Trade Liberalization and Poverty in Kenya: A Case
Study of the Telecommunications Sub-sector
Prepared by Gloria Otieno and Eric M. Aligula
Kenya Institute for Public Policy Research and Analysis (KIPPRA)
Bishops Garden Towers, Bishops Road
P .O Box 56445, Nairobi, Kenya
June , 2006
Draft not for citation
Paper prepared for the project “Linkages between Trade Development and Poverty
Reduction”, implemented by CUTS International.
Abstract
Trade liberalization in the Kenyan Telecommunications sub sector began earnestly in 1997 when
the government embarked on progressive liberalization and privatization within the sub-sector.
Before liberalization of the sub-sector, services were delivered within a monopolistic public
sector structure- the Kenya Posts and Telecommunications Corporation (KP&TC); which
combined regulatory and operational responsibilities (UNCATD, 2005), the sector was at the time
plagued by inefficiencies poor coverage and low network coverage. The liberalization of the sub
sector through the 1997 Communications Act led to splitting of the KP&TC into Postal
Corporation of Kenya, Telkom Kenya and the Communications Commission of Kenya, which is
the regulating agency. Further reforms in the sub sector were as a result of Kenya fulfilling its
obligations under the WTO framework. These have led to the development of the ICT policy,
which entails reviewing of the policy framework for investment, competition and growth
including obligation of investors to universal access as stipulated in the WTO reference paper on
Basic Telecommunications.
This study is intended to discuss the effects of Telecommunication liberalization on poverty in
terms of employment generation, increase of Foreign Direct Investments, Access to services; and
increase of opportunities due to access to information. The study involved desktop research
combined with one on one interviews with key stakeholders in the sub sector including service
providers and consumers.
Findings from the study indicate that due to liberalization of the sector, there has been
tremendous growth especially in the mobile telecommunications industry, which currently stands
at 6 million subscribers. Furthermore access to services has improved both in the urban and rural
areas. The introduction of mobile technology and Internet services has also created an impact in
terms of access to information; employment creation –both directly and indirectly through
participation of micro and small enterprises benefiting from community phones, sale of mobile
phones and accessories which has an impact on incomes and poverty; the real impact still needs
to be determined empirically. Even though the operating environment is competitive and both
foreign and private sector investment have increased; landline services are still provided under
monopoly of Telkom Kenya and attempts to license a Second National Operator are still
underway.
Most stakeholders in the industry perceive the costs of services to be high especially mobile
telecommunication services. Unreliable and slow Internet connections also impacts negatively on
ii
the sub-sector.
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 sub-sector liberalization still needs to be quantified. Finally, the sub sector
stakeholders feel that more reforms need to be undertaken such as: introduction of a Second
National Operator ( SNO), reduction of costs of communication, speeding up of unified licenses
and improvement of infrastructure and services access in the rural areas among others.
iii
Acknowledgements
We would like to thank many institutions and individuals for their contribution to this research,
more specifically the Communications Commission of Kenya (CCK), Mobile service providersSafaricom, Celtel and Telkom Kenya for their useful insights into this study. We would also like
to acknowledge the contribution from all the other stakeholders including Internet Service
providers (ISPs), cyber café owners and consumers. We also acknowledge financial support from
CUTS (Consumer Unity & Trust Society International) who funded the study. All errors and
omissions are the sole responsibility of the authors.
iv
Table of Contents
Page
Abstract .............................................................................................................................. ii
Acknowledgements .......................................................................................................... iv
List of Tables, Boxes and Figures ................................................................................... vi
1.0
Introduction ........................................................................................................... 1
1.1
Objectives and Scope ............................................................................................. 3
1.2 Methodology ............................................................................................................... 4
2.0 The link between Trade Liberalization, Telecommunications and Poverty ......... 5
2.1 The link Between Trade liberalization and Poverty ......................................................... 5
2.2
Liberalization of Telecommunication Services ........................................................ 6
2.2.1 Privatization and Competition ............................................................................ 7
2.2.2 Domestic Regulation ......................................................................................... 9
2.2.3 Implications of Telecommunications Liberalization ............................................... 10
3.0 Telecommunications and Poverty in Kenya ........................................................... 13
3.1 Poverty Situation in Kenya ......................................................................................... 13
3.2
Background of Telecommunication Services in Kenya ........................................... 15
3.2.1 Liberalization and Regulation of Telecommunication Services in Kenya ..................... 16
3.3
Implications of Liberalizing Telecommunication Services on Poverty in Kenya ....... 18
3.3.1.
Expansion and growth of the sub sector services ............................................ 18
3.3.2 Access to Services and Information. ................................................................. 24
3.3.3 Cost and Affordability ..................................................................................... 25
3.3.4 Employment and Wages in the Sub sector ......................................................... 27
3.4
Telecommunications and Trade in Kenya .............................................................. 28
3.4.1 Trade in Telecommunications Equipment and Services ...................................... 28
3.4.2 Telecommunications as vehicle for Trade in Kenya ........................................... 29
3.4.3 Kenya Commitments in Telecommunication services under GATS ..................... 30
4.0
Stakeholder Perceptions on Liberalization and its Effects ............................ 33
5.0
Conclusions and Policy Implications ................................................................. 36
6.0
REFERENCES .................................................................................................... 38
v
List of Tables, Boxes and Figures
List of Tables
Table 1
Table 2
Table 3
Table 4
Table 5
Table 6
Table 7
Table 8a
Table 8b
Table 9
Page
Modes of Trade in Services as defined by the GATS……………………… .7
WTO Reference Paper on Telecommunications: Definitions and Principles…9
Poverty Trends in Kenya …………………………………………………….15
Licensed Telecommunication Operators in Kenya……………………………21
Telecom Kenya Subscriber Target/Performance (1999-2004)………………..22
Tele-density Vs Poverty Rates per province in Kenya ………………………..22
Data service Connections in Kenya (200/01-2007/08)………………………..25
Telephone Exchange Capacity in Kenya (1990-2004)………………………..25
Trends of Connectivity and Access in Kenya (1995-2004)…………………...25
Telephone Call charges in Kenya (2002-2005)……………………………….26
List of Figures
Figure 1
Comparative Growth of Fixed and Mobile Telephony in Kenya (1999-2004)..20
Figure 2
Means of Communication used by Kenyans (2004)…………………………..27
List of Boxes
Box1
Programs to Access Information through Telecommunications and ICTs in
Kenya……………………………………………………………………………………………30
vi
Abbreviations
ABT
CCK
DEL
EAC
EAP&TC
ETACS
EPZ
FDI
GATS
GoK
GSM
IBRD
ICT
IDRC
ISP
ITC
ITU
KACE
KENSAT
KP&TC
KPO
KRA
MFN
NT
PCK
RTA
SAP
SME
SMS
SNO
TKL
VoiP
VSAT
UNCTAD
WTO
Agreement on Basic Telecommunications
Communications Commission of Kenya
Direct Exchange Line
East African Community
East African Posts & Telecommunications
Extended Total Access Communications Systems
Export Processing Zones
Foreign Direct Investment
General Agreement on Trade in Services
Government of Kenya
Global System for Mobile Communications
International Bank for Reconstruction and Development
Information Communication Technology
International Development research Center
Internet Service Provider
International Trade Center
International Telecommunication Union
Kenya Agricultural Commodity Exchange
Kenya Small Aperture Terminals
Kenya Posts & Telecommunications
Kenya Paraplegic Organization
Kenya Revenue Authority
Most Favored Nation
National Treatment
Postal Corporation of Kenya
Regional Trade Agreement
Structural Adjustment Programs
Small and Micro Enterprise
Short Messaging Service
Second National Operator
Telecom Kenya Limited
Voice over Internet Protocol
Very small Aperture Terminals
United Nations Conference on Trade and Development
World Trade Organization
vii
1.0
Introduction
Kenya’s current trade regime is fairly open and competitive due to the liberalization process
initiated in the 1990s. During this period, the government came under intense pressure from the
Bretton woods institutions to open up and liberalize trade. Further liberation was carried out as
Kenya acceded to the General Agreement o Trade in Services (GATS) under the World Trade
Organization (WTO) in 1995. The WTO under the General Agreement of Trade in Services
(GATS) calls for progressive liberalization of services sector and hence Kenya had to undertake
telecommunication sector reforms in accordance to GATS rules. This process of liberalization
has different effects from one sector to another. While others have had serious negative impacts
others have led to remarkable growth. The Telecommunication sector in Kenya is one of those
that were liberalized in the 1990s and have subsequently registered growth.
Telecommunications is an important factor in the development process and an essential tool for
addressing poverty reduction and economic growth. It has a dual role as a traded service and a
vehicle for trade in other sectors. An efficient telecommunications sector facilitates transfer of
information at the lowest possible cost, and boost trade, incomes, and national benefits including
poverty reduction (WTO, 2004). Hardly, any business today can operate without effective
telecommunications. For many industries, the telephone is the primary point of selling and the
Internet is an increasingly important channel for marketing and for sales for some industries.
Telecommunications networks provide the supporting infrastructure for such information flows
and for Internet access (Verikos and Zhang, 2001).
