Showing posts with label Competition. Show all posts
Showing posts with label Competition. Show all posts
Monday, December 2, 2013
COMMENT BY CHUKWUYERE E. IZUOGU TO THE NIGERIAN COMMUNICATIONS COMMISSION ON THE OPEN ACCESS MODEL FOR NEXT GENERATION OPTIC FIBRE BROADBAND NETWORK
1. Introduction
1.1 Commenter welcomes the consultation launched by the Nigerian Communications Commission (the Commission) concerning the Open Access Model For Next Generation Optic Fibre Broadband Network (the Industry Consultation Paper). This matter is no doubt of great importance to Nigeria’s economic growth. Consistent with the mandate of Mr. President as set out in the Nigerian National Broadband Plan 2013 – 2018 “Internet and Broadband have been globally acknowledged as the foundation for transformation to a knowledge-based economy. It is also widely acknowledged that broadband infrastructure is an enabler for economic and social growth in the digital economy. Broadband has the potential of enabling entire new industries and introducing significant efficiencies into education delivery, health care provision, energy management, ensuring public safety, government/citizen interaction, and the overall organization and dissemination of knowledge.”
1.2 Comment is in regard to the need for “a robust telecommunication regulatory regime encouraging non-discriminatory and price competitive open access to support nationwide fibre deployment and provision of transmission and fibre services” as set out under Paragraph 3 of the Industry Consultation Paper. The main thrust of Commenter’s argument is the non-discrimination obligation that will be imposed on Infrastructure Companies (InfraCos) and other operators in the Broadband market.
2. Comment
2.1 The question of non-discrimination in granting network access is a key Broadband policy issue today. Commenter strongly believes that the central mandate for the emerging field of network infrastructure policy for National Governments should be the one eloquently articulated by the Commission in the Industry Consultation Paper: Non-discriminatory and open access.
2.2 Commenter believes that the general obligation of non-discrimination is a very important regulatory tool to ensure a level playing field amongst all InfraCos and operators in the market for Broadband services and that the Commission should impose it.
2.3 Commenter suggests that in setting out the specific regulatory guidelines for the management of InfraCos, the Commission should define what constitutes “discrimination” or “discrimination between access seekers” for the purpose of imposing the non-discrimination obligation on InfraCos and other Broadband market operators.
2.4 Commenter wishes the Commission to note that Section 97 Nigerian Communications Act 2003 (the Act) requires that all interconnection and/or access agreement between Communications licensees must comply with the principles of neutrality, transparency, non-discrimination, fair competition, universal coverage, access to information, equality of access and equal terms and conditions [emphasis on non-discrimination].Pursuant to Section 8 b of the Competition Practice Regulations 2007 (the Regulations), discriminating in the provision of interconnection or other communications services or facilities to competing Licensees, except under circumstances that are objectively justified is a conduct deemed to result in a substantial lessening of competition. Commenter notes that neither the Act nor the Regulations in their present form, have provided any clear guidance on what exactly constitutes “non-discrimination”.
2.5 In the case of wholesale Broadband access, which must be provided on a non-discriminatory basis whilst still, ensuring that the quality of service provided to Retail Service Providers (RSPs) is the same as that of the owner and operator of the Broadband network, Commenter is of the view that all competitors should have access to the infrastructure under fair and transparent conditions and any practice resulting in a competitive disadvantage to any operator should be prohibited by the regulatory guideline (to be issued by the Commission). To this end, Commenter sees the need for a clear and specific guideline on the non-discrimination obligation as necessary to ensure consistency in the deployment of Broadband infrastructure.
2.6 Discrimination in Commenter’s view may also relate to elements such as tariffs, restrictions or delays in making network connections, the provision of maintenance or repair services or information about network programming and interoperability, and routing. In respect of the technical configuration of access, Commenter believes that discrimination may arise in relation to; (i) the degree of technical sophistication of the access (i.e. restrictions on the type or level in the network hierarchy of exchange involved in the access or the technical capabilities of this exchange); (ii) the number and/or location of the connection points (i.e. the requirement to collect and distribute traffic for particular areas at the switch which directly serves the area rather than at a higher level of the network hierarchy may have a significant impact on the cost of the company seeking access); and/or equal access. As opined by several academic commentators, discrimination in the conditions of network access will restrict competition on the downstream market on which the access seeker is operating or planning to operate.
