A few days ago, the Nigerian Communications Commission (NCC) asked telecom giant MTN to increase its tariff to check its domination of the market. Some argue that NCC was right in stepping into the matter; others believe that it was wrong. Lucas Ajanaku examines the pros and cons of the argument.
The Chief Executive Officer, MTN Nigeria, Brett Goschen, is media shy. So, when it was his turn to speak on the Potentials and prospects of MNP in Nigeria, at the launch of the Mobile Number Portability (MNP) by the Nigerian Comunications Commission (NCC) at the MUSON Centre, Lagos, many had waited to hear what he would say, especially after his counterparts in other telecoms firms, beginning with Segun Ogunsanya of Airtel have spoken.
However, to the admiration of the audience, Goschen, on a lighter note, said there were many reasons why MTN’s subscribers are more than that of its competitors.
Goschen may not be too far from the truth. With the country’s subscriber base above 113 million as at last December, MTN, according to sources, has about 50 million subscribers; its competitors, Globacom, Airtel and Etisalat share the balance.
In a report, the telco said it increased its subscriber numbers by 3.2 per cent in the first quarter of last year to 195.4 million. This growth was led by Nigeria, where it added a net 3.9 million new customers in those three months, helping offset a net loss of 470,000 customers in South Africa, its home market.
KPMG report
The industry growth has led to the increased maturity and sophistication of individual networks and also ushered in intense competition among players.
To ensure fair play in the industry, NCC said it engaged KPMG Professional Services in last June to study the level of competition. Kangid said undertook a similar study for the commission in 2005, where it was revealed that no operator satisfied the criteria necessary for being declared dominant in the mobile and long distance markets, which were considered at the time.
KPMG found MTN and Globacom to be “dominant” in the telecoms sector. “Based on findings, the Commission has determined that MTN is dominant in the Mobile Voice Market,” the report said. In the wholesale leased lines and transmission capacity market, the Commission noted that Glo and MTN had dominant positions.
KPMG noted: “The mobile voice market is not effectively competitive and is still highly concentrated with an HHI of 3063. MTN has a 44 per cent market share of subscribers within this market. There is also a wide differential (of about 300 per cent) between on net and off net calls and this is indicative of the likely establishment of a calling club for MTN subscribers.”
NCC ruled that the dominant operator in the mobile voice market, MTN shall be required to collapse on net and off net retail tariffs: “The differential between the on–net and off net retail tariffs will be immediately collapsed. The tariff for on net and off-net will be the same, and subject to periodic review.”
The regulator said it would enforce accounting separation on the dominant operator, adding that it may require the dominant operator to submit details on specific aspects of its operations from time to time as the need arises.
Stakeholders’ perspective
Analysts fear that NCC ‘s decision is an attempt for the regulator to micro-manage the sector. They argue that since the sector has been liberalised, the onus is on the operators to come out with unique products that will draw customers to their network.
President, Association of Telecoms Companies of Nigeria (ATCON), Lanre Ajayi, said those arguing that the NCC is trying to micro manage the industry have a point. He said it was the duty of NCC to ensure that there is always a level playing field in the industry.
“There is certainly valid argument that the NCC is trying to micro manage the industry but the regulator has the responsibility to ensure that there is a level playing field among the operators, it has the responsibility to also ensure that the dominant operator does not abuse its strength; in other words, they do not oppress the smaller ones. If you recall the days of NITEL, we had that challenge when it was the dominant operator and used its power to oppress the smaller operators by denying them access to connection to the network. We all complained during that time. So, if we complained about NITEL’s dominance then, it is not appropriate to allow dominant operator to oppress smaller operators but the NCC needs to ascertain whether the dominant operator was indeed oppressing the smaller ones. I don’t know if that has been ascertained or not,” he said, insisting that it is within the powers of the regulator to ensure that a dominant operator does not distort the market.
”We should be careful not to encourage NCC to start micro managing the operators. This is something that has to be carefully balanced such that while they are trying to protect the smaller operators against the dominant operator, we don’t end up micro managing the operators. So, we must strike a balance,” he said. The ATCON boss said NCC should not be misconstrued as its effort is to deepen competition, which will benefit the consumers.
