On Tuesday 7th August 2012, the Competition Tribunal of South Africa (“the Tribunal”) imposed as fine the equivalent of N8 795 930 000.00 (eight billion, seven hundred and ninety five million, nine hundred and thirty thousand naira) in the amount of R449 000 000.00 (four hundred and forty nine million rand) on Telkom SA Ltd. (“Telkom”) for abusing its dominant position in the Public Switched Telecommunications Services (“PSTS”).
This matter was commenced at the Tribunal by the Competition Commission of South Africa (“the Commission”) pursuant to a complaint which had alleged that in the period of 1999 to December 2004 (“the relevant period”), Telkom had engaged in particular anti-competitive conducts which had resulted in a substantial lessening and prevention of competition in the Value Added Service Network (“VANS”) market. The infringing conduct was argued to be in violation of sections 8(b), 8(c) and 8(d)(i) of the Competition Act of the Republic of South Africa (“the Act”).
In this article, I summarise the main findings of the Tribunal and conclude by attempting to relate it with the present situation of the Communications sector in Nigeria.
Introduction and factual background
Telkom had enjoyed a monopoly over PSTS and facilities services until 2005 when the South Africa Telecommunications Act of 1996 was amended to introduce VANS as a new license category. While Telkom enjoyed exclusivity over PSTS and the provision of infrastructure, Telkom’s downstream division: Telvans faced stiff competition from several VANS operators.
The Commission had alleged that during the relevant period Telkom leveraged its upstream monopoly over PSTS services and the facilities market (on which VANS was dependent) to the benefit of only Telvans, its own downstream subsidiary in the VANS market.
Telkom’s conduct according to the Commission had resulted in a substantial lessening of competition by causing harm to both competitors and consumer’s alike and impeded competition and innovation in the dynamic VANS market.
Relevant markets
The Commission identified the following relevant national markets; (i) A market for local access and transmission fixed leased line infrastructure; (ii) A market for managed data network services including the provision of Wide Area Network (“WAN”) and Virtual Private Network (“VPN”); (iii) A market for whole sale internet connectivity; and (iv) A market for retail internet access for corporate customers.
While identified markets (iii) and (iv) specifically related to internet services which were regarded as value added services, the Tribunal proceeded to assess Telkom’s conduct in market (i) in relation to VANS providers across markets (ii), (iii) and (iv).
The anti-competitive conduct
The Commission alleged that Telkom abused its dominant position by;
I. Refusing to supply essential facilities to certain VANS providers unless they acceded to certain contractual conditions. To achieve this purpose Telkom redefined section 40(2) of the Telecommunications Act.
Failure to agree to these conditions would be met by freezing (refusal to provide additional links to meet the expansion needs) the network of the relevant VANS provider, which Telkom did in fact freeze networks of various VANS providers on numerous occasions. This conduct was in breach of sections 8(b) and 8(c) of the Act.
II. Refusing to lease the access facilities to VANS providers directly and insisting that VANS providers act as agents to their customers in leasing access facilities from it. To achieve this aim, VANS provider were required to enter agency agreements with their own customers in order to obtain and manage facilities from Telkom.
This administrative burden was not required from the customers of Televans. This conduct was alleged to be in contravention of sections 8(c) and 8(d)(i) of the Act.
III. Refusing to supply Satellite Data Network (“SDN”) with a high capacity link in contravention of sections 8(b) and 8(c).
IV. The Commission also alleged that Telkom’s conduct in the pricing of access facilities or circuits, contravened sections 8(a) and 9(1) of the Act.
The Decision
After dispensing with challenges brought on procedural grounds, the Tribunal proceeded to resolve the issues by first addressing the major defence canvassed by Telkom in order to justify its conducts.