2.7 In defining what constitutes “discrimination”, Commenter notes that the Australian Competition and Consumer Commission (ACCC) has adopted a two part test to wit; (i) whether access seekers belonging to the same class have been given an equal opportunity to obtain the same term or condition, or receive the same treatment; and (ii) whether any differences in opportunity between access seekers belonging to the same class are consistent with statutory objectives, thus the ACCC will deem a difference in the terms, conditions or manner of treatment between access seekers as discriminatory unless it passes this test.
2.8 In the US, Commenter also notes that the Federal Communications Commission (FCC) has held in its “Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 Proceeding” that the term “non discriminatory” in relation to the statutory obligation to interconnect (in Section 251 of the US Telecommunications Act 1996) applies to the terms and conditions an incumbent Local Exchange Carrier (LEC) imposes on third parties as well as on itself, the FCC further held: “that the equal in quality standard of section 251(c)(2)(C) requires an incumbent LEC to provide interconnection between its network and that of a requesting carrier at a level of quality that is at least indistinguishable from that which the incumbent provides itself, a subsidiary, an affiliate, or any other party”.
2.9 With respect to non-discriminatory access to unbundled network elements, FCC held that it means at least two things: “first, the quality of an unbundled network element that an incumbent LEC provides, as well as the access provided to that element, must be equal between all carriers requesting access to that element; second, where technically feasible, the access and unbundled network element provided by an incumbent LEC must be at least equal-in-quality to that which the incumbent LEC provides to itself”
2.10 In reaching this conclusion, the FCC rightly noted that an incumbent LEC could potentially act in a non-discriminatory manner in providing access or elements to all requesting carriers, while providing preferential access or elements to itself.
2.11 Also in the European Union (EU), Commenter notes that the Access Directive provides that: “Obligations of non-discrimination shall ensure, in particular, that the operator applies equivalent conditions in equivalent circumstances to other undertakings providing equivalent services, and provides services and information to others under the same conditions and of the same quality as it provides for its own services, or those of it subsidiaries or partners”.
2.10 Accordingly, the central theme in these policy/legal documents suggests that discrimination consists of not only treating like cases alike but also of treating different cases in the same way.
3 Conclusion
3.1 Commenter notes that discriminating in providing access to competing operators in certain circumstance can be a conduct deemed capable of a substantial lessening of competition under Section 8 (b) of the Regulations.
3.2 The European Commission in its public consultation on the application of non-discriminatory obligation notes that traditional investigation into discriminatory conduct of operators primarily focuses on price discrimination while non-price discriminatory conduct are often overlooked and can be equally, if not even more severe. OFCOM the UK communications regulator is of the view that it is unlikely that such non-price discriminatory conduct will be objectively justified by lack of capability to harm to competition. In this regard, Commenter suggests that in issuing guidelines on the non-discrimination obligation, the Commission should kindly note that non-discrimination would include both price discrimination and non-price discriminatory conduct.
3.3 Lastly, the Commission should also note that the obligation not to discriminate in providing access to network infrastructure seeks to ensure that undertakings with significant market power, in particular where they are vertically integrated, do not discriminate against their competitors in favour of their own downstream businesses, thus preventing, restricting or distorting competition.
Submitted by:
Chukwuyere E. Izuogu, LL.M (Hannover), A.CIArb, AMBCS
Streamsowers & Köhn
Flat CT 3 Stallion Estate Lobito Crescent
Wuse II
Abuja-FCT
chukwuyere@sskohn.com
chukwuyere.izuogu@yahoo.com
Monday, August 1, 2011
Adenuga moves to take over NITEL for US $450 Million: Competition issues at stake in the Communications Market
Over the weekend, it was reported by the Thisday newspaper that Dr. Adenuga, the Chairman and owner of Globacom Limited, Nigeria’s second national carrier has made a proposal to the Federal Government of Nigeria to acquire controlling interest in Nigerian Telecommunications Limited (NITEL) for USD 450 Million, through a Special Purpose Vehicle. This particular acquisition is likely to throw up myriads of competition/anti-trust issues that will require the intervention of Nigerian Communications Commission (NCC).