During the past few decades, technological progress in the telecommunications sector has been
remarkable and there has been a rapid diffusion of technology as well. It is now possible for
countries that have lagged in economic and technological development to switch to the most
recent technologies at relatively low costs of adoption. In Africa, for example, 95 per cent of
mobile lines were GSM in 2001, well above the world average of 70 per cent (WTO, 2004).
Telecommunications consist of services that can be wire-based (e.g. fixed-line telephony),
wireless (e.g. mobile and satellite services), resale-based (i.e. over leased transport capacity) and
a myriad of combinations thereof. The Internet has come to embody a technology in its own right,
providing low-cost access to data as well as voice communication. Telecommunications are a
network industry and as such the value of the network for each customer increases with the size
of the network. Because of this and because of economies of scale, the industry was considered a
natural monopoly in the past. Recent technological developments have, however, reduced the
1
importance of economies of scale and made vertical disintegration and competition possible
(Verikos and Zhang, 2004). As a consequence, most countries, Kenya included have carried out
regulatory reforms, often including privatization of state monopolies and the introduction of
competition in some or all market segments. Regulatory reforms in the sector have contributed to
further innovations, diffusion of technology and a substantial reduction in the cost of
telecommunication services (Bressie et al., 2004).
Measures affecting telecommunications services may be divided into firstly, telecommunications
services, consisting of basic telecommunications services such as voice telephone services and
facsimile and value-added services such as data networking, and secondly, telecommunications
infrastructure including local, long-distance, and international networks. Given the dual function
that the telecommunications sector plays in economic growth in both developed and developing
countries, further liberalization of telecommunications remains a key objective within
negotiations under the GATS and an increasing number of RTAs (Ulrich, 2003).
Before liberalization, the telecommunications sub-sector in Kenya was dominated by a
Government Monopoly and mainly characterized by inefficiency. At the same time the
telecommunications sector was plagued by shortage of funds, increased demand from growing
population, depressed state of economy from 1993, micro-economic difficulties and inflation and
devaluation (Kane, 2003).
Moreover the telecommunication infrastructure was not well
developed and there was poor access to fixed telecommunication services, low capacity and high
cost of telecommunication services and lack of a proper legal and regulatory framework. While
the rest of the world was liberalizing their telecommunication sectors, Kenya and many other
developing countries were lagging behind and this had negative implications (Kasuku and Mutua,
2002).
Due to liberalization in 1997, the Telecommunication/ICT sub sector has recorded a high growth
rate over the years; last year the sub sector expanded tremendously with the mobile telephony
experiencing a record 56.1 percent growth in 2005 (Economic Survey, 2006). The growth of this
sub-sector has therefore meant that access to telecommunications has improved and employment
generation has increased especially in the mobile phone industry which has a direct impact on
poverty.
Secondly the sub-sector has visualized an increase in technology and FDI and
technological
capabilities
thus
improving
productivity
in
areas
of
Information
Telecommunications and further lowering costs and increasing trade in other service sectors. In
2
2004, the government created the ministry of information and communication, to oversee the
development of the ICT sector. This bore much fruit when in 2006 a new National ICT Policy
was adopted by the cabinet to provide guidelines to improve the legal and regulatory framework
of the sector. The telecommunications sub sector in Kenya has been seen as one of the few
success stories of liberalization. It is therefore very important to study this sector as Kenya’s
“success” story in terms of liberalization and poverty.
The terms of reference for the study were to
1. Select a sub-sector using certain pre-identified criteria such as the sub-sectors link to
poverty , trends in employment and growth and potential for impacting positively on
livelihoods of poor people.
2. determine how firms and workers in the identified sector are gaining (or otherwise) from
a sector’s increasing exposure to international trade and subsequent liberalization.
3. identify constraints and institutional weaknesses that a particular sector (including its
workers) is facing in order to gain more (or to mitigate adverse effects) from increasing
exposure to international trade and liberalization.
4. conduct a perception survey of key stakeholders in the sub sector to understand the
constraints they face, their perceptions on liberalization and its effects on poverty and
ways in which they think the sub sector can be improved.
1.1 Objectives and Scope
The main objective of the study is to analyze the impact of trade liberalization of the
telecommunications sub sector in Kenya and subsequent impact on growth of the
Telecommunications sub-sector, trends in employment and wages, new developments and
technological advancements, access and availability of services and affordability.
Specific objectives intended to study
i.
Domestic telecommunications sector growth and expansion after liberalization.
ii.
Trends in employment and wages in the sub sector after liberalization.
iii.
Access to goods and services including cost of communication and increased
affordability and availability of information and its impact on poverty
iv.
FDI flows and technological capabilities within the sub sector
v.
Telecommunication as a traded service especially in view of developments at the global
level.
3
vi.
Stake holder’s perceptions on liberalization of sub sector and its effects on poverty.
1.2 Methodology
The Telecommunications Sub-sector was selected on the basis of pre-identified criteria such as:
i.
The share of the sector in GDP before and after liberalization,
ii.
Trends in domestic growth of the sector (which were mostly positive after
liberalization)- as indicated by growth of landline and expansion of mobile
services, which currently stands at 6 million from only 2000 in 1997.
iii.
The importance of the sector in providing avenues for communication,
information access and links with the global community.
iv.
The trends in employment in the sector in terms of opportunities for the poor
v.
Huge potential for FDI generation in the sub-sector and subsequent employment
within the sub sector
vi.

Potential of the sector to grow and impact positively on poverty
In-depth reviews of secondary information including research publications and
government statistics have been used in this study.

Perceptions of some key stakeholders have been done in order to understand institutional
issues within sector is facing, which are hindering the desired growth of the sector have been
assessed. These include Service providers, the national regulating agency, Internet Service
providers, cyber cafes, and consumers of the services. A total of 16 respondents were
interviewed. The National regulating Agency – Communications Commission of Kenya, the
landline operator -Telkom Kenya, the mobile service providers- Safaricom and Celtel, 3 ISP
providers, 3 cyber cafes, 1 Civil society Organization and 6 consumers from lower, middle and
upper income classes.
The report is organized as follows: the preceding section is the introduction and gives the
background of the study, the scope and TORs; the second section gives an insight into some of
the global aspects of linkages between trade liberalization, telecommunications and poverty and
implications on global telecommunications sub sector. The third section gives an overview of the
sub-sector within the Kenyan context and presents the liberalization of the sub sector and
subsequent effects on growth, access to services and affordability. The fourth section presents
perception of key stakeholders on sector liberalization and its effects. The last section gives the
conclusions and policy implications of the study.
4
2.0 The link between Trade Liberalization, Telecommunications and Poverty
2.1 The link Between Trade liberalization and Poverty
Conventional wisdom holds that the link between trade, poverty reduction and human
development is through economic growth. Trade flows can be a powerful source of economic
growth and trade liberalization is the common policy prescription for increasing trade flows
(McCulloch et al., 2001). Trade policy and trade rules affect the performance of a country’s trade,
both internationally and domestically. McCulloch et al (2001) identified three channels by which
trade policy change might affect poor individuals and households; enterprise (through profits,
wages and employment), distribution (the transmission of changes in border prices to consumers),
and government (in which trade reform affects government revenues and thus the scope for propoor expenditures).
Whether changes in trade can reduce poverty depends on the nature of the economy and its
bottlenecks and transmission mechanisms. Firstly, trade liberalization can affect prices of goods
and services consumed by the poor and in the process affect their real incomes. Second, trade
liberalization can affect the performance of firms with implications for wages and employment.
It is possible in the context of developing countries that trade liberalization may increase the
availability of low skilled employment, tighten the labor market and increase the relative wages
of low-income workers. Where this is the case, then liberalization can contribute to poverty
reduction. In some cases liberalization may open up the market and ease entry of foreign firms
hence generation Foreign Direct Investment (FDI) which may subsequently lead to
employment creation and poverty reduction.
If trade liberalization raises the price of an
exportable output, then employment is likely to increase and poverty will be alleviated. On the
other hand, trade reform will reduce the prices obtained by firms producing importable goods.
This is likely to reduce employment with adverse consequences for poverty.
Lastly, trade
liberalization can enhance government revenues that in turn enable additional pro-poor
spending (Bird et al., 2004). However government spending must also be structured in a way that
equity issues are prioritized and poverty targeted.
5
2.2
Liberalization of Telecommunication Services
Efforts to liberalize the rapidly developing domestic and global telecommunications markets were
initially made within the International Telecommunications Union. However, governments soon
realized that the General Agreement on Trade in Services (GATS) within the newly established
World Trade Organization (WTO) with its principles of national treatment (NT) and
transparency, was a more appropriate framework for addressing the critical elements of trade in
telecommunications services, such as market access and regulatory reform through the
development of binding rules (Ulrich, 2003).
Negotiated as part of the Uruguay Round between 1986 and 1993 the GATS took effect in 1995
within the WTO. The GATS provides the definition of trade in services widely used in trade
agreements, general and specific obligations for Members of the WTO as well as provisions for
future liberalization in trade in services including telecommunications. Table 1 outlines the four
modes of trade in services as outlined in Art. I of the GATS (WTO, 1994). With regard to
telecommunication services, modes 1, 3 and 4 are widely applicable.