Telkom in its argument had contended that VANS providers were restricted by the Telecommunications Act from sub-letting or ceding control over the facilities obtained from Telkom and its insistence on the agency agreements were simply an attempt to comply with this restriction. Furthermore Telkom had argued (by redefining section 40(2) of the Telecommunications Act) that VANs providers who were also provider of VPN services were not authorised by their licenses to do as VPN constituted PSTS which only Telkom was authorised to provide.
In relation to conduct III, Telkom argued that it enjoyed exclusivity over international gateways and that AT & T’s request for a larger capacity link would in essence bypass Telkom’s network and undermine its exclusivity.
The Tribunal in addressing the first issue referred to the case of Telkom v Internet Solutions where the Independent Communications Authority of South Africa (“ICASA”) the regulator for the South African communications sector held that Internet Solutions was providing a legitimate VANS. The Tribunal also referred to Telkom SA Ltd. V AT & T Global where ICASA had held that a VPN is not a PTN but a managed data network service (“MDNS”) which falls into the definition of VANS in section 40(2) of the Telecommunications Act. ICASA also found that AT & T was not providing PSTS nor was it subletting facilities leased from Telkom.
The Tribunal concluded that since these rulings are yet to be overturned, it stands.
Non-pricing conducts
Section 8(b)
This section provides that it is prohibited for a dominant firm to refuse to give a competitor access to an essential facility when it is not economically feasibible to do so. The main thrust of Telkom’s defence on this claim was that VANS were acting illegally by carrying on a service not authorised by law. (Recall earlier rulings by ICASA).
The Tribunal held further that even for the sake of argument that the illegality question was yet to be decided, Telkom itself had relied on it inconsistently and selectively – by electing to freeze rather than disconnect the network of offending VANS, freezing some and not others- thereby demonstrating that its refusal to supply was not a matter of law but rather a matter of commercial strategy.
The Tribunal further held that the requirement by Telkom that its competitors accede to conditions of supply that were not contained in legislation or regulation and which adversely impacted on their businesses did amount to a constructive refusal to supply.
The Tribunal finally concluded that Telkom had in fact breached section 8(b) of the Act.
Section 8(d)(i)
This section provides that it is prohibited for a dominant firm to require or induce a supplier or customer to not deal with a competitor unless that firm can show technological, efficiency or other pro-competitive gains which outweigh the anticompetitive effect. The conduct complained of here was that Telkom insisted that leased lines be registered in the names of the customers of the VANS providers and could only be obtained from Telkom through an agency agreement.
Telkom failed to raise any technological, efficiency or pro-competitive gains to satisfy the exemption requirement under this section. The main plank of its defence was that VANS providers were acting illegally and infringing on Telkom’s exclusivity. According to the Tribunal this issue had already been decided against Telkom (Recall earlier rulings by ICASA) and even Telkom’s own regulatory department noted that the alleged illegality claim could be challenged on the basis of its legality.
On this claim, the Tribunal also held Telkom to have infringed section 8(d)(i) of the Act.
Pricing conducts
Sections 8(a) Excessive pricing
Section 8(a) provides that it is prohibited for a dominant firm to charge an excessive price to the detriment of consumers. To sustain a section 8(a) infringement, the Tribunal relied on Mittal Steel v Harmony which held that “the economic value of the good or service” must be established.
However the Tribunal was unable to make a finding of this conduct as the Commission had failed to establish the economic value of the good or services in its pleadings.
Section 9(1) Price discrimination
This section provides that:
An action by a dominant firm, as the seller of goods or services is prohibited price discrimination, if-
a) It is likely to have the effect of substantially preventing or lessening competition;
b) It relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and
c) it involves discriminating between those purchasers in terms of –
i. the price charged for the goods or services;
ii. any discount, allowance, rebate or credit given or allowed in relation to the supply of goods and services;
iii. the provision of services in respect of the goods or services; or
iv. payment for services provided in respect of goods or services.
To this, Telkom contended that it was not offering “equivalent service” in relation to its own valued added services and that offered by other VANS providers and that its sales of access line to its own customers was bundled with other services and therefore could not be compared on the basis of equivalence.