Section 90 of the Nigerian Communications Act, 2003 (NCA) empowers NCC “to determine, pronounce upon, administer, monitor and enforce compliance of all persons with competition laws and regulations, whether of a general or specific nature, as it relates to the Nigerian communications market”. The basis for NCC’s intervention is to prevent communications’ licensees from engaging in anti-competitive practice having the effect of “substantially lessening of competition” (SLC) in any aspect of the communications market (Section 91 (1), NCA). Section 26 of the Competition Practice Regulations 2007 (CPR) made under the NCA also empowers the NCC to review all mergers, acquisitions and takeovers in the Communications market. Transactions coming within the ambit of NCC’s review procedures are; transactions that involve the acquisition of more than 10% of the shares of a Licensee; or any other transaction that results in a change, in control of the Licensee; or any transaction that results in the direct or indirect transfer or acquisition of any individual licence, previously granted by the [NCC] pursuant to the Act (Section 27 CPR a-c). In other words for the review powers of the NCC under section 27 CPR to be activated first there must be the existence of a transaction that falls within the definition of the above listed transaction and secondly, the question of whether or not the transaction will lead to a SLC situation. The NCC is not required to attempt the second question if it is of the opinion that the transaction does not meet the specification of Section 27 CPR. However neither the NCA nor the CPR provides further guidance that will aid in answering these questions.
As already stated, a transaction must meet any of the three criteria above to constitute a transaction requiring the NCC to apply its review procedures. In the particular instance, Adenuga’s intention to acquire NITEL is the most obvious example of the application of Section 27 CPR and meets the jurisdictional threshold of both subsections a and b.
The second question is the application of the SLC test. The term “substantial lessening of competition” is not defined in the NCA but NCC published copious guidelines in the CPR which clarifies the meaning of SLC and determines whether particular conduct will constitute a SLC situation.
Where competition exists, Communications’ licensees contend with each other to grow their subscriber base, NCC is required to consider the instant transaction in terms of the effect it will have on the competition. In a fully competitive market, no one single operator will have market power and hence will not be able to influence market conditions, but must however respond to this competition by offering better prices or quality of service or quantities to attract customers.
An acquisition giving rise to a SLC situation would have a significant effect on the competition in the long run and therefore put more burdens on operators to improve upon their competitive edge. Such transaction would obviously impact negatively on consumer welfare. Irrespective of the commercial rationale for the transaction from the perspective of each of the parties, it still remains a possibility for the acquisition to give rise to a SLC situation through coordinated effects, especially as both GLO and NITEL (if acquired by Dr. Adenuga) may recognize their mutual interdependency and decide that they can reach a more profitable outcome if they coordinate their effort to limit the competition between them, this is even more probable as both companies are the only two companies holding a National Carrier License in Nigeria. Such coordination may be explicit or tacit and may take the form dividing market or by allocating contracts among themselves in a bidding competition. In practice this coordination is detrimental to consumers by eg. limiting production or stifling innovations. In such a case, NCC is required to consider the impact of this acquisition on the likelihood and effectiveness of the coordination.
NITEL also occupies a Dominant position in the communications market since it has control of essential network facilities or similar infrastructure built for and paid for by the Federal Government which gives it numerous competitive advantages over other operators. Access to these essential facilities is required by competing Licensees and that cannot, for commercial or technical reasons, be duplicated by competing Licensees. The holding of a dominant position is not prohibited but it is the abuse of a dominant position that is capable of a SLC situation. A conduct may be in breach of the NCA, the CPR and a communications license condition. For instance discriminating in the provision of interconnection or other communications services or facilities to competing Licensees... under Section 8 (b) of the CPR for example, NITEL may provide interconnection to GLO within a week but delay this interconnection to other operators for months. This conduct would be clearly breaching the communications license condition prohibiting undue discrimination and may also be an abuse of a dominant position contrary to Part V prohibition of the CPR. It is also important to note that agreements relating to any acquisition may still be anti-competitive especially if it is capable of resulting to any of the state of affairs enumerated under Section 13 of the CPR.
Evidence of such detrimental effect will play a key role in determining whether or not a SLC condition actually exists. NCC’s review to determine whether or not there exists a SLC situation is premised on the identification of the relevant market and the competitive effect of the acquisition. Finally, NCC as the sector regulator tasked with promotion of fair competition and protection against the misuse of market power or other anti-competitive practices, pursuant to Part 1of Chapter VI of the NCA would be required in the circumstance to apply mitigating measures such as denying approval for the acquisition/transaction, to recommend that component units of NITEL be acquired, to restructure the transaction, or give conditional approval where regulatory oversight would be used to check mate anti-competitive practices to prevent a SLC situation.