Table 1: Modes of Trade in Services as defined in the General Agreement on Trade in
Services
Mode
1
2
3
4
Type of
Service
Cross-border
Supply
Consumption
Abroad
Commercial
Presence
Presence
Natural
Persons
Description
The service is supplied from the territory of one Member to
that of another member (ex. telecommunications, the post)
The supply of the service in the territory of one Member to
the consumer of another Member (ex. tourism, ship repair).
The supply of a service through the commercial presence of
a foreign supplier such as a corporation, branch office or
joint venture (Ex. Foreign firms operating in the country).
of Involves admitting a national of one Member into the
territory of another Member on a temporary basis for the
purpose of providing a service.
Source: WTO, 1994
The GATS principle is based on “Progressive Liberalization” of the sub sector coupled with
Domestic regulation in a manner that is transparent and fair.
6
Worldwide, there is recognition of the benefits of "liberalizing" the telecommunications sector
through the introduction of competition and the privatization of telecommunications carriers.
The main objective for this reform is to increase accessibility, quality and affordability of
services. This immediate objective has broader societal benefits, because the availability and
affordability of modern, reliable communications services are crucial to the ability of all sectors
of an economy to attract foreign investment and compete in today's global markets and thus are
essential prerequisites to overall national economic development and poverty reduction
(Wellenius, 1997).
There are three key elements of regulatory reform of telecommunications services (WTO, 2004):
Establishment of an effective independent regulator-domestic regulation
Introduction of competition
Privatization of state-owned monopolies
2.2.1
Privatization and Competition
Worldwide, the telecommunications sector is being opened to competition, in response to both
technological developments and the failure of state-owned telecom monopolies to satisfy the
growing telecommunications needs of users and economies. The introduction of competition in
telecommunications has brought measurable benefits to both consumers and operators; (i)
Competition provides consumers with greater choice of service operators, wider variety of
services, significantly improved service quality, and lower tariffs; (ii) Competition prods
incumbents to improve their efficiency and to invest in growth and innovation. (iii) For
developing countries, added benefits include the attraction of badly needed investment, faster
network deployment, and wider consumer access (Gillwald, 2003).
“Liberalization” does not mean de-regulation. The introduction of competition must be
accompanied – indeed, should be preceded -- by the creation of National Regulatory Agencies,
charged with the responsibility of facilitating market entry by new players, guarding against
anticompetitive practices of incumbent operators and ensuring that the benefits of competition are
passed on to consumers (WTDR, 2003).
7
The 1997 WTO Reference Paper on telecommunications sets out basic rules for ensuring
competition in the telecommunications sector, focusing on the competitive practices of "major
suppliers"1 of telecommunications services. The major points of the WTO Reference Paper are
outlined in Table 2 below:
Table 2: WTO Reference Paper on Telecommunications: Definitions and Principles
Definition/Principles Description
Definitions
The Reference Paper applies rules to ‘major suppliers’ of
telecommunications services who have ‘control over essential
facilities’ or uses its position to ‘materially affect the terms of
participation’.
Competitive
Governments must take appropriate measures to prevent suppliers
Safeguards
of telecommunications services from using anti-competitive
practices such as cross-subsidization, apply information obtained
from competitors in an un-competitive manner, or denying
competitors access to relevant technical information.
Interconnection
Governments must ensure that major suppliers provide
interconnection of their networks to other service suppliers at ‘any
technically feasible point in the network’. Major suppliers will
offer interconnection that is non-discriminatory, timely, and at a
rate and quality ‘no less favorable’ than that provided for its own
subsidiaries or affiliates.
Universal Service
Governments may set universal service obligations, as long as they
are administered in a transparent, non-discriminatory,
competitively neutral manner and are not more burdensome as
necessary in reaching their policy objectives.
Transparency
Under circumstances where licenses are required, the licensing
criteria, timeframe, and terms and conditions are to be made
publicly available. Upon the request of the applicant, the reasons
for denial of a license will be made known.
Independent
The regulatory body must be separate and not accountable to any
Regulators
supplier of basic telecommunications services and that its
procedures be impartial.
Allocation and Use
Government procedures for the allocation and use of scare
of Scare Resources
resources, such as frequencies and numbers, must be objective,
timely, transparent and non-discriminatory.
Source: WTO, 1999
The Reference Paper has been described as the ‘bible’ for telecommunications services, and
credited with bringing about a ‘change in the international telecommunications regime’ the
implications of this include facilitating the growth of new global communications carriers since
the rules cover both developed and developing country markets regime’ and enhancing Universal
Access (Cowhey and Klemenko, 2001).
1
A "major supplier" is an entity that controls essential facilities for the public network that cannot
reasonably be duplicated for economic reasons, technical reasons, or both.
8
The process of privatization and the introduction of competition must be reconciled with the
enduring goal of promoting universal availability of telecommunications services as stipulated in
the Millennium Development Goals (MDGs). Universal access goals are most often aimed at
increasing access to the rural areas, at low costs that can be affordable to poor people
Telecommunication investments in rural areas can yield, on average, an adequate and even high
rate of return. Servicing the remotest areas, however, represents higher costs per line and greater
risk, and therefore may require a subsidy (Gillwald, 2003).
2.2.2
Domestic Regulation
The last decade saw unprecedented changes in the global telecommunications industry.
Numerous state-owned telecommunications operators were privatized, and a wave of procompetitive and deregulatory telecommunications policies swept the world. New market-based
approaches of the supply of telecommunications services were introduced throughout the world
(ITU, 2006).
According to Intven and Tetrault (2000) the liberalization of telecommunications was motivated
by various factors including:
i.
The need to attract private sector capital and FDI to expand and upgrade
telecommunications networks and introduce new services.
ii.
Growth of the internet which led to the introduction of many new service providers.
iii.
Growth of mobile and other wireless service providers, which also led to introduction of
new service providers.
iv.
Developments of international trade in telecommunications services, which are
increasingly provided by transnational and global service providers.
Regulation intervention is required for a number of reasons. Typically, regulators must authorize
or license new operators. They must often remove barriers to market entry by new operators.
They must oversee interconnection of new entrants with incumbent operators and ensure that
competitive markets do not fail to serve high cost areas or low-income subscribers (Intven and
Terault, 2000). However, the trend today is toward deregulation as some traditional forms of
telecommunications regulation are seen as more damaging to the development of national
telecommunications infrastructure and services. Hence governments and regulators must
generally ensure that there is a demonstrated need to regulate and that the most efficient measure
9
is selected to meet the specific regulatory objective without creating unnecessary conflicts with
international Trade rules –GATS (ITU, 2006).
Hence with regard to the Telecommunications sub-sector, especially in the case of developing
countries domestic regulation is an important factor in trade in telecommunication services
because the sub-sector is important for attracting FDI and subsequent creation of employment and
poverty reduction. Therefore if domestic regulation is prohibitive to new market entrants this
could hinder FDI inflows and encourage monopolistic behavior which in detrimental to
consumers and may impact negatively on and services affordability of services.
2.2.3 Implications of Telecommunications Liberalization
1. Growth of Telecommunications Sub sector
Following global liberalization of Telecommunications access to information and communication
technologies continues to grow at high speed and the digital divide – in terms of mobile
subscribers, fixed telephone lines and Internet users - keeps getting smaller. ITU statistics show
that by the end of 2004, the telecommunication industry had experienced continuous growth, as
well as rapid progress in policy and technology development, resulting in an increasingly
competitive and networked world. There are more ICT users worldwide and more people
communicating than at any other time in history (ITU, 2006).
Globally, access to telephone networks (fixed and mobile) tripled in the ten-year period 19932002 from 11.6 subscribers per 100 inhabitants to 36.4. The most rapid growth occurred in the
use of mobile phones due to the evolution towards second-generation wireless systems,
liberalization of mobile telecommunication markets and introduction of prepaid cards. By the end
of 2002, there were more mobile cellular subscribers than fixed telephone lines in the world.
Growth has been particularly strong in Africa, the first region where mobile phones overtook
fixed lines and where almost all countries now have more mobile phones than fixed telephones.
Mobile phones seem to grow faster in countries where incomes are declining than where they are
growing. Although this seems counter-intuitive, it indicates the high and often inelastic demand
for mobile communications. Developing countries now account for almost half of total telephone
subscribers in the world, up from just 19 per cent in 1990 (ITU, 2003).
By the end of 2004, the world counted a total of three billion telephone subscribers, 1.8 billion
mobile subscribers and 1.2 billion fixed lines. Both, the number of mobile subscribers and the
10
number of Internet users more than doubled in just four years. By end 2004, the world had over
840 million Internet users, which means that on average 13 percent of the world’s population was
online (ITU, 2006).
Until recently, opportunities for telecommunication services trade had been more limited than for
equipment. Telecommunication service trade includes transactions that cross national borders,
such as telephone calls or electronic mail sent from one country to another. It also covers foreign
investment, such as the purchase of telephone companies by foreign investors or joint ventures
between local and foreign partners to establish new telecommunication service companies (WTO,
2004).
In the last two decades, the improvement in communications technology has been explosive.
