What Free Market. You shutdown mobile money – just like that.

“But as the sun sets on the first decade of the 21st century, that story has already become ancient history. The power of the state is back,” Ian Bremmer, The End of the Free Market.

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On Election Day, frequent users of mobile money woke to a shut-down of the service. Without notification, users were unable to transfer money. The telecoms were silent. The customer care lines were buzzing. There was a scripted answer. “There is temporary interference in the service…”

Somewhere, The Uganda Communications Commission (UCC) boss, Eng. Godfrey Mutabazi talked tough. Tough that it would seem he had a gun to his head. Mutabazi did not exactly state why mobile money had been shut-down. In a blanket statement, “national security” was picked as the reason for the shutdown. The regulator only issued a statement on 19th February 2016 – 24 hours into the shutdown.

The telecoms were loudly silent and it took them six hours to tell their customers the truth. In a manifestation of arrogance at one of the radio talk shows, (Capital FM), Ofwono Opondo, who speaks for the state and the ruling party, stated that no-one had died as a result of mobile money being off. He misses the point.

The shutdown exposed Uganda’s masquerading free-market economy. In other words, someone can wake up one day and with a touch of button turn-off mobile money used by over 10 million people. Shutdown a system which has Shs24trillion worth of transactions annually. The free market was now “safely” in the hands of the state. At least 60,000 agents were out of business for the 3 days.

The senior members of the NRM knew about the shutdown. They too kept quiet. The state had played the “National Security” card. When the spy agencies tell you it is a matter of national security, apparently you can’t ask questions. However, since this was unprecedented and considering the sheer size of mobile money, the UCC ought to have provided explanations. Interestingly, UCC is good at issuing threats. For instance, UCC in 2015 fined MTN Uganda Shs5b for failing to adopt short code harmonization. MTN never paid the fine. Customers have complained about unsolicited messages. UCC issued directives. Unsolicited SMS still exist. On this directive to shut down mobile money, they did not hesitate.

This rushed decision explains another problem for the telecoms. They were threatened. The telecoms obliged. Often they have been let-off by the authorities. Also, 3 days of losses can be recovered. The companies make billions off mobile money. It is cash-trove. That same money that was held on people’s accounts will be eventually moved and the telecoms will earn their commissions on each transaction.

However, the discussion here is not about the losses telecoms may incur. It is rather the reputation of the pseudo free-market system Uganda is operating. It is the fact that the state can interrupt perhaps one of the most important payment systems in the country. In parading national security, – during one of the most important elections – without a single challenge from at least two corporations, the conclusion is that the state is in control. Question is, in whose favor? On that same day, the opposition party, FDC says it had, at least, Shs100m on various mobile money accounts, ready to distribute to agents. These are agents who were supposed to be on the lookout for any irregularities.  They did not.

If a system that transacts nearly Shs80b a day and it is remotely shutdown, without any challenge, then it is safe to say, the financial system can be compromised for political purposes. It is like shutting down the banking system, just like that. The shutdown alone raises Uganda’s investment risk profile but also reduces the reputation of a system that has fostered financial inclusion.

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 “No, because all governments use the tools provided by state capitalism to accomplish political goals, not serve the public welfare. This system allows them to minimize political risks they face by maximizing their controls over activities that generate substantive amounts of wealth.” Ian Bremmer, The End of The Free Market

 

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EzeeMoney vs MTN: That discussion on the competition law is necessary

Creativity is one of the last remaining legal ways of gaining an unfair advantage over the competition. – Ed Mc Cabe.

Sammy Mwathi thought after taking signing an agreement with EzeeMoney, he had expanded his business. Little did Mwathi know he had stepped on the path filled with ants. For being an EzeeMoney agent, he had made a mistake – at least that is the impression. He would be forced to sign an exclusivity agreement to only transact business for MTN Uganda. That’s just the start. On top of signing this agreement, he had to write an apology to MTN Uganda for taking on EzeeMoney business. As he testified in the commercial court division of the High Court, he declined any new business for EzeeMoney “out of fear” that MTN Uganda would terminate his contract. The fear, as other witnesses testified, was being cut-off by MTN Uganda, the largest mobile money services provider.

In 2009, mobile money was introduced in Uganda by MTN Uganda. It has turned out to become a huge success with the amount transacted closing in on Shs24 trillion from Shs11.7trillion with nearly 18 million users. Of these MTN has about 8 million subscribers. The rest Airtel, UTL, and Africell share the other 10 million. MTN also transacts at least Shs16.8trillion of the Shs24trillion annual transactions of mobile money in Uganda.

EzeeMoney, a little-known company, sought to tap into this market by offering third party services by using mobile money. Before they could even take off, MTN used its dominant position to block EzeeMoney from tapping its wide network of 15,000 agents at the time. This was in 2013. It has taken two years for the Commercial Court to reach a decision on a case that EzeeMoney brought to its attention.

“I find by virtue of the defendant being in a dominant position in the business which the plaintiff was also involved decided to act maliciously, high-handedly, egregiously, vindictively and oppressively towards the plaintiff when it withdrew its telecommunications services from the plaintiff with no valid legal reasons, in addition, to actually deploying illegal harassment tactics as against mobile money agents who had freely signed up with the plaintiff in the belief that this is a free market economy where healthy economic competition is allowed…,” Justice Henry Peter Abonyo ruled in a judgment issued on November 6, 2015.

From the court proceedings, MTN Uganda –with a net profit of Shs230bn at the end of 2014 – used its dominant position to keep EzeeMoney off its turf. The gist of MTN’s argument has been that EzeeMoney is not a licensed telecommunications company with the permission to carry out mobile money and communications transactions. A letter drafted by the lawyers of MTN Uganda, Kampala Associated Advocates (KAA), the same point was emphasized.

“MTN respects the decision of the court but fundamentally disagrees with it. MTN is aggrieved by the judgment primarily because EzeeMoney is not a licensed communications provider. MTN cannot be in breach of the law that prohibits anti-competitive conduct with regard to licensed communications service providers when EzeeMoney is not licensed and does not provide communications,” KAA said in a statement.

Uganda has no competition law. Cabinet and parliament have avoided this law as it would establish the Uganda Competition Commission. The role of the commission would be to monitor and punish any anti-competitive behavior.

MTN argues that since EzeeMoney is not a licensed communications provider, the Communications Act doesn’t provide them cover to sue. Any communications company would use the Fair Competition Regulations, 2005 and Sections 2(e) and 4 (s) of the Communications Act to seek legal redress if they feel there are anti-competitive tendencies.

In essence, MTN insists its actions were justified because EzeeMoney was not a licensed communications company. This is the argument that MTN is emphasizing as it appealed the decision of the commercial court. Undoubtedly, MTN Uganda has created thousands of jobs, directly and indirectly, invested in the country and also paid taxes. It has morphed into one of the largest corporates in Uganda with annual investments averaging nearly $90m. That sort of investment needs to generate a return and MTN protected its turf by keeping out EzeeMoney.

Jeff Mbanga, the business editor at The Observer, explains in an article on why Uganda needs fair competition.

“The case offers Uganda a perfect opportunity to discuss the issue of fair competition, especially where large transnationals are involved. Companies that dominate the sectors in which they operate have become so big that new entrants are finding it hard to operate there comfortably,” Mbanga writes.

The debate among policymakers is how to protect the “small investors” from the big players without necessarily hurting the business sentiment. Perhaps the private sector hasn’t made much noise about this law. It is perhaps not yet such an important issue for the country to discuss.

 

 

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