Section 90 of the Nigerian Communications Act, 2003 (NCA) empowers NCC “to determine, pronounce upon, administer, monitor and enforce compliance of all persons with competition laws and regulations, whether of a general or specific nature, as it relates to the Nigerian communications market”. The basis for NCC’s intervention is to prevent communications’ licensees from engaging in anti-competitive practice having the effect of “substantially lessening of competition” (SLC) in any aspect of the communications market (Section 91 (1), NCA). Section 26 of the Competition Practice Regulations 2007 (CPR) made under the NCA also empowers the NCC to review all mergers, acquisitions and takeovers in the Communications market. Transactions coming within the ambit of NCC’s review procedures are; transactions that involve the acquisition of more than 10% of the shares of a Licensee; or any other transaction that results in a change, in control of the Licensee; or any transaction that results in the direct or indirect transfer or acquisition of any individual licence, previously granted by the [NCC] pursuant to the Act (Section 27 CPR a-c). In other words for the review powers of the NCC under section 27 CPR to be activated first there must be the existence of a transaction that falls within the definition of the above listed transaction and secondly, the question of whether or not the transaction will lead to a SLC situation. The NCC is not required to attempt the second question if it is of the opinion that the transaction does not meet the specification of Section 27 CPR. However neither the NCA nor the CPR provides further guidance that will aid in answering these questions.
As already stated, a transaction must meet any of the three criteria above to constitute a transaction requiring the NCC to apply its review procedures. In the particular instance, Adenuga’s intention to acquire NITEL is the most obvious example of the application of Section 27 CPR and meets the jurisdictional threshold of both subsections a and b.
The second question is the application of the SLC test. The term “substantial lessening of competition” is not defined in the NCA but NCC published copious guidelines in the CPR which clarifies the meaning of SLC and determines whether particular conduct will constitute a SLC situation.
Where competition exists, Communications’ licensees contend with each other to grow their subscriber base, NCC is required to consider the instant transaction in terms of the effect it will have on the competition. In a fully competitive market, no one single operator will have market power and hence will not be able to influence market conditions, but must however respond to this competition by offering better prices or quality of service or quantities to attract customers.
An acquisition giving rise to a SLC situation would have a significant effect on the competition in the long run and therefore put more burdens on operators to improve upon their competitive edge. Such transaction would obviously impact negatively on consumer welfare. Irrespective of the commercial rationale for the transaction from the perspective of each of the parties, it still remains a possibility for the acquisition to give rise to a SLC situation through coordinated effects, especially as both GLO and NITEL (if acquired by Dr. Adenuga) may recognize their mutual interdependency and decide that they can reach a more profitable outcome if they coordinate their effort to limit the competition between them, this is even more probable as both companies are the only two companies holding a National Carrier License in Nigeria. Such coordination may be explicit or tacit and may take the form dividing market or by allocating contracts among themselves in a bidding competition. In practice this coordination is detrimental to consumers by eg. limiting production or stifling innovations. In such a case, NCC is required to consider the impact of this acquisition on the likelihood and effectiveness of the coordination.
NITEL also occupies a Dominant position in the communications market since it has control of essential network facilities or similar infrastructure built for and paid for by the Federal Government which gives it numerous competitive advantages over other operators. Access to these essential facilities is required by competing Licensees and that cannot, for commercial or technical reasons, be duplicated by competing Licensees. The holding of a dominant position is not prohibited but it is the abuse of a dominant position that is capable of a SLC situation. A conduct may be in breach of the NCA, the CPR and a communications license condition. For instance discriminating in the provision of interconnection or other communications services or facilities to competing Licensees... under Section 8 (b) of the CPR for example, NITEL may provide interconnection to GLO within a week but delay this interconnection to other operators for months. This conduct would be clearly breaching the communications license condition prohibiting undue discrimination and may also be an abuse of a dominant position contrary to Part V prohibition of the CPR. It is also important to note that agreements relating to any acquisition may still be anti-competitive especially if it is capable of resulting to any of the state of affairs enumerated under Section 13 of the CPR.
Evidence of such detrimental effect will play a key role in determining whether or not a SLC condition actually exists. NCC’s review to determine whether or not there exists a SLC situation is premised on the identification of the relevant market and the competitive effect of the acquisition. Finally, NCC as the sector regulator tasked with promotion of fair competition and protection against the misuse of market power or other anti-competitive practices, pursuant to Part 1of Chapter VI of the NCA would be required in the circumstance to apply mitigating measures such as denying approval for the acquisition/transaction, to recommend that component units of NITEL be acquired, to restructure the transaction, or give conditional approval where regulatory oversight would be used to check mate anti-competitive practices to prevent a SLC situation.
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.
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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