Fiber optics cables have replaced microwave circuits in long distance transmission; telephoneswitching systems are more sophisticated, allowing a wider variety of call transfer, message
storing, and control functions. Cellular and mobile telephony have expanded at accelerating rates
in recent years, and the development of Internet services has also been remarkable. Parallel to
these new developments, there has been a pattern of increasing competition in the provision of
valued-added services, long distance telecommunications, and, more recently, in local telephony
(Hudson 1997). The dynamism of global telecommunications markets is widely attributed to
rapid technological development and an increasingly liberal policy environment. Over the past
decade, a large number of world economies have also embarked on reform paths, and witnessed
significant expansion of their telecommunication networks and striking improvements in quality
(Gillwald, 2003).
2. Implications on Poverty
Liberalization of telecommunications sub sector worldwide has led to improved access to services
especially in the rural areas where majority of poor people live. For many rural dwellers,
information transfer requires geographical proximity and access to means of communication.
Information on market price, access to credit and financing opportunities can make a significant
difference in providing income-generating activities for the poor (Kane, 2003). Universal access
obligations have also improved telecommunications access to the rural areas.
Mobile Technology has also led to expansion of communication access in the rural areas. In rural
Thailand, the introduction of mobile phones have helped farmers to regularly check prices and
access to markets for their produce hence significantly improving their opportunities for income
11
generation (Kenney, et al., 2001). Besides market information mobile technology significantly
improves access to other services in the rural areas such as medical and fire emergencies this has
specifically been observed to improve in Thailand and Bangkok (Ibid). Other income generating
activities provided by improvement of access to mobile technologies have included, the
community pay phones which are a source of income for thousands of micro entrepreneurs, this
has been a successful venture in Kenya through the “Simu ya Jamii” aka community phones
especially to the urban poor and the rural areas (Adeya, 2005).
On the other hand telecommunication liberalization had generally led to increase of foreign
investments and provision of employment for thousands of people employed in these firms.
Diffusion of technology and improvement of skills and training are also seen as major benefits of
liberalizing telecommunications services, as skills improvement improves capacity to obtain
higher cadre jobs subsequently leading to improvement of incomes (DAC, 2004).
12
3.0 Telecommunications and Poverty in Kenya
3.1 Poverty Situation in Kenya
The poor are defined as those members of society who are unable to afford minimum human
basic needs, comprised of food and non-food items. From a wider perspective poverty
encompasses inadequacy of income and deprivation of basic needs and rights, and lack of access
to productive assets as well as access to social infrastructure and markets (Krieger, 2001).
Available statistics in Kenya shows that the level of poverty has been on the increase. It is
currently estimated that 56% of Kenyan population live below the poverty line, up from 48% in
1992 and 52% in 1997.
The increase in poverty has resulted in decreased food security,
inadequate access to basic social amenities such as health and education, unemployment,
escalating insecurity, lawlessness and general economic decay (GoK, 2002b). Currently, it is
estimated that 56% of Kenyans are living below the poverty line.
According to the Poverty Reduction Strategy Paper (PRSP) for Kenya, the poor tend to be
clustered into certain social categories such as: the landless; people with disabilities; female
headed households; households headed with people without formal education; pastoralists in
drought prone districts; unskilled and semi-skilled casual laborers; AIDS orphans; street children
and beggars; unpaid family workers; large households; single mothers and fathers; subsistence
farmers; urban slum dwellers; and unemployed youth (GoK 2002b). An examination of these
social profiles indicates that gender, education and occupation are important proximate
determinants of poverty. Gender-related poverty varies by marital status, but women in general
are more likely to be poor than men. This is largely due to their lack of rights and control over
productive resources and their lack of legal protection. Low levels of asset ownership, poor
access to credit and the limiting social norms mean that women are highly concentrated in
agriculture. The majority of subsistence farmers are women (69%), and this is the livelihood
group whose members are most likely to be poor in Kenya (Omiti et al, 2002).
Poverty in Kenya has been associated with a number of factors. These, according to the PRSP,
include: lack of or slow economic growth; income inequality and unequal access to productive
resources; natural shocks such as drought, floods and fire; inadequate spread and access to basic
social services especially education and health; poor implementation of development
13
programmes; lack of effective social policies and mechanics; and diseases such as TB and
HIV/AIDS (GoK 2002b).
Poverty in Kenya is largely rural, with rural households being twice as likely as the urban
population to be poor or very poor. But urban poverty is increasing alarmingly in terms of both
incidence and severity. Aggregate figures broken down only into rural and urban categories
conceal the sharp regional disparities in poverty incidence that exist in Kenya. These are closely
associated with rainfall and agro-ecological potential, and poverty is higher in arid and semi-arid
parts the country.
Table 3: Poverty Trends in Kenya.
Percentage of poor
Percentage of extreme poor
Rural Areas
Central
1992
1994
1997
1992
1994
1997
35.89
31.93
31.39
67.83
32.95
29.73
Coast
43.50
55.63
62.10
63.00
50.95
59.46
Eastern
42.16
57.75
58.56
62.31
59.50
56.82
Nyanza
47.41
42.21
63.05
70.72
41.31
58.16
Rift Valley
51.51
42.87
50.10
81.02
45.75
48.02
Western
54.81
53.83
58.75
78.41
52.25
58.58
North Eastern
-
58.00
-
-
56.55
-
Total Rural
47.89
46.75
52.93
71.78
47.19
50.65
Urban Areas
Nairobi
26.45
25.90
50.24
41.92
27.26
38.38
Mombasa
39.17
33.14
38.32
44.84
33.12
38.57
Kisumu
-
47.75
63.73
-
44.09
53.39
Nakuru
-
30.01
40.58
-
37.18
26.81
Other towns
-
28.73
43.53
-
27.07
37.91
Total Urban
29.29
28.95
49.20
42.58
29.23
38.29
Total Kenya
44.78
40.25
52.32
Source: Ministry of Finance and Planning,( 2000a). (Welfare Monitoring Surveys - 1992, 1994 and 1997.
The provinces with the highest incidence of poverty in 1997 were Nyanza (63%) and Coast
(62%). Central Province had the lowest incidence at 31% (Ministry of Finance and Planning,
2000a). Coast province has seen the most significant rise in poverty (44% in 1992, 56% in 1994
and 62% in 1997).
Poverty alleviation interventions have tended to focus exclusively on empowering disadvantaged
individuals through creation of employment, provision of opportunities for income generation and
through provision of services to improve lives of poor and disadvantaged groups. Access to
communications services has been seen as a major move in improving lives of poor
14
disadvantaged groups all over the world. Access to information is the heart of all human activity,
and as previously discussed, telecommunication services can help in poverty alleviation through
provision of information for markets, provision of income generating opportunities and provision
of employment. These issues will be discussed within the Kenyan context in a later sub section of
this study.
3.2
Background of Telecommunication Services in Kenya
Kenya's earliest telecommunications connections to the outside world were the submarine cables
linking Zanzibar, Mombasa, and Dar es Salaam laid by the Eastern & South African Telegraph
Company in 1888. Internally, the construction of a telegraph network began with a 200-mile
coastal line linking the port city of Mombasa with Lamu. Extension into the interior of the
country began in 1896 in conjunction with the building of the railway system, forming a dual
"backbone" for Kenya's communications infrastructure. The extension of the telegraph line even
overtook railway construction, reaching Nairobi in 1898 and Kampala and Entebbe in Uganda in
1900. Telephone service soon followed. In 1908, the public telephone network began service in
Nairobi, the capital, and in Mombasa. In Nairobi that year, 18 telephone subscribers were
connected (Tyler et al, 1994).
Kenya’s telecommunications sector has undergone tremendous transformation especially since
the 1990s. During pre-independence and the period when the East African Community (EAC)
had its first stint (1966-1977), telecommunication services in East Africa (Kenya, Uganda and
Tanzania) were delivered jointly. A regional public body, the East Africa Posts and
Telecommunications Corporation (EAP&TC), which was established in 1967, played a major
role in this service delivery. When the EAC collapsed in 1977, the Kenya Posts and
Telecommunications Corporation (KP&TC) was established to continue offering the same
services in Kenya. The corporation monopolized the sector and combined both regulatory and
operational responsibilities. It continued to deliver services on this basis, and with increasing
inefficiency and with little trade or value addition, until 1998 when considerable reforms were
introduced. Since then, the sector has been gradually liberalized with enormous impact
(UNCTAD, 2005).
15
3.2.1 Liberalization and Regulation of Telecommunication Services in Kenya
1.
Policy, Legal and Regulatory Frameworks
The history of the legal framework for the Kenyan telecommunications sector started with the
East Africa Posts and Telecommunications Corporation (EAP&TC) Act of 1967, which mandated
a regional public body (EAP&TC) to deliver postal and telecommunication services in East
Africa. There was very limited trade in and value addition of telecommunications then. With the
breakup of the East African Community in 1977, the Kenya Posts and Telecommunications
Corporation (KP&TC) Act Cap 411 of 1977 was enacted so that a new corporation (KP&TC)
could continue offering the same services in Kenya. The services were thus delivered within a
monopolistic public sector structure, which combined regulatory and operational responsibilities
in the same institution (UCTAD 2005).