The Tribunal proceeded to compare the equivalence of bundled services to which Telkom failed to provide cost information which was necessary to perform a cost price analysis. The Tribunal finally concluded that Telkom’s bundling claim was not a credible one and proceeded to establish the requirement of “equivalent transactions” (for the purpose of price discrimination) by making a finding on the type of harm caused.
However due to the inability of the Commission’s pleading to make a clear showing of whether the alleged price discriminatory conduct caused harm to the consumers or the VANS operators, the Tribunal was unable to find a contravention of section 9(1).
In all, the Tribunal came to a conclusion that Telkom had contravened sections 8(b) and 8(d)(i) of the Competition Act, for which it was fined R449 000 000.00 (four hundred and forty nine million rand).
The situation in Nigeria’s communications sector
Abuse of a dominant position in Nigeria’s communications sector is primarily governed by section 92(4) of the Nigerian Communications Act (“NCA”) and Part V of the Competition Practice Regulations 2007 (“CPR”). To prove an abuse of a dominant position by a communications licensee, it will be necessary to first determine whether the licensee in question occupies a dominant position in the relevant market.
In March 2010, the Nigerian Communications Commission (“NCC”) exercised its power under section 92 (1) NCA for the purpose of determining whether a licensee holds a dominant position in 2 markets namely; the Mobile Telephone Services market; and the International Internet Connectivity (“ICC”) market (including related international leased data line connectivity markets).
NCC concluded its investigation by stating that no licensee held a position of market dominance in the Mobile Telephone Services market (collectively or individually). With respect to the market for ICC, NCC concluded that NITEL, the pre-liberalization dominant operator no longer held a dominant position, however NCC also noted that work in dominance investigation would significantly improve if the industry had access to more accurate, detailed and timely data on the workings of the relevant markets.
It is however noted that since the commencement of the NCA, there is yet to be decision by either NCC or a court of competent jurisdiction on an allegation of anti-competitive conduct engaged by a dominant licensee. The absence of such decision does not necessarily imply that competition in the communications sector has achieved maturity, neither does it imply the absence of an anti-competitive conduct.
As NCC rightly responded to complaints raised by stakeholders during its dominance investigations, where market forces fail to quickly resolve anti-competitive conduct(s) of a dominant licensee, timely, direct and targeted remedies are available under the telecommunications framework which can in most cases be implemented without a finding of dominance.
Showing posts with label Nigerian Communications Commission. Show all posts
Showing posts with label Nigerian Communications Commission. Show all posts
Tuesday, August 14, 2012
Thursday, April 12, 2012
Antitrust Concerns of Subscriber Win-back Strategies in Mobile Number Portability
With the 2011 appointment of the consortium of US-based Telcordia Technologies, Saab Grintek and Interconnect Clearinghouse Nigeria (ICN) by the Nigerian Communications Commission (NCC) as the Mobile Number Portability Service Provider, it is expected that mobile number portability (MNP) will go live on the networks of all mobile network operators (MNO) sometime in the middle of 2012. This is coming against the background of the MNP Business Rules & Port Order Processes recently published by NCC on the 10th April 2012.
Subscriber win-back strategies refer to an incumbent service provider’s scheme aimed at winning back a subscriber who intends to switch or has already switched to a competing service provider. These actions are usually carried out through targeted marketing and selective price discount. In this article, I examine the antitrust concern of these strategies in the context of the recently published Nigeria’s MNP framework.
Introduction
The Nigerian Communications Act 2003 (NCA) commenced on 8th July, 2003 repealing the Nigerian Communications Commission Act of 1992. Under § 1 (c) and (e) respectively, NCA has the stated objectives to “promote the provision of modern, universal, efficient, reliable, affordable and easily accessible communications services and the widest range thereof throughout Nigeria” and “ensure fair competition in all sectors of the Nigerian communications industry....” NCA contemplates the removal of legal and regulatory barriers to entry so as to enable free market entry, encourage technological innovation & rapid deployment of telecommunications services while ensuring that a firm’s prowess in satisfying consumer demand will determine its success or failure in the marketplace.
