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30 June 2020

Kenya's Competition Tribunal shows its independence in Telkom-Airtel merger ruling

Joyce Karanja argues the tribunal's first judgment shows it will not hesitate to vary or overturn decisions of the Competition Authority

Joyce_Karanja

Joyce Karanja: 'The tribunal highlighted the importance of not usurping the powers and duties given to sector-specific regulators'

The first-ever ruling of Kenya’s Competition Tribunal is positive proof that the body is not simply a rubberstamp for decisions of the Competition Authority. 

The tribunal’s ability to apply its mind is evident in its judgment on the review application brought by Telkom Kenya Ltd and Airtel Networks Kenya Ltd on the Competition Authority’s conditional approval for their proposed merger. The judgment on 4 May is significant as it touches on several key considerations for merger control in Kenya and provides insight into the interaction between the tribunal and the Competition Authority. 

In conditionally approving the merger of Telkom Kenya and Airtel at the end of 2019, the Competition Authority had set eight conditions. These were mainly around public interest considerations, particularly employment, and operating and frequency spectrum licensing matters.  

Telkom Kenya and Airtel had objected to all but one of the eight conditions – the uncontested condition being that they should continue honouring all existing contracts with Government of Kenya entities.

They wanted the Competition Tribunal to set aside the five conditions pertaining to operating and frequency spectrum licences, including the condition that they not be allowed to sell or transfer any of these licences for five years. They also asked the Tribunal to reduce the restrictions on retrenchments from two years to 12 months, and to allow them to report on merger compliance every two years instead of annually.

Merger control clarity

In its judgment, the tribunal affirmed one of the conditions as initially issued (specifically the retention of employees two years after the merger) and ‘varied’ six. In varying these conditions, the tribunal essentially provided clarity on how merger control conditions should be formulated. It also clarified the relationship between the Competition Authority and sector-specific regulators.

In this case, the tribunal recognised that the Competition Authority and the Communications Authority have concurrent jurisdiction on the regulation of competition in the telecommunications sector in Kenya. It also recognised that the two agencies cooperate with each other and have a memorandum of understanding (MOU) in this regard. 

However, the tribunal highlighted the importance of not usurping the powers and duties given to sector-specific regulators like the Communications Authority.

It emphasised that the existence of an MOU and inter-agency cooperation does not in any way mean that the two agencies are abdicating their statutory mandates.

Hence, the tribunal found that while the Competition Authority has the broad role of regulating the market to ensure fair competition in all sectors, the Communications Authority is better equipped with market and technical knowledge within the telecommunications sector.

Case-by-case basis

The tribunal’s view is that merger conditions should be determined on a case-by-case basis, including public interest conditions. 

While recognising that safeguards are needed to ‘ameliorate the negative effects’ of a proposed merger, the tribunal noted that employment conditions should always be considered from a market and sector-specific context.

For example, the ability of employees to be reabsorbed into a market is critical for any regulator to consider in a merger review.

Further, the tribunal emphasised how important it is for any conditions to be clearly articulated. With this in mind, it varied some of the conditions to provide further clarity on their application, including prescribing a time limit for implementation.

An extremely important element of this first-ever judgment is the clarity provided on the role of the tribunal itself. 

According to the tribunal, it is an administrative appeal mechanism that does not have judicial review powers of the kind ordinarily exercised by the High Court. As such, in the competition arena, it is the first port of call before a judicial review application can be made.

With its gavel now warmed, the tribunal has signalled it will not hesitate to vary or overturn decisions of the Competition Authority. 

Accordingly, it will be interesting to see how the tribunal develops and the extent to which its activity will impact on the Competition Authority’s decisions going forward.

Joyce Karanja is a partner in the Nairobi office of Bowmans

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