Kenya’s telecommunication sector has only recently begun the process of liberalization,
privatization and regulation. Reforms in the sector were introduced in a small way in 1990 when
the government relaxed the control of non-strategic functions in the telecommunication sector, in
particular the liberalization of vending of customer terminal equipment. In 1991, market access
and ownership requirements were relaxed, as was the liberalization of supply, installation and
maintenance of internal telephone wiring and customer premises. Then, in 1992 KP&TC
introduced cellular services (Kane, 2003).
In the year 1998 the Kenya communications Act split the former KP&TC into 3 bodies: The
Postal Corporation of Kenya; Telkom Kenya and the Communications Commission of Kenya
(CCK). Under the Act, CCK discharges functions in the area of licensing, price regulation, type
of approval equipment, interconnection between operators and fulfillment of universal obligations
for instance at the WTO level.
Telkom Kenya on the other hand took over all telecommunications functions of the former
KP&TC. Telkoms was given a monopoly till June 2004. It holds and operates licenses for local
telephone services, international gateway services, global mobile communication by satellite,
VSAT services, internet Node and Backbone services, Value added services, customer premises
equipment vending and internal & external wiring services. With regard to local telephone, long
distance and international telephone service and the country’s internet backbone, Telkom Kenya
16
was given monopoly until June 2004 (Kane, 2003). Up to date there is no second landline
operator and thus Telkom Kenya still enjoys the Monopoly.
Further reforms in the sub sector have led to the development of the ICT Policy, which entails
reviewing the policy framework for investment, competition and growth of the industry in order
to facilitate commercial decision-making. In addition, the draft policy encourages all investors to
participate in the provision of universal service/access; attract more private sector resources and
develop public/private sector partnerships; develop a sector with efficiency, credibility,
commercial integrity and good corporate governance; provide quality and sustainable service
with pluralism of choice to consumers; and keep abreast with and participate in ICTs both
regionally and internationally.
2.
Privatization of Telkom Kenya
Another major policy reform was the decision to privatize Telkom Kenya through sale of 49% of
its equity to a strategic investor, who was expected to invest in the modernization of the network,
in 2003. However, the price offered by the highest bidder was so low that the government held
back. Deeper reforms have to be undertaken to rationalize the bloated work force; restructure the
company’s balance sheet to make it profitable; form a subsidiary to run the Internet business; and
roll out a fixed wireless service due to rampant vandalism of cables. The privatization of Telkom
Kenya was to be guided by the Privatization Bill of 2003, which has adequate safeguard
provisions to ensure orderly privatization of strategic parastatals. As indicated earlier,
privatization is among the best practices in the provision of telecommunications services, and it
should be addressed expeditiously (UNCTAD, 2005).
3.
Competition
Competition is another best practice in telecommunications service provision. In 1991
telecommunications was de-monopolized when KPTC allowed private firms to sell
telecommunication equipment. It has been suggested that the impetus for de-monopolization was
due to the recognition by KPTC that they could not supply these goods. Two important
concomitant policies facilitated the entry of private firms into the telecommunications equipment
sector. One was the reduction in tariffs on equipment. The second was the relaxation of foreign
currency exchange regulations (CIDCM, 1999). Both these change were critical for the entry of
private actors. Since most telecommunications equipment is imported.
17
The Kenyan government has however fallen behind schedule on a number of commitments
intended to liberalize the telecommunications sector further, these include licensing of a second
national fixed telephony operator by the end of fiscal year 2004/2005 and a third mobile operator
by December 2003. In addition, the four Internet gateway service providers that were to be
licensed during the same period and the VSAT services that were to be completely liberalized
were not (CCK, 2006). CCK has, however, tendered a SNO and retains the right to issue more
licenses and/or regulate price and other conditions for fixed telephony services until competition
in the sub-sector is adequate.
Liberalization of the international Internet highway has already facilitated licensing of additional
service providers. By February 2005, four more companies (Kenya Data Network, Jamii
Telcoms, Harum International and Alldean Satellite Networks) had been licensed for provision of
Internet backbone and VSAT services (UNCTAD, 2005). Further, as reported in the Business
Week magazine of Daily Nation of 1st February 2005, there is a concerted effort in “…Making
Universal Telecommunications Access a reality” with regard to availability and accessibility
either through Multilateral Corporations, Small and Micro Enterprises, and Government in underserviced areas.
These developments are expected to introduce competition in the local bandwidth market and
create opportunities for cheaper connectivity, which is essential for rapid development of
electronic commerce and other data communications. Additional competition in the
telecommunication sector will be created through further commitments within the GATS
multilateral trade framework (UNCTAD, 2005).
3.3
Implications of Liberalizing Telecommunication Services on Poverty in Kenya
3.3.1. Expansion and growth of the sub sector services
Due to liberalization of the sub-sector, Kenya’s telecommunication services have experienced
tremendous growth over the past few years. The development of the telecommunications sector,
since around year 2000, has been marked by a dramatic increase in the subscriber base of the
mobile services and a stagnation of the subscriber base of fixed line services (Fig. 1).
The mobile network is now over ten times that of the fixed network. This can be explained by the
large capital investment, estimated at US$500 million, undertaken by the two mobile services
providers in the country.
18
3,750,000
3,500,000
3,250,000
3,000,000
2,750,000
2,500,000
2,250,000
2,000,000
1,750,000
1,500,000
1,250,000
1,000,000
750,000
500,000
250,000
0
3,421,343
2,546,157
2,242,249
1,954,043
1,600,000
900,000
Dec-04
Jun-04
Feb-04
Dec-03
Jun-03
Jun-01
Jun-00
Jun-02
400,000
180,000
15,000
Jun-99
Subscribers
Figure 1: Comparative growth of fixed and mobile telephony networks in Kenya, 1999-2004
Period
Total M obile Subscribers
Total fixed line Subscribers
Source: UNCTAD (2005).
Furthermore, the country has experienced tremendous growth in local investments in the sub
sector as is evidenced by the number of licensed operators (Table 4). By 2001, for instance, CCK
and Telkom Kenya records show that there were 235 registered equipment companies, 72 ISPs,
1000 Cybercafes, and a sizeable number of professionals providing consultancy and support
services. By 2004, moreover, many more operators had been licensed in different market
segments. The liberalization of the sub sector has led to major investments in the mobile phone
service providers. Safaricom is owned by Telkom Kenya (60 percent) and Vodafone UK (40
percent) while Celtel is owned by local Sameer Investments Group and Vivendi International.
These two companies have in turn provided employment direct employment to about 2000 people
and indirectly to millions of Kenyans.
Liberalization of the sector since 1997 has seen over 12 foreign firms authorized to invest in the
telecommunications and ICT related areas. 2 firms have been authorized to invest in computer
related services, 5 firms authorized to provide telecommunication services, 2 firms to supply
telecommunications equipment and the rest in the sale of mobile phones and accessories.
19
Table 4: Licensed telecommunications operators in Kenya.
Type of Operator/Service
Fixed line operators
Mobile operators
Internet backbone operators
Public data network operators
Internet service providers (ISPs)
Internet exchange point providers
Local loop operators
GMPCS service providers
VAS-premium service providers
National commercial VSAT operators
Postal operators
Private courier operators
Broadcasting
Source: CCK, 2006
Licensed Operators
 Telkom Kenya Limited, a national operator
 Bell Western Limited, a regional operator
 Safaricom Limited
 Kencell Communications Limited
 Licensing of 3rd mobile operator not yet completed
 Telkom Kenya Limited
 10 were gazetted on September 3, 2004, for
licensing
 6 operators, including Telkom Kenya Limited
 78 licensed, but less than half are operational
 2
 4 licensed
 2 were gazetted on September 3, 2004, for licensing
 1 was gazetted on September 3, 2004, for licensing
 17
 1 were gazetted on September 3, 2004, for licensing
 Telkom Kenya Limited
 Alidean Satellite Network (Kenya) Limited.
 2 were gazetted on September 3, 2004, for licensing
 Postal Corporation of Kenya (PCK)
 74
 12 TV broadcasters
Fixed Telephony Services
Telkom Kenya is still the only provider of fixed telephony services in the country to date,
although the 5-year exclusivity period granted to the company ended in June 2004 and a second
national operator (SNO) has been tendered. Not surprising therefore, there has been very poor
growth in fixed line connectivity and access despite liberalization this is mainly due to monopoly
of the service provider (UNCTAD, 2005). Thus, the number of subscribers to the fixed telephony
network grew from 291,706 in June 1999 to 328,356 in June 2003, but this had dropped to
290,000 by June 2004 (Table 5). By June 2004, the number of fixed telephony subscribers
amounted to only about 48% of the target set by CCK. The demand for fixed telephone lines
remains high, however, with the number of people on the waiting list standing at 116,544 in 1999
and 107,266 in June 2004. The most outstanding achievement in the area of fixed telephony since
the early 1980s has been the expansion of public telephone service, with the number of public
telephone booths increasing from 588 in 1981 to about 10,000 in 2004 (Economic surveysvarious).
