Conditions overturned in Telkom Kenya/Airtel Kenya merger in first appeal under Kenyan Competition Act
On 4 May 2020, the Kenyan Competition Tribunal (the Tribunal) overturned a number of the conditions imposed by the Competition Authority of Kenya (CAK) on the Telkom Kenya/Airtel Kenya merger. In the first appeal under the Kenyan Competition Act, the ruling sets welcome precedent in highlighting the Tribunal’s willingness to closely scrutinise the merger decisions of the CAK. In particular, as the Tribunal overturned a number of spectrum-related conditions, the ruling serves a clear warning to the CAK not to intrude in the jurisdictions of sector regulators or governmental bodies.
The CAK had opposed the Telkom Kenya/Airtel Kenya merger on the grounds that it created a duopoly in the Kenyan telecommunications sector by combining the second and third largest players. As opposed to viewing the merger as creating a stronger competitor to Safaricom as the market leader, the CAK was concerned that it would create barriers to entry to new entrants. As a result of these concerns, in December 2019, the CAK imposed the following extensive set of conditions:
- the merged entity would not sell or transfer its existing operating and frequency spectrum licences (Condition 1);
- the spectrum licences held by Telkom Kenya would be returned upon expiry of the term of each operating licence (Condition 2);
- the merged entity would be restricted from disposing any part of its business for five years (Condition 3);
- the merged entity would honour its existing contracts with the government bodies in Kenya (Condition 4);
- the merged entity would only access the fibre managed by Telkom on behalf of the Government of Kenya at the current non-preferential market rates (save for anything already agreed in an existing contract) (Conditions 5-6);
- the merged entity would ensure that ensure that at least 349 of the 674 employees of Telkom Kenya are retained for a period of at least two years from implementation of the merger (Condition 7); and
- the merged entity must submit its annual reports to the CAK going forward (Condition 8).
In the first appeal of a CAK decision to the Tribunal, the merging parties challenged all the conditions with the exception of Condition 4. In particular, the merging parties argued that Conditions 1, 2, 3, 5 and 6 should be set aside in their entirety while Conditions 7 and 8 should be restricted to a period of one year and two years respectively.
Save in relation to Condition 7 where it retained the two year moratorium of retrenchments, the Tribunal either overturned or modified the challenged conditions. In particular, the spectrum-related conditions (Conditions 1 – 2) were removed in their entirety as the Tribunal noted that measures to properly safeguard the telecommunications sector already exist and that the Communications Authority of Kenya (CA) is the body responsible for spectrum management, licencing and allocation in Kenya. In particular, the Tribunal highlighted that the CA’s approval was required for any licence transfer and that the CA could revoke any licence.
In addition, the Tribunal disputed the premise of CAK’s opposition to the merger and considered that the CAK had failed to substantiate its concern arising from the creation of a duopoly. In this regard, the Tribunal remarked that the CAK had not responded to the parties’ assertion that the merger would allow them to more meaningfully compete in the sector.
As the first judgment of the Tribunal, the ruling is welcome in highlighting the Tribunal’s willingness to closely scrutinise and challenge the substantive findings of the CAK. This credible threat of effective judicial scrutiny is especially valuable in the field of merger control where the parties, for reasons of expediency, are often reticent to challenge adverse decisions. In terms of immediate impact, the ruling serves should be seen as a clear warning to the CAK to not intrude in the jurisdictions of sector regulators or other governmental bodies.
The author would like to thank Mbali Msimang for her contribution to this blog.