed between different arms of the government, with little, if any, coordination.

“The Communications Commission of Kenya has been fairly successful in introducing competition in most market segments. For example, the following are the licensed operators in different markets; 1 national operator, 2 regional telecommunications operators, 51 Internet service providers, 2 Internet exchange points, 20 public data network opera­tors, 8 Internet backbone gateway operators, 6 VSAT hub/commercial VSAT operators, 19 local loop operators, and 2 mobile operators. The operational operators and service providers represent a signifi­cant investment in the economy, a big employer of ICT staff and a major contribution to national development. In the last year, for example, in 2005/2006, the Transport, Storage and Communications sector con­tributed 10.9% to GDP. A significant proportion of this came from the communications sub-sector.”

As a summary of the performance in the various ICT services, the fixed-line network has largely stagnated, with a decline in subscribers from 2002/2003 to 2004/2005. There has also been stagnation in the number of rural connections, which remain on average at 5% of the total connections. Although the first mobile operator was only licensed in 1997, the mobile network surpassed the fixed network in 2000/2001 and has since then experienced phenomenal growth. By 2006/2007, the mobile network was over 20 times the size of the fixed network, with a mobile teledensity of 19.42. Although mobile services are more expensive than fixed services, in order to access communications services or enjoy the benefits of mobility many people have opted for this “premium” service. This may be attributed to the relatively better customer service, the ease with which connections are obtained and the relative reliability of the mobile networks. Internet services have not experienced the kind of growth experienced in the mobile segment of the market, despite sustained liberalisation in the Internet market. With over 50 licensed ISPs and many other categories of operators get­ting into this market, the amount of Internet bandwidth and the num­ber of Internet users has remained relatively low. The Communica­tions Commission of Kenya is currently carrying out a survey to establish why the situation is as it is, but an obvious reason must be the low fixed-line penetration for dial up services and the relatively high cost of sustained usage.

Tariffs in the various services have remained relatively high despite the competition that has been introduced by the regulator. This signals the fact that the introduction of competition may not be an adequate regula­tory mechanism to bring down costs. Other regulatory environment chal­lenges identified were lack of tariff regulation, scarce resources for investment, high interconnection charges and lack of mechanisms to protect the consumer.

In summary, the following are the achievements that the current govern­ment has realised in the ICT sector against planned interventions as per the Economic Recovery Strategy for Wealth and Employment Creation (2003-2007):

INSTITUTIONAL FRAMEWORK

The key arms of government that deal with ICT were merged into one ministry (Ministry of Information and Communications). However, there are still other arms of government that in one way or another deal with ICT and are in other ministries with little or no coordination. In addition, there has been restructuring of ICT in government, by the creation of ICT units in ministries and the establishment of an Inter-Ministerial Commit­tee to mainstream ICT in the government’s operations. However, struc­tures for coordinating and managing national ICT programmes and proj­ects have not been created.

ICT POLICY

A first national ICT policy was approved in January 2006 and came into effect in March 2006. There was significant participation and influence by the private sector, civil society and non-governmental organisations in the finalisation of this policy. However, the strategy for implementing the policy has not yet been drawn up.

E-GOVERNMENT STRATEGY

An E-government strategy was launched in 2004 but its implementation has been limited and slow.

DUTIES AND TAXES ON ICT

Customs and excise duties and taxes on computers were removed but all duties and taxes on other categories of ICT are still in force.

COMPETITION IN ICT MARKETS

The regulator has been fairly successful in introducing competition in most ICT markets. However, the fixed-line business is still dominated by Telkom Kenya while the cellular mobile market is still a duopoly. This is because of the problems in licensing the second national operator and the third mobile operator respectively. In addition, restructuring and privatization of Telkom Kenya has faced many obstacles and is yet to be finalized.

E-COMMERCE

There is very little in terms of e-commerce in Kenya, largely because of the lack of an appropriate legislative framework. The new ICT policy has committed to creating an enabling environment for e-commerce.

In conclusion, the Kenyan regulator has continued to liberalise the telecommunications sub-sector with a certain degree of success. The mobile telephone market in particular has performed extremely well while the fixed-line sector has not grown in the last five years. Compe­tition has been introduced in most market segments and the quality of services has generally improved. However, most stakeholders in the industry perceive the costs of services as very high, especially mobile telecommunication services. Unreliable and slow Internet connections also impact negatively on this market segment. Operating costs of mobile service providers are also high due to poor infrastructure and high cost of electricity and related taxes. The implications and real impact of telecommunications liberalization in this market segment still need to be quantified.

This review recommends that the process of privatization of Telkom Kenya be hastened to pave the way for the revitalization of the national telecommunications backbone infrastructure, particularly as the second national operator will be licensed and as the regulator plans to give uni­fied licenses in early 2007, effectively increasing competition in most markets. This is partly in line with international precedent which sug­gests that while attracting investors and securing a high price for the sale of the incumbent are often gained for a monopoly provider, greater gains are achieved in the longer term for users and consumers with the introduction of competition prior to privatization.

The study also recommends that the regulator implements reforms that address the high user and interconnection tariffs. We also recommend that the government develops and implements the detailed plans from the national ICT policy that came into effect in March 2006. Key plans to be implemented are universal access plans to ensure accessible, avail­able and affordable telecommunication services in the rural areas.

Prof. Waema can be reached at waema@uon.ac.ke

Click here for the full report: 2007-kenya-telecoms-sector-performance-review