20
Table 5: Telkom Kenya Subscriber Targets/Performance, 1999-2004
Year
June 1999
June 2000
June 2001
June 2002
June 2003
June 2004
License Target
291,706
316,706
376,706
451,706
526,706
601,706
Total Subscribers
291,706
309,379
321,482
328,104
328,356
290,000
Source: Telkom Kenya, 2006
Expansion of fixed telephone services has also been remarkable especially in the rural areas
where accessibility has improved. Comparing tele-density per province vis à vis the poverty
situations in each region, it is evident that the provinces with the highest poverty have the lowest
tele-density, (Table 6). Coast, Nyanza, North Eastern, and Western have the highest poverty rates
and the lowest tele-density, the value is higher for Coast province because of Mombasa town
which is considered an urban area hence it has more line connections. North Eastern province has
the lowest number of line connections; this could be in part due to poor infrastructure in the
region. It is hence noticeable that main line connections have not been able to adequately serve
the poor in rural Kenya.
Table 6: Tele-density Vs Poverty rates per Province in Kenya
Province
Line Connections
Tele-density
Poverty rates (%)2
Nairobi
168,823
5.73
50.24
Coast
36,858
1.22
62.10
Eastern
14,016
0.27
57.56
North Eastern
2,556
0.22
63.09
Central
19,738
0.47
29.73
Rift Valley
34,124
0.39
50.10
Western
5,031
0.13
58.75
Nyanza
11,914
0.24
63.05
National
293,064
0.86
56.00
Source: TKL (2006) Welfare Monitoring Survey (1997)
2
Poverty rates are given as per the 1997 Welfare Monitoring Survey.
21
Cellular Telephony Services
The Kenya Posts and Telecommunications Corporation (KP&TC) introduced cellular or mobile
telephone services into the country in 1992, through the analogue system known as the Extended
Total Access Communication System (ETACS) that was commercially launched in 1993. At this
time, the services were so expensive that it was only a few rich people who could afford them.
The cost of owning a mobile handset was as high as Kshs 250,000. Not surprisingly, therefore,
only 20,000 lines were developed over the 1993-1999 period. With the restructuring of the sector
in 1998-1999 that allowed competition and private sector participation in the sub-sector, thus the
mobile services sector is now a duopoly with two service providers - Safaricom and Celtel. The
two companies were licensed in 1999, the new ICT policy aims to obligate service providers to
universal service (CCK, 2006).
Both Safaricom and Celtel Kenya have realized tremendous growth in subscriber rollout over the
last five years (Figure 1), which saw their combined subscriber base reach about 3.4 million by
December 2004 and according to the Economic Survey of 2006 last year subscribers mobile
service subscribers are now 5.6 million up from the previous year’s 4.3 million registering a
growth rate of 56.1 percent.
Internet Services
An NGO, the African Regional Center for Computing, and a small private company, Africa
Online, introduced Internet services in Kenya in 1993. Africa Online has since grown into one of
the largest corporate entities in Sub-Saharan Africa. The business environment for non-public
sector providers was very hostile then. The size of the Internet services market in the country,
which amounted to only 250,000 users a few years ago, had grown to 500,000 by 2001 and 1.3
million by December 2003 currently it is estimated to be over 2 million users (ITC, 2006).
Despite increasing liberalization, ISPs still face considerable problems including high tariffs and
poor service reliability, as they are dependent on Telkom Kenya for the Internet backbone
services. Not surprisingly, therefore, less than half of the 78 ISPs that had been licensed in 2004
are operational. Besides the ISPs, there are over 1000 Cyber cafés countrywide providing Internet
services to many people, at increasingly affordable rates, in both rural and urban areas. This has
been facilitated by the Post Office Protocols (POPs) established by JAMBONET in several parts
of the county. JAMBONET has also pioneered provision of Free net service connections to
people with PCs and modems, the major beneficiaries being households and SMEs required to
22
pay only for phone time. However, CCK discontinued this service in 2004 when ISPs complained
that JAMBONET, the only supplier of Internet backbone services at the time, was giving them
unfair competition in retail Internet services (CCK, 2005).
The scope of Internet connectivity may be constrained by inadequate infrastructure and the lags
involved in setting up of fixed line infrastructure. Similarly, connectivity within the region is poor
because of lack of high capacity optic fiber on the East African Coast.
Satellite Communications
Satellite communication technology has been in use in East Africa for international gateway
links. This is likely to increase with domestic link Very Small Aperture Terminals (VSAT)
stations, as the technologies offer quick and cost effective solutions for establishing links to and
from remote areas where the provision of terrestrial infrastructure would be cumbersome, costly
and time consuming. In the case of Kenya, VSAT facilities have been employed to establish
external gateways even in urban areas because of the poor quality of services provided by Telkom
and JamboNet. However, the licensing procedures have been very restrictive, requiring approval
of CCK in consultation with Telkom/JamboNet (UNCTAD, 2005).
The majority of those benefiting from VSAT connectivity have been commercial entities and
embassies transacting businesses internationally. Several applications for authority to offer direct
connection via VSAT have not been approved yet. Indeed, while a liberal and pro-competitive
stance has been taken with respect to Internet and other telecommunication services, independent
international gateway operators are permitted on a case-by-case basis (UNCTAD, 2005).
Data Services
Data service connectivity has also improved markedly and is forecasted to expand considerably in
the next few years (Table 7). High-speed digital data circuit’s service, KENSTREAM, was
launched in 1996, while other data communication services operated by KENSAT and
SAFARISAT have also been launched.
23
Table 7: Data service connections in Kenya, 2000/01–2007/08
Actual
Forecast
2000/1
Kenpac
2001/2
2002/3
2003/4
2004/5 2005/ 2006/ 2007/
6
7
8
525
530
540
550
570
580
600
620
2147
2600
3100
3800
4600
5600
6900
8400
Kenstream
454
660
990
1400
2000
2800
4000
6000
Telex
651
650
650
650
650
650
650
650
30
50
70
90
120
150
200
280
Analogue circuits
JamboNet & I-Xpress
Source: Draft 9th National Development Plan.
3.3.2
Access to Services and Information.
Accessibility seeks to measure physical access to services; the urban areas have access to all
types of services with highest rates of penetration. Infrastructure, connectivity and access in
Kenya, as measured by the fixed telephone exchange capacity and the number of connections;
tele-density; the numbers of Internet hosts and users, and personal computers (PCs); and the
number of cellular telephony providers, have improved significantly over the years in response to
the changing policy and regulatory environment (Tables 8 a and b).
Table 8a: Telephone exchange capacity in Kenya, 1990-2004
1990
1992
1994
1996
1998
2000
2002
2004
Exchange capacity, thousands
228
324
346
380
390
405
466
627
Exchange connections, thousands
175
205
222
256
272
301
373
502
0.738
0.813
0.828
0.905
0.912
0.997
1.17
1.49
Tele-density
(Fixed
telephone
lines per 100 people)
Source: GoK Economic surveys, Various
Table 8b: Trend of Connectivity and Access in Kenya, 1995-2004
Connectivity measure
Internet hosts per 10,000 people
1995
0.0
1998
0.2
1999
0.2
2000 2001 2002 2003 2004
0.3
0.93
0.83
19.87
16.83
22.96
32.60
46.61
Internet users @ 1000 people
…
…
….
PCs per 1,000 people
0.6
3.4
4.2
1.71
2.55
6.95
7.95
9.84
Telephone main lines per 1,000
8.4
9.9
9.9 10.24
10.4 10.32 10.04
8.63
people
Cellular service providers
0
0
1
2
2
2
2
2
Source: UNCTAD, 2006
24
Tele-density stands at about 0.16 fixed lines per 100 people in the rural areas and about 4 lines
per 100 people in the urban areas (Table 8b). The national telephone penetration factor, that is the
percentage of households/offices with a telephone, stands at about 4.2% but varies widely from
0.1% in the very remote districts to 27.7% in Nairobi. However, most of the telephones in the
urban areas are located in offices rather than in households (UNCTAD, 2006). Thus, in spite of
the adoption of Universal Access/Service policies and explosion of telephony services occasioned
by the advent of liberalization, privatization and introduction of the mobile/cellular services, the
rural sector coverage still remains deficient.
Recent developments in improving telecommunications infrastructure have seen Telkom Kenya
introduce a fiber optics cable running from Nairobi to Mombasa. The program is worth US$ 200
million (Kshs. 14.7 Billion) and scheduled to run from Mombasa to Nairobi covering 500
kilometres and Nairobi to the northern corridor. This program is to ensure expansion of Internet
bandwidth, teledensity and implement rural telecommunications program covering all districts
(Daily Nation, June 12th 2006). The long distance optic cable has capacity of STM 16 operating at
2.5 gigabytes per second, this will see an improvement of efficiency reliability and speed of both
voice and data services.
3.3.3
Cost and Affordability
1.
Telephony
The increase in mobile telephony services in the country has been accompanied by a decline in
the cost of connection and handsets. The connection fees for Celtel, for example, have declined
by 44%, from Kshs 1,490 to 990 currently. The price of calls has remained more or less constant
(Table 9), however, partly because of introduction of an excise tax of 10 percent on airtime in
2002, the cost of local fixed telephony services has gone up significantly while those of distance
calls have fallen. The cost of international calls dropped much more especially due to the
introduction of VoiP. Thus, depending on the destination of the calls, data from Telkom Kenya
shows that prices fell by 55-73% from $ 2.00-3.30 per minute in 2000 to 0.90 in 2005.