MNP and win-back strategies
MNP is the ability of a mobile telephone service provider to change his/her service provider while still retaining his/her mobile telephone number. The ability of subscribers to retain their telephone numbers when changing service providers will give subscribers flexibility in the quality, price, and variety of telecommunications services they can choose to purchase. Number portability promotes competition between telecommunications service providers by, among other things, allowing the consumers to respond to price and service changes without changing their telephone numbers, in other words a customer is less likely to switch carriers if he cannot retain his/her telephone number, see Cellular Telecomms. & Internet Ass’n v. FCC, 330 F.3d 502, 513 (D.C. Cir. 2003) (“CTIA”). The resulting competition will benefit all users of telecommunications services. Indeed, competition will foster lower local telephone prices and, consequently, stimulate demand for telecommunications services and increase economic growth.
Win-back strategies refer to an incumbent service provider’s strategies aimed at retaining or regaining a subscriber who intends to switch or has already switched to another competing service provider. Generally, win-back strategies will take the form of targeted marketing and selective price discounts offered to these subscribers. A standard feature of win-back strategies is that it is targeted at only a portion of competing service providers’ customers who were once customers of the incumbent service provider. Nicita (2009) argues that win-back strategies are a form of selective price discrimination towards a competitor’s customers.
A price discrimination is said to exist when two similar products having the same marginal production cost are sold at different prices (Armstrong, 2006). In the context of the MNP process, this price discrimination would usually take the form of selective price cuts where the incumbent service provider decides to charge a (lower) tariff to a group of subscribers to induce them not to switch to a competing MNO. In extreme cases, the group could actually be a single subscriber.
Antitrust concerns of win-back strategies
The primary antitrust concern presented by selective price cuts is usually foreclosure. Most antitrust authorities are uniform in the view that price discrimination can be exploited by a dominant firm with significant market power to “exclude” competitors or reduce competitors incentive to compete effectively (Armstrong, supra). While foreclosure may not necessarily be the primary motivation for engaging in the conduct (profit maximization through price discrimination usually is), however this strategy would have the resultant effect of excluding unaffiliated competitors in the relevant market.
The antitrust treatment of price discrimination in the Nigerian Telecommunications market is captured by § 8 (f) of the Competitions Practice Regulations (CPR) 2007 which provides that supplying communications services, at prices below long run average incremental costs or such other cost standard, as is adopted by the Commission is a conduct or practice deemed to result in a substantial lessening of competition. Section 8 (i) i CPR which provides; deliberately reducing the margin of profit available to a competing Licensee that requires wholesale communications services from the Licensee in question, by increasing the prices for the wholesale communications services required by that competing Licensee, or decreasing the prices of communications services in retail markets where they compete, or both would also come into play where the resultant effect of price discrimination would injure competition in the long run by marginalizing new entrants and or by raising entry barriers.
The post-Chicagoan school of economic thought argues that such selective price discrimination offered to this category of subscriber would be anti-competitive by suppressing long-term efficient entry into the relevant market (Nicita, supra). In their view, market power translates to short-term competitive advantage by the incumbent, thus whenever a new entrant or an existing competitor cannot replicate the discount policies adopted by incumbent’s foreclosure tactics which raises the rivals cost up to the point of eliminating entry or reducing the incentive to compete effectively. Such anti-competitive conduct should immediately be sanctioned by antitrust authorities (‘Nicita, supra).
