KENYA’S COMPETITION TRIBUNAL’S DEBUT REVIEW APPLICATION

By Cynthia Waweru,Joyce Karanja Friday, March 06, 2020
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In December 2019, the Competition Authority of Kenya (the Authority) conditionally approved the merger between Telkom Kenya Limited (Telkom) and Airtel Networks Kenya Limited (Airtel) (together the Parties) (the Transaction). The Parties have since applied to the Competition Tribunal (the Tribunal) to have the Authority’s decision reviewed. This marks the Tribunal’s first review application since its establishment in 2017. The current members of the Tribunal were sworn in June 2019. Airtel and Telkom, as the second and third largest telecommunications companies respectively in Kenya, are merging in an effort to offer better services to their customers and compete effectively against Kenya’s telecommunications market leader, Safaricom. The Parties will merge their mobile, enterprise and carrier services in Kenya through a joint venture known as Airtel-Telkom.

The Authority approved the Transaction on the following conditions:

  1. the merged entity shall not sell or transfer certain operating and frequency spectrum licences within the remaining duration of the said licenses;
  2. upon expiry of the term of the merged entity's operating license, the spectrum in the 900MHZ and 1800MHZ acquired from Telkom shall revert back to the Government of Kenya (GoK);
  3. the merged entity, including any part of it, is restricted from entering into any form of sale agreement within the 5 years. However, in the event of any indication of that either party [to the merger] is no longer a going concern within the period, the Communications Authority of Kenya shall conduct a forensic audit at the cost of the merged entity;
  4. the merged entity shall honour all the existing contractual terms with GoK entities.
  5. the merged entity shall only access the 4,204 kms of fibre managed by Telkom on behalf of GoK at the current market rates and no preferential rates shall be accorded to them unless as provided for in existing contracts;
  6. the merged entity shall not enjoy any preferential access to use capacity on 4,204 kms of fibre managed by Telkom on behalf of GoK;
  7. the merged entity shall ensure that at least 349 of the 674 employees of the target are retained as follows:
    1. 120 employees by the merged entity for a period of two (2) years from the date of the implementation of the merger;
    2. 114 employees by Telkom Kenya Limited for a period of two (2) years from the date of the implementation of the merger; and
    3. 115 employees to be absorbed by the network partners of the merged entity (collectively, the Employment Condition); and
  8. the merged entity is required to annually furnish the Authority with a detailed report on compliance with the above conditions (the Compliance Condition).

The Parties have applied to the Tribunal to have conditions (i), (ii), (iii), (v) and (vi) above set aside in their entirety. With respect to the Employment Condition, the Parties have requested the Tribunal to have the retention period of employees of Telkom reduced to 12 months from 2 years. With respect to the Compliance Condition, the Parties have requested the Tribunal to have the period for provision of annual reports to the Authority limited to 2 years from the date of approval (as it is currently indefinite). The condition for the merged entity to honour its existing contracts with Government of Kenya entities has not been submitted for review (iv above).

In terms of the Competition Act No.12 of 2010 (the Act), as part of assessing a proposed merger, the Authority is required to consider the impact that a proposed merger will have on a market within Kenya as well as the impact that a proposed merger may have on the public interest. A proposed merger can be unconditionally or conditionally approved, or prohibited by the Authority. In this regard, in terms of the Competition (General) Rules, 2019, where a proposed merger raises competition or public interest concerns, the Authority may prescribe structural or behavioral remedies to address such concerns as conditions to its approval.

The Act provides that where merging parties are dissatisfied with a decision of the Authority merging parties may apply to the Tribunal for review of the decision within 30 days of the receipt of the Authority’s decision. The Tribunal is required to give notice of the review application in the Kenya Gazette and invite submissions from interested third parties. In this respect, the Tribunal published the notice in respect of the Transaction on 31 January 2020. Within 4 months from the date of making the application for review, the Tribunal is required to issue its decision and provide written reasons. The Tribunal’s decision should therefore be issued in the month of May.

In terms of the Competition Tribunal (Procedure) Rules, the Tribunal can, amongst other things, confirm, modify, set aside, or refer back the decision to the Authority for reconsideration. A matter referred back to the Authority may be subject to the Tribunal's further order, direction or final decision.

On the face of it, the conditions imposed appear to be far reaching. This will be the first matter that the Tribunal has to consider since it was established. The review application is a welcomed development for competition law in Kenya and it will provide an opportunity to better understand how the Authority and the Tribunal will interact.