Vodafone Slams Proposed Split of Kenyan M-Pesa as `Ridiculous'

(Bloomberg) -- Safaricom Ltd, East Africa's biggest mobile-phone company, would have to reconsider future investment in Kenya if proposals to break up the company are implemented, the head of mobile money at parent Vodafone Plc said.

The company 40 percent owned by Newbury, England-based Vodafone was found to be Kenya's dominant carrier in a draft report by U.K.-based advisory group Analysys Mason. The study was commissioned by the Communications Authority of Kenya to check whether the market leader had abused its position.

The report recommends Safaricom opens up its mobile-money platform known as M-Pesa to transfers from competitors' services at prices determined by the regulator. Separately, Kenyan opposition lawmaker Jakoyo Midiwo is also proposing a law to force a Safaricom split, a plan that Chief Executive Officer Bob Collymore has called “plain stupid.” 

The proposal is “inconceivable thinking,” said Michael Joseph, Vodafone's director of mobile money, who founded the decade-old service when he was Safaricom's chief executive officer.

“If you say it's a 100 percent subsidiary of Safaricom, the M-Pesa Company has to buy services from Safaricom because of the tax implication; value added tax, inter-company taxes, Competition Authority regulations,” Joseph said in a phone interview Monday. “If you have to make these investments and everybody benefits including your competitors, you probably won't make that investment, you'll think very carefully about them.”

Depending on how the split is executed, M-Pesa may have to buy services such as Unstructured Supplementary Service Data, or USSD, from its parent at market rates, which would push up the cost of making transfers, Joseph said.

“The whole idea that you want to split a company up because it is successful to me is just completely ridiculous,” he said, referring to the lawmaker's proposal to break up the company. “You are punishing success. Why would you do that?”

Free Market

Analysys Mason has declined to comment on its report, which is yet to be finalized. The Communications Authority, which regulates the industry, said last week it's reviewing the report before releasing it to the public.

Safaricom is Kenya's biggest mobile provider with a 69 percent market share, according to the regulator's statistics. Its closest rival is the national unit of Bharti Airtel Ltd., with 17.5 percent, while it also competes with Helios Investment Partners LLP-owned Telkom Kenya.

The Kenyan government doesn't support regulation that stifles competition or forces companies to split based on their innovation, Information, Communications and Technology Secretary Joe Mucheru said last week.

Safaricom shares have fallen for seven consecutive sessions to the lowest level since March 21, according to data compiled by Bloomberg.

“I don't know why you need a regulatory intervention in a free-market economy,” Joseph said. “I cannot see why you need to have regulations for a guy who cannot be successful because they have never invested.”

To contact the reporter on this story: Bella Genga in Nairobi at bgenga2@bloomberg.net.

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura-Mwaura, Pauline Bax