Monday, June 28, 2010

SUSTAINING THE COMPETITION, PROTECTING THE CONSUMERS AND MOBILE NUMBER PORTABILITY IN THE NIGERIAN TELECOMMUNICATIONS MARKET

The Nigerian mobile telecommunications market has continued to grow in leaps and bounds creating opportunities for further investments. These investments have continued to increase exponentially in proportion to the increase in the subscribers’ base which currently stands at 96,110,538 connected lines. This has made the Nigerian telecommunications market the largest in the whole of Africa and the fastest growing from a developing nation. The service providers have continued to introduce innovative service offerings to their numerous customers. The latest addition to this is the proposed mobile number portability to be superintended by the Nigerian Communications Commission (NCC) which is supposed to go live on the network of all mobile service providers before the end of September 2010. This service will enable mobile subscribers to retain their mobile numbers when changing service providers.
No doubt, this will create more value for mobile subscribers who will not have to incur more costs when switching service providers.

This article highlights instances where competition and or consumer protection issues are likely undermine the rationale of NCC for mandating mobile number portability in the Nigerian telecommunications market. It also looks at the new role of the NCC as the sector regulator in stemming the tide of these issues.

MOBILE NUMBER PORTABILITY (MNP)

Mobile number portability is a process that enables a mobile subscriber to retain his mobile number when changing from one service provider to another. This is a tremendous improvement from the traditional method where customers were instead required to give up their numbers when switching providers. As a result of this, customers were saddled with the possibility of missing calls from people who do not yet know their new number, printing new contact cards, notifying all their important contacts about a change of their number, e.t.c. This inability to port numbers generally increased the reluctance of subscribers to change service providers, even when they were experiencing poor quality of service (QoS).

According to the NCC, the rationale for the introduction of MNP are the removal of barriers to the freedom of choice of the mobile subscribers in choosing their favorite service provider, ensuring further competition among service providers in service delivery, acts as an incentive for service providers to improve on their services and removal of barriers to market entry. This is the major policy emphasis of a liberalized telecommunications sector.

The international operational standard for implementing MNP is for a subscriber wishing to port his number to contact his new service provider who then arranges the porting process with the old service provider. This is known as the ‘recipient-led’ porting. The other method implementing the porting process is known as ‘donor-led’ where the customer wishing to port his number approaches his service provider (donor) for a port authorization code (PAC) which is given to his new service provider (recipient) for the activation of the porting service.

COMPETITION AND CONSUMER PROTECTION ISSUES

Sustaining open market competition and ensuring that telecommunications’ subscribers are protected in the Nigerian telecommunications market underscores the reason for implementing MNP. A key issue here usually concerns the cost incurred by subscribers when switching service providers as this can be a barrier to entry and or distortion of competition. Without regulatory prompting, service providers see no incentive in providing MNP, since they fear the depletion of their customer base arising from poor quality of service, thus MNP has a significant role to play in ensuring that not only are switching costs kept to a minimum, it can also provide a competitive edge to service provides who have in place, better service delivery mechanisms. By improving customer satisfaction, MNP is seen as a useful tool in encouraging and sustaining open competition in the telecommunications market.

Some of the pertinent competition and or consumer protection issues likely to undermine the benefits associated with the implementation of the MNP process are:

1. Switching costs
In a sufficiently competitive market, telecommunications subscribers will usually switch from a service provider that fails to provide adequate service to another one that provides better service. Doing this, subscribers will usually incur costs if they decide to change their service provider. While many of these costs are non-pecuniary, they may have a significant impact on the total call value of a subscriber or may pose a barrier to the late market entry of a competitor. Some of the costs incurred when switching to another service provider are: - the need for a compatible equipment in instances where a GSM service subscriber may wish migrate to the network of a CDMA service provider, in switching, the subscriber will usually acquire a new handset compatible with the CDMA network. The second source usually involves the transaction cost of the switching process as subscribers may be required to register and apply to port their numbers as the process may be charged for a fee. Another source of worry is the cost (usually time and money) spent in printing new stationary with your new numbers and informing your current contact list about this change of number.

When these costs are substantial, it’s likely to result to subscriber lock-in effect to networks of particular service providers even when competing brands offer lower prices and better service quality. In addition to this, some service providers may actually require that subscribers intending to port their numbers pay an exorbitant fee. In close proximity to this would be the penalty fee to be paid by post paid (contract) subscribers who may wish to terminate their contracts so as to switch to another service provider. As these subscribers have contractually bound themselves to the service providers for specified periods of time, they are liable to pay termination fees if they choose to terminate their contract at an earlier time.

When these fees border on the high, it tends to inhibit switching and may constrict the subscriber’s choice. This may also be a source of competition worry as new market entrants may not be able to attract customers away from incumbent service providers.