25
Table 9: Telephone Call Charges in Kenya (Kshs per minute peak hours), 2002-2005
Year
TKL
2002
2003
2004
2005
5.60
6.50
7.40
8.00
Local Calls
Distance
Distance
Calls
to
60- Calls >230 Mobile,
Safaricom Celtel Calls
230Km,
Km, TKL
TKL
TKL
28.50 28.20
20.00
25.00
27.00
28.50 28.20
17.80
22.30
27.00
28.50 28.20
17.40
17.40
27.00
27.00 28.50
12.00
12.00
27.00
Calls
to
East
Africa,
TKL
44.00
39.00
46.00
40.00
Source: Telkom Kenya and CCK, 2006
Affordability of fixed telephony services in Kenya has, moreover, improved from 12.1% in 2000
to 7.6% by 2003 due to increasing competition (UNCTAD, 2005).
Close to 80% of telephony use among Kenyans is now mobile, and less than 10% is fixed
telephony (Fig. 2). On average, moreover, Kenyans spend Kshs 600 per month on mobile
telephony compared with only 110 on fixed telephony, 419 on email, 362 on Internet, and 55 on
post mail (CCK/IDRC, 2004).
Fig. 2: Means of communication used by Kenyans
Source: CCK/IDRC (2004).
2.
Internet Services
The tariffs for Internet connectivity, even the backbone services that have so far been supplied by
Telkom Kenya alone, have also fallen drastically following reforms which subsequently led to
competition thereby improving affordability. The international connectivity charges have not
changed much in the last five years, however, because of Telkom Kenya monopoly. This
situation is likely to change, with considerable benefits to consumers in the form of reduced cost
and improved quality, should there be a second service supplier.
26
The rapid growth in the number of ISPs has improved the quality of service and reduced its cost
tremendously. While the cost of Internet services was as high as Kshs 5.00-10.00 per minute in
1998/2000, for instance, this has fallen to Kshs 0.50-1.00 currently, which has improved access to
many low income earners.
3.3.4
Employment and Wages in the Sub sector
The Liberalization of the sub sector and subsequent entry of new players in the market have led to
major benefits in terms of employment. Records of the two mobile companies (Safaricom and
Celtel) show that they have directly created a little over 1000 new jobs. The figures for indirect
employment are difficult to calculate but are evidently substantial. These jobs are in dealership
distributions and agency business; the many outlets that retail telecommunication products and
services like telephone handsets and related accessories, and airtime; support services; computer
assembly; and repair/maintenance services for hardware and software.
The overall net employment impact of reforms in the telecommunications sector is not easy to
judge, however, as Telkom Kenya is expected to retrench 11,000-14,000 employees. It is almost
certain that the net impact will be positive, however, as the potential for more jobs in the sector is
greater especially with opportunities arising for participation of micro-entrepreneurs.
Participation of Micro and Small Enterprises and the Community Phones3 program
The participation of small and medium enterprises (SMEs) in the non-Telkom exclusive services
increased substantially after liberalization. This has specifically occurred in the area of cyber
cafes and Community phones. It is estimated that there are over 1000 cyber cafes in Kenya today
all run by Small and Medium Entrepreneurs; this provides both incomes and employment for a
considerably large number of Kenyans working in these cafes. There are also a number of other
traders engaging in sale of mobile phone handsets, mobile phone accessories and airtime who
have gained meaningful employment and incomes through liberalization and subsequent growth
of the telecommunications sub-sector.
On the other hand the community-based mobile telecommunication services are provided by both
Celtel and Safaricom Service providers locally known as “Simu yetu” and “Simu ya Jamii”.
These initiatives have provided easy access to cheap and affordable communication to the lower
3
The Community Phone is locally known as “Simu ya Jamii” and “Simu Yetu”
27
income bracket who do not own mobile phones. Furthermore, the initiatives have provided
incomes to many poor Micro-entrepreneurs who have benefited from programs such as K-Rep’s
and Safaricom’s “Micro-lend” initiative targeting credit to Micro entrepreneurs who wish to
operate community phones. Estimates from the Nairobi City Council indicate that there are about
10,000 such operators in the city alone. Others are also spread in the rural areas and other towns
such as Kisumu, Mombasa and Nakuru.
Community phones have also helped to achieve some of the universal access goals through
improved accessibility of communication and information services in rural areas that do not have
infrastructure to support expansion of fixed line telephony. Cases have also emerged where the
disabled who would otherwise be destitute have benefited from specially designed community
mobile phones through a pilot project entitled “Community Telephone Business for paraplegics
for the Kenyan Paraplegic Organization (KPO) sponsored by the Safaricom foundation.
3.4
Telecommunications and Trade in Kenya
3.4.1
Trade in Telecommunications Equipment and Services
Growth of the telecommunications sub-sector has created demand for telecommunications
infrastructure, machinery and mobile handsets. This has led to increased imports especially of
mobile phone handsets and related accessories especially from countries such as Dubai, Finland,
UK and China, though the value is not documented, this has led to increased trade in the subsector. Kenya is therefore a net importer of telecommunications equipment, apparatus and
accessories. In 2002, for instance, the country’s imports of these equipments was valued at Kshs
9.63 billion as compared to exports valued at only Kshs 27 million (KRA, 2003). The main
imports were:

Automatic data processing machines (Kshs 2.89 billion);

Assembled or partly assembled mobile phones (Kshs 1.87 billion);

Digital line apparatus (Kshs 1.73 billion); and

Parts and accessories for use in telecommunication and sound reproducing apparatus
(Kshs 0.90 billion).
In the case of telecommunication services, Kenya’s exports are very small. In 2000, for example,
the country exported communication services worth US $ 22 million or 2.2% of the total services
exports that year. The main reason for that are the many years under which the sector was
28
constrained by restrictive regulatory environment. This environment hampered the sector’s ability
to develop its export potential. Even though recent episodes of liberalization and privatization
have made significant improvement in telecommunications capacity, there is still weak domestic
supply capacity especially due to underdeveloped basic infrastructure. Lack of an optic fiber
network infrastructure in the East African coast also continues to hamper the Kenya’s ability to
exploit its export potential (UNCTAD, 2006).
3.4.2
Telecommunications as vehicle for Trade in Kenya
On the other hand improved Telecommunications services have also led to increased information
access for traders-both Importers and exporters of goods. The internet has also allowed some
firms to market their products and even buy and sell through the internet, such has been seen in
the textile industries operating in the EPZ who are listed on the internet and have their products
listed for potential buyers to contact them. Other initiatives involve programs that help farmers in
getting information for markets and prices of produce illustrated in Box 1. Telecommunications
has therefore proved as a vital tool for traders and producers to access vital information, which
has subsequently led to increased trade, this is specifically important for Micro and small
enterprises and poor farmers.
29
Box 1: Programs to Access to Market Information through Telecommunications and ICTs
in Kenya
A notable project on the relationship between wireless technologies and agriculture is DrumNet,
the Pride Africa project. It offers support services to smallholder farmers who too often operate
their businesses without access to information, financial services or markets. Launched in 2002,
the project has been designed to bridge this gap through ICTs, efficient business processes and
economies of scale. For a small fee, DrumNet provides marketing and financial services for
agricultural entrepreneurs. The pilot phase is currently operating in Kirinyaga and Nairobi in
Kenya, but it is envisaged that DrumNet will grow to become a broad network of information
access points for agricultural producers throughout East Africa. DrumNet's information access
points or 'info-kiosks' are equipped with a computer with a dial-up connection to the Internet and
a mobile phone (GSM) to link up with the central hub in Nairobi. This acts as the main
server/database for storage and retrieval of information. Each is managed by an info-broker
preferably from the local area. The individual info-kiosks have been designed to keep start-up and
operating costs low and allow the info-brokers to reach rural areas typically untouched by such
services.
A similar initiative to that of DrumNet is run by the Kenya Agricultural Commodity Exchange
(KACE), which links sellers and buyers of agricultural commodities. KACE launched an SMSbased information service, SokoniSMS21, for farmers to receive market prices from markets in
Kenya. This has enabled the farmers to bypass the middlemen who usually buy their products at
very low prices. KACE has several market information points around the country from which
they send price information to its headquarters in Nairobi. On its part, the team at the KACE
headquarters uses a simple application that offers a web-based interface to update market prices
onto the servers at the mobile phone network operated by Safaricom. The farmers are
automatically charged Ksh. 7 (US$ 0.09) for each message delivered to their phones, but surfing
the menu is free.
Source: Adeya, 2005
3.4.3
Kenya Commitments in Telecommunication services under GATS
According to Kenya’s Schedule of Commitments under the GATS framework, Kenya has since
1998 made commitments in all five areas of telecommunication services:

Fixed telephony;

Mobile telephony;
30

Value added services;

Internet; and

Audiovisual services.
The specific services committed include telecommunication services except video and audio
broadcast, voice telephony services, facsimile services, packet swift data transmission services,
telegraph services, electronic mail, and electronic data interchange.
With these commitments, however, there are limitations especially on market access. These
limitations include foreign equity limits; public monopoly over basic telecommunications (often
for specified periods); prohibition of international call back services; movement of natural
persons is unbound except for managers and other expert staff; commercial presence in
audiovisual services, motion picture and videotape production (except distribution services) is
unbound; and cross-border trade for motion picture projection is unbound (WTO, 2006).