“If there is no competition and you encourage a dominant operator, other operators may die and if they do, there will be no competition again and we will be back to the days of NITEL. This is what this effort is trying to do. There is no basis to be scared about the future of the industry based on this development,” he said.
President, National Association of Telecoms Subscribers (NATCOMS), Deolu Ogunbanjo, praised the NCC for the step it took. He said in the United States, the regulator also stepped into the matter involving Microsoft. “This will further protect the market and ultimately the subscribers. So, there is no basis to fret over the development,” he said.
He said volume should drive the business, adding that with the introduction of MNP, end user tariffs will go down while quality service will be offered the subscribers.
MTN, ALTON keep mum
MTN and Association of Licensed Telecoms Operators of Nigeria (ALTON) decline to comment. While several calls made to ALTON’s Chairman, Gbenga Adebayo, were not picked, he acknowledged a text message, but failed to pick subsequent calls. For MTN, an e-mail sent to its General Manager, Public Affairs, Funmi Omogbenigun, was not acknowledged.
While the Structure-Conduct-Performance (SCP) model was adopted in the study, marketing concentration based on Herfinahl Hirschman Index (HHI), existence of price leadership, exploitative pricing and exclusionary pricing were parameters used under pricing strategies; network coverage was the only parameter used under geographic coverage of the operators.
“The SCP model postulates that the structure of a market determines to large extent the conduct of the participants in the market, which in turn, influences the performance of the firms within the market with respect to profitability and efficiency. This model, or its close substitutes, has been used in assessing competition within the telecoms industry in a wide range of countries including the United Kingdom, the United States, and Kenya. The reliance on this model is considered relevant especially in the context of forward looking ex ante regulation, since conduct detrimental to competition must be anticipated primarily on the basis of the structural characteristics of the market,” the Executive Vice Chairman/CEO, NCC, had Eugene Juwah, said.
Regulator defends stance
According to NCC, dominance in itself is not negative because it is an indication of the effectiveness, resourcefulness and strategic decisions of the operator. It, however, noted that the conduct of the operator determines how its dominance would be perceived, particularly if that conduct is likely to lessen competition and distort the market.
The regulator promised that necessary regulatory tools to correct current and potential anti-competitive practices such as predatory pricing, margin squeezes and cross-subsidisation by any of the operators with dominant position in any of the market segments or sub-segments are to be applied by the Commission.
NCC said the KPMG study started in the form of interactive meetings with the operators, followed by a stakeholders’ forum to sensitise the industry and provide opportunities for constructive contributions on the state of the telecommunication market. In addition, the network operators provided industry data for the study.
Upon review, NCC said the market was segmented into voice, data, upstream and downstream services. The voice and data markets have mobile and fixed sub-segments. The sub-segments of the upstream market are spectrum and frequency services, tower services, network services, wholesale broadband/internet services and wholesale leased lines and transmission capacity services while handsets/devices and applications/contents make up the sub-segments of the downstream market.
Fixed voice loses market
“The study concluded that the mobile voice market is not effectively competitive. The fixed voice market has consistently lost market share over the past three years and no operator was considered by the study to be dominant. Though the mobile data market segment has grown significantly in the last five years, the study concluded that no operator is dominant. With the current circumstances in the upstream supply segment the study concluded that it is doubtful that the fixed data market will achieve effective competition. The study also concluded that the upstream market is not effectively competitive,” NCC said.
NCC said consistent with the liberalisation of the Nigerian telecommunications industry in year 2000, it has facilitated market entry through its transparent licensing processes for various communications services. It added that today, Nigeria is the fastest growing telecommunications market in Africa and it is noteworthy that the giant strides in the telecommunications industry over the last decade were the direct effects of enabling regulatory environment created by the Commission.
It said it acknowledges the resoluteness and commitment of the network operators towards the development of the telecommunications industry and will continue to partner with them as key stakeholders in further advancing the telecommunications market for the benefit of consumers and the entire industry.
It is yet to be seen what impact this will have on the subscriber base of MTN.