In Case C-62/86, AKZO Chemie BV v. Commission, [1991] E.C.R. I-3359, [1993] 5 C.M.L.R. 215, the European Commission’s decision was largely driven by the predatory nature of AKZO’s pricing strategy, it nevertheless concluded at paragraph 72 that:
Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can drive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them
Paragraph 27 of the MNP Business Rules & Port Order Processes prohibits win-back for a period of ninety days from the date the porting was completed, however the donor (former) service provider may contact a ported subscriber for (a) recovery of outstanding debts or (b) to discuss products/services other than the ported mobile telecommunications service. However, this win-back rule is still subject to abuse as a donor service provider may offer to discount the outstanding debt due or offer another service (say internet access) at a discount to the recently switched subscriber on the condition that s/he switch back to its network. In the case of (b), this is a very likely possibility, especially if the donor service provider possesses a significant market power in that market. In my view, such market share may be leveraged upon to foreclose competition in the market for mobile telecommunications service and will present another anti-competitive practice- tying/bundling; which is also capable of substantial lessening of competition.
Conclusion
As rapid technological changes continue to shape the Nigerian Telecommunications market, the behaviour of subscribers will continue to be impacted presenting new challenges to NCC. The main focus of this challenge will be to ensure that favourable market conditions exist which thrives on technological innovations, whilst still ensuring the promotion of consumer welfare. Win-back strategies are capable of substantially lessening the competition because, “it affects the extent to which dominant firms may defend themselves against competition rather than act to consolidate or even increase their dominance in the market” (Jones and Sufrin, 2001). Even though, NCC’s restriction to subscriber win-back by service providers is limited to only ninety days, it must take cue from antitrust authorities in North American and European countries, where win-back strategies have come under serious scrutiny. NCC should toe the post-Chicagoan path by recognizing that win-back strategies under certain conditions may have the effect of substantially lessening the competition.
MNP does actually stimulate competition. If implemented properly, MNP will engender competition and lead to a lowering of switching cost, resulting in added value to the existing services already been enjoyed by the Nigerian mobile telecommunications subscribers.
Subscriber win-back strategies refer to an incumbent service provider’s scheme aimed at winning back a subscriber who intends to switch or has already switched to a competing service provider. These actions are usually carried out through targeted marketing and selective price discount. In this article, I examine the antitrust concern of these strategies in the context of the recently published Nigeria’s MNP framework.
Introduction
The Nigerian Communications Act 2003 (NCA) commenced on 8th July, 2003 repealing the Nigerian Communications Commission Act of 1992. Under § 1 (c) and (e) respectively, NCA has the stated objectives to “promote the provision of modern, universal, efficient, reliable, affordable and easily accessible communications services and the widest range thereof throughout Nigeria” and “ensure fair competition in all sectors of the Nigerian communications industry....” NCA contemplates the removal of legal and regulatory barriers to entry so as to enable free market entry, encourage technological innovation & rapid deployment of telecommunications services while ensuring that a firm’s prowess in satisfying consumer demand will determine its success or failure in the marketplace.
MNP and win-back strategies
MNP is the ability of a mobile telephone service provider to change his/her service provider while still retaining his/her mobile telephone number. The ability of subscribers to retain their telephone numbers when changing service providers will give subscribers flexibility in the quality, price, and variety of telecommunications services they can choose to purchase. Number portability promotes competition between telecommunications service providers by, among other things, allowing the consumers to respond to price and service changes without changing their telephone numbers, in other words a customer is less likely to switch carriers if he cannot retain his/her telephone number, see Cellular Telecomms. & Internet Ass’n v. FCC, 330 F.3d 502, 513 (D.C. Cir. 2003) (“CTIA”). The resulting competition will benefit all users of telecommunications services. Indeed, competition will foster lower local telephone prices and, consequently, stimulate demand for telecommunications services and increase economic growth.
Win-back strategies refer to an incumbent service provider’s strategies aimed at retaining or regaining a subscriber who intends to switch or has already switched to another competing service provider. Generally, win-back strategies will take the form of targeted marketing and selective price discounts offered to these subscribers. A standard feature of win-back strategies is that it is targeted at only a portion of competing service providers’ customers who were once customers of the incumbent service provider. Nicita (2009) argues that win-back strategies are a form of selective price discrimination towards a competitor’s customers.