2. Port Duration
This is the time it takes from when a porting process is initiated till the time it ends. The NCC recommended timeframe is 2 working days based on the existing network capability in Nigeria. Despite this recommendation, the possibility still remains that service providers may use slow procedures in churning a subscriber so as to discourage them from switching. An incumbent service provider with a large subscriber base can actually manipulate the timeframe by either denying or prolonging the porting process, if this happens, then it would be contrary to NCC’s intention for the porting duration and be in direct conflict with section 12 of the Consumer Code of Practice Regulations 2007 which provides that: licensees shall provide services within any service supply time targets set out in the Commission’s Quality of Service Regulations…

3. Subscribers Win-back Strategies
MNP will introduce new strategies for service providers in retaining or winning back their subscribers. These strategies may take the form of marketing calls to subscribers of rival service providers offering discount or promoting selective offers with the main aim of poaching them. A standard feature of a winback strategy is that it is targeted at only a portion of the competitor’s customers who were once customers of the incumbent. As this strategies are a form of selective price discrimination towards the competitors customers, it may constitute anti-competitive behavior aimed at marginalizing new entrants. The post-Chicagoan school of economic thought posits that such selective discount offered to theses former customers is likely to have an adverse effect on the competition by suppressing long-term efficient entry into the market. This school of thought believes that the main purpose of any form of predatory pricing is to drive out the competition. The competition implication of winback strategies continues to be an important factor in any liberalized sector.

4. Tariff Transparency
Without MNP, subscribers are usually able to identify the service providers through their number prefixes. With MNP, this identification is lost since the number prefix does not automatically indicate the network ascribed to a given number. As a result, if calling prices differ between different networks (as is usually the case), subscribers may be unaware of the exact charges for placing calls to mobile networks, a similar scenario to this from an economic perspective is that the consumers will have no knowledge of the price of goods or service they wish to purchase.

Previous studies have indicated that service providers may have incentives for increasing rates for terminating calls on their networks based on the ignorance of the subscribers about the relevant prices. This study has also suggested that MNP may deteriorate the customers’ price information. Full tariff transparency is therefore lost and unless NCC as the regulator intervenes for the prices to be changed, callers may actually have to pay more than expected for certain calls.

THE WAY FORWARD
As rapid technological changes continue to shape the Nigerian Telecommunications market, the behavior of subscribers will continue to be impacted, presenting new challenges for the NCC. The main focus of this challenge will be to ensure that favorable market conditions exist which thrives on technological innovations, whilst still ensuring that the interests of subscribers are protected.

When competition is sustained, then the subscriber’s right to exercise his choice is unimpeded. As switching costs have an implication for the structure and competitiveness of the markets where telecommunications technology incompatibility in the mobile phone industry makes both physical capital and human investment into particular service unassignable. To ensure that consumer enjoy the benefits of migrating to the network of their choice service provider, NCC must play a role in ensuring that switching costs are kept to a minimum. Service providers must be deterred from even the slightest possibility of leveraging on the size of their (locked-in) subscribers by arbitrarily raising the price of their service.

The NCC recommended timeframe for porting should be religiously complied with and rigorously enforced so as not to discourage the churning of subscribers. An intentional contravention of this directive will amount to a breach of both the QoS and Competition Practices Regulations, making the defaulting service provider liable to enforcement measures from the NCC.

Even though, it is NCC’s intention not to implement restrictions to customers win-back by service providers, it must take cue from competition authorities in North American and European countries, where win back strategies have come under serious scrutiny. For instance, in 2004, the Kansas Corporation Commission enforced a win-back prohibition forbidding the incumbent from attempting to win back a customer within 30 days of the switching. NCC should toe the post-Chicagoan way by recognizing that win-back strategies under certain conditions may have the effect of lessening the competition.

The ability of customers to be able to predict calls they place must not be eviscerated by MNP. NCC recommends that this capability shall be provide in real time by a beep, a display of the tariff or service information on the subscriber’s terminal screen or voice recorded announcement before a call to a ported number is going to incur a different cost than it would have been charged before the number was ported. The regulatory best practice is to ensure that subscribers are well informed about prices, NCC must work diligently to ensure that service providers comply with this best practice.

The role of the NCC in Nigeria is not a static one, it continues to shift according to the dynamics of the telecommunications market, it is primarily focused on achieving a sustained competition that guarantees the protection for the rights of the subscribers. The implication flowing from this will be the attraction of more investments into the market.

Finally the goal of all liberalized markets is to ensure competition, once this is achieved, the right of the consumers to choose remains unrestricted. The NCC in all case must be ready to intervene if this competition comes under threat.

MNP does actually stimulate competition, if implemented properly will lead to a lowering of switching cost, resulting in added value to the existing services already been enjoyed by the Nigerian telecommunications subscribers.

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