The country has implemented all the tenets of the telecommunication reference paper to
varying degrees as dictated by its capacity and competence. First, immediately KP&TC was
restructured in 1999, CCK was established as the independent regulator. It has since performed its
services impartially in spite of TKL’s dominance and monopoly status in fixed line telephony and
Internet backbone service.
In addition, CCK has published on its website the licensing criteria, terms and conditions of
accessing services including reasons for denial, transparency in interconnection arrangements and
modalities of dispute settlement. In the licensing of operators in both mobile and fixed line
telephony services, Kenya obligates them to universal service access, an objective that is
enhanced further in the ICT Policy Paper of 2006.
The bold policy reforms embraced in the Kenyan telecommunications sector since 1998/99
largely coincided with the country’s commitments in telecommunications under the GATS
framework. These reforms have brought considerable benefits to the economy by way of
improved service availability, accessibility, affordability and efficiency as earlier discussed.
Requests for further commitments
Besides the commitments Kenya has already made within GATS, the country has received a
number of requests for further commitments on market access and clarifications. The requests
31
were received as part of the ongoing GATS 2000 negotiations that are yet to be concluded. The
US, EC and Norway have made requests for commitments in communication express delivery;
commitments that reflect market opening in audio-visual; explanation and/or removal of
restrictions on international callbacks, Telkom monopoly, satellite based services, mobile
services, and the limitation of foreign equity participation to a maximum of 30%; and full
commitments in basic telecommunications and value added services.
The deepening of liberalization in the telecommunication sector undertaken in September 2004.
In order to attract foreign investment and technology into the country’s telecommunication
services, there is need to deepen reforms by making further commitments within GATS
particularly for those services that Kenya does not have adequate and sufficient capacity to
undertake. These include basic telecommunications and satellite based services. For most of the
value added services, however, the country has or could quickly build supply capacity. Requests
for further commitments on these should therefore be considered case by case against the existing
or potential local supply capacity.
32
4.0
Stakeholder Perceptions on Liberalization and its Effects
Major stakeholders interviewed included the Communications Commission of Kenya (CCK)
which is the National Regulatory Agency; major Service providers; Telkom Kenya, Safaricom
and Celtel. Other stakeholders included major Internet service providers (2), cyber cafes (3)
community mobile phones (3) and consumers of the services (9) drawn from lower middle and
upper income brackets.
The level of awareness of sub-sector reforms and further liberalization was quite high. All
respondents were aware of liberalization and reforms that took place in the telecommunications
sub sector especially liberalization of mobile services, liberalization of Internet services and
VoiP; establishment of a national regulating Agency (CCK) and privatization of Telkom Kenya.
However stakeholders were not consulted before liberalization and thus there are no safety nets
and complimentary policies set up for stakeholders to cope with effects of liberalization. For
instance Telkom Kenya as a result of liberalization and privatization had to restructure and
rationalize their number of employees through retrenchment, this saw roughly 11,000 employees
retrenched since this process began in 1999. Telkom Kenya has also lost revenue which has led to
reduced profitability since the liberalization of the mobile sub-sector, furthermore the demand for
fixed lines has also reduced.
Stakeholders felt that accessibility to services had improved tremendously especially with the
introduction of mobile phones; all respondents felt that the effect was positive with 60 percent
feeling that is was very positive. All firms interviewed except for Telkom Kenya had experienced
increased profitability as a result of liberalizing the sub-sector; 60 percent of respondents had
thought that liberalization had very positively impacted on their profitability, this was mainly
observed in the ISP providers and the Community phone operators. In terms of employment
creation 54.5 percent felt that liberalization had positively impacted on employment creation and
45.5 percent felt that the effect was very positive. Safaricom alone has created direct employment
to about 1000 Kenyans and indirectly to over 20,000 people through their retailer outlets and
community phones, this has a direct impact on poverty since community phones are mostly
operated by micro-entrepreneurs, majority of whom are poor.
Liberalization of the sector has led to increased investments especially foreign direct
Investments. Vodafone UK had to pay US $ 55 Million in order to obtain their license and made
33
further investments in telecommunications infrastructure of high value. Further local investors
have also benefited in terms of rising investment opportunities in the cyber cafes, community
phones and provision of related services including trade in mobile handsets and computer related
accessories. Diffusion of skills and Technology within the sub-sector has also improved since
liberalization; this has been mainly in the area of computer technology, online courses and
telecommunications operations. Most firms therefore responded to effects of liberalization
through training of their employees to improve skills.
With regard to cost and affordability of services, at least seven out of 16 respondents felt that
that costs were very high, while another 9 felt that the costs were just high. Only two respondents
felt that telecommunication services were affordable. Consumers felt that the cost of mobile
airtime was too high even though the cost of acquiring a mobile hand set and a Sim card had gone
very low; this is in part due to 10 percent excise duty on airtime and 16 percent value added tax,
which makes 26 percent of airtime costs going to tax.
Constraints faced by players in the industry included high operating costs- electricity and fuel;
and poor infrastructure (both road and telecommunication infrastructure) impeding access to rural
areas. Unreliability and poor quality service was also cited as a major constraint especially in
Internet services, slow speed and constant interruptions related to network problems. Access to
services in rural areas is also a major concern among stakeholders. Telkom Kenya monopoly was
cited as one of the reasons for poor provision of landline services. Delay in service provision,
congestion of network inflated bills and delays in resolving billing questions were cited as some
of the major reasons for consumers’ preference of mobile services.
Among key reforms that stakeholders would wish to be undertaken to improve the sub-sector are:
Introduction of a Second national Operator to provide landline services; improve access to
services in the rural areas; reduce costs of mobile phone communications, reduce taxes on airtime
and licensing of a third mobile operator. The fiber optic cable linking the mainland to the coast
areas was also seen as a major breakthrough that will result in reduce costs in provision of
internet relates services and reduce network problems associated with satellite communications.
Major service providers called on the government to improve infrastructure in order for them to
penetrate the rural areas and reduce their operating costs. Among other issues raised included,
34
speeding up of unified licenses to increase penetration and reduce costs of communication; and
implementation of the 2006 ICT policy.
35
5.0
Conclusions and Policy Implications
Trade liberalization in Telecommunications sub-sector worldwide was initially done through the
ITU, however since the introduction of the WTO, further liberalization was done through the
Agreement on Basic Telecommunications (ABT) which calls for progressive liberalization of the
sector while encouraging competition, privatization, transparency formation of national
regulating agency and universal access obligations. Kenya has gone through a series of reforms in
the telecommunications sub-sector since the year 1997. What used to be a monopolistic public
sector driven service has been gradually transformed into a competitive and growth oriented
sector driven by private sector and foreign capital, this was mainly done through the splitting of
the once monopolized KP&TC into the Postal corporations, Telkom Kenya and creating of a
regulating agency – the Communications Commission of Kenya which has ensured competition
and fair play within the sub-sector. The introduction of the ICT policy if well implemented will
lead to further reforms in the Kenyan telecommunication service industry which will obligate
major suppliers with universal access, this will enhance further service provision in the rural areas
where the poor are mostly concentrated.
Liberalization of the sub-sector has had major implications on access to services, which has
improved especially with the introduction of Mobile telephony; rural areas and urban poor areas
which have no infrastructure for penetration of landline services can now access communication
services. Costs and affordability of services still remains a major challenge especially for the
poor. On the other hand, the liberalization of the sub-sector has led to employment generation
both directly and indirectly. Even though Telkom Kenya had to restructure and retrench most of
its staff, Safaricom and Celtel have both provided employment directly to about 2000 people and
indirectly to another 2 million Kenyans though community phones, sale of accessories, internet
and cyber cafes and ISPs. This has and will continue to impact positively on poverty. Though this
may be the case the real impact of liberalizing the telecommunications sub-sector still needs to be
quantified most probably through a larger study.
Kenya has fulfilled its obligations under the WTO, through competition privatization and
domestic regulation through establishment of CCK, this has led to attraction of foreign
investment. Kenya’s commitments under GATS also reflect that Kenya is actively taking part in
trade in telecommunication services, however requests for further commitments on market
36
access-foreign equity limits and public monopoly clarifications are needed so as to enhance
foreign investments and increase competition.
From the foregoing; much progress has been made in terms of liberalizing the
telecommunications sub-sector including the enactment of ICT policy of 2006, which provides a
framework for further liberalization, and regulation of the sub-sector including universal access
obligations. What remains to be seen is the implementation of the policy to ensure tangible
benefits to the poor.
Key stakeholders in the sub-sector also view costs of communication as a major constraint, thus
efforts should be made into unified licensing which will reduce costs, and reduction of tax on
airtime should be made a major priority in order to increase economic access of services to the
poor. Licensing of the SNO should be speeded up because as it is Telkom Kenya cannot cope
with demand for landline and rural area coverage due associated costs. Infrastructure
improvement and costs of electricity and fuel should be reduced in order to reduce operating costs
of major service suppliers especially in the rural areas and ensure ease of penetration into these
areas.In order to make more specific policy implications, a study should be done in order to
establish the real economic impact of liberalizing the sub-sector and its effects on poverty.
37
6.0
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