A price discrimination is said to exist when two similar products having the same marginal production cost are sold at different prices (Armstrong, 2006). In the context of the MNP process, this price discrimination would usually take the form of selective price cuts where the incumbent service provider decides to charge a (lower) tariff to a group of subscribers to induce them not to switch to a competing MNO. In extreme cases, the group could actually be a single subscriber.
Antitrust concerns of win-back strategies
The primary antitrust concern presented by selective price cuts is usually foreclosure. Most antitrust authorities are uniform in the view that price discrimination can be exploited by a dominant firm with significant market power to “exclude” competitors or reduce competitors incentive to compete effectively (Armstrong, supra). While foreclosure may not necessarily be the primary motivation for engaging in the conduct (profit maximization through price discrimination usually is), however this strategy would have the resultant effect of excluding unaffiliated competitors in the relevant market.
The antitrust treatment of price discrimination in the Nigerian Telecommunications market is captured by § 8 (f) of the Competitions Practice Regulations (CPR) 2007 which provides that supplying communications services, at prices below long run average incremental costs or such other cost standard, as is adopted by the Commission is a conduct or practice deemed to result in a substantial lessening of competition. Section 8 (i) i CPR which provides; deliberately reducing the margin of profit available to a competing Licensee that requires wholesale communications services from the Licensee in question, by increasing the prices for the wholesale communications services required by that competing Licensee, or decreasing the prices of communications services in retail markets where they compete, or both would also come into play where the resultant effect of price discrimination would injure competition in the long run by marginalizing new entrants and or by raising entry barriers.
The post-Chicagoan school of economic thought argues that such selective price discrimination offered to this category of subscriber would be anti-competitive by suppressing long-term efficient entry into the relevant market (Nicita, supra). In their view, market power translates to short-term competitive advantage by the incumbent, thus whenever a new entrant or an existing competitor cannot replicate the discount policies adopted by incumbent’s foreclosure tactics which raises the rivals cost up to the point of eliminating entry or reducing the incentive to compete effectively. Such anti-competitive conduct should immediately be sanctioned by antitrust authorities (‘Nicita, supra).
In Case C-62/86, AKZO Chemie BV v. Commission, [1991] E.C.R. I-3359, [1993] 5 C.M.L.R. 215, the European Commission’s decision was largely driven by the predatory nature of AKZO’s pricing strategy, it nevertheless concluded at paragraph 72 that:
Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can drive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them
Paragraph 27 of the MNP Business Rules & Port Order Processes prohibits win-back for a period of ninety days from the date the porting was completed, however the donor (former) service provider may contact a ported subscriber for (a) recovery of outstanding debts or (b) to discuss products/services other than the ported mobile telecommunications service. However, this win-back rule is still subject to abuse as a donor service provider may offer to discount the outstanding debt due or offer another service (say internet access) at a discount to the recently switched subscriber on the condition that s/he switch back to its network. In the case of (b), this is a very likely possibility, especially if the donor service provider possesses a significant market power in that market. In my view, such market share may be leveraged upon to foreclose competition in the market for mobile telecommunications service and will present another anti-competitive practice- tying/bundling; which is also capable of substantial lessening of competition.
Conclusion
As rapid technological changes continue to shape the Nigerian Telecommunications market, the behaviour of subscribers will continue to be impacted presenting new challenges to NCC. The main focus of this challenge will be to ensure that favourable market conditions exist which thrives on technological innovations, whilst still ensuring the promotion of consumer welfare. Win-back strategies are capable of substantially lessening the competition because, “it affects the extent to which dominant firms may defend themselves against competition rather than act to consolidate or even increase their dominance in the market” (Jones and Sufrin, 2001). Even though, NCC’s restriction to subscriber win-back by service providers is limited to only ninety days, it must take cue from antitrust authorities in North American and European countries, where win-back strategies have come under serious scrutiny. NCC should toe the post-Chicagoan path by recognizing that win-back strategies under certain conditions may have the effect of substantially lessening the competition.
MNP does actually stimulate competition. If implemented properly, MNP will engender competition and lead to a lowering of switching cost, resulting in added value to the existing services already been enjoyed by the Nigerian mobile telecommunications subscribers.
Tuesday, October 18, 2011
An Overview of the Draft Quality of Service Regulations 2011
Good news coming from the Communications sector as the Nigerian Communications Commission (NCC) finally publishes a draft copy of the Quality of Service (QoS) Regulations. The QoS regulations will establish the quality of service standards and or parameters and associated measurement, reporting and record keeping tasks imposed on categories of Communications licensees pursuant to Section 104 of the Nigerian Communications Act 2003 (NCA). QoS according to the International Communications Union (ITU) is the “collective effect of service performance which determine the degree of satisfaction of a user of the service”. In other words the QoS will provide an indication of what customers experience when using a particular network or service. The QoS parameters, (also known as QoS metrics, QoS indicators, QoS measures or QoS determinants) are used to characterize the quality level of a certain aspect of a service being offered and ultimately the customer satisfaction. These QoS parameters primarily relate to services and service features and not to the technology used to provide the services. For mobile telephony services, typical examples of parameters reportable are; call set-up time; blocked call ratio; billing accuracy and dropped call ratio. Most parameters are in principle applicable to service provided via telecommunications networks however others are only applicable to specific services depending on the technical aspects of the provision of those services, e.g. broad band internet. It is important to note that these parameters are end-user/customer orientated in that they can be personally perceived by the customers themselves.
Licensees under the Communications Act 2003 are required under the regulations to report, measure (these parameters in accordance with the defined measurement method) and submit the measurements to NCC for publication within the stated period. Only two services are subject to reporting in accordance with the reporting parameters under these regulations. They are; Wireline Services (fixed wireline telephone services for end users) and Wireless Service (which are mobile/wireless telephone services for end users and mobile internet/data services. The targets or key performance indicators (KPIs) have been defined by the regulations as the “a value that is reached by a given parameter where the relevant service identified in these regulations…. In other words, the KPIs are the range of values to be obtained for a particular service to be regarded as satisfactory.
The reporting period when Communications licensees are required to perform QoS measurements, reporting and record keeping is every month starting from the 1st day of a calendar month to the last day or as NCC may determine while the geographical areas for which QoS measurements are to be reported and recorded by are thirty-eight (38) in all. They are; a specific geographical area (1), the various states of the federation (36) and the Federal Capital Territory (1) which are to be taken separately unless the prior written approval of NCC is obtained for two or more reporting geographic areas to be combined into one reporting area. The measurements taken and reported are to be submitted to NCC with one week after the end of the reporting period. Where so directed by NCC, Communications licensees will publish the measurements within one month after the end of the reporting period. Communications licensees are also required to retain the QoS data including all measurements and related records for a minimum of twelve months after the end of the reporting period.
It is important to note that these regulations impose on Communications licensees the obligations to resolve a consumer complaint within the time stated. Where this obligation is not met, then the consumer has a right to be compensated and NCC may impose a fine on the offending Communications licensee. A Communications licensee will also be sanctioned where the rate of occurrence of a particular complaint exceeds the maximum number allowed under the regulations.
NCC may decide to publish all or part of the QoS measurements received from Communications licensees and such publishing must be done within two (2) months after the end of the relevant reporting period. The regulations also empower NCC to investigate some or all the QoS data received or retained by Communications licensees.
It is an offence under the regulations where a Communications licensee; fails to perform QoS measurement and record keeping, fails to attain the target set for a parameter and the service, fails to submit the QoS data within the time specified, submits or publishes false or misleading information about the QoS measurements and obstructs or prevents an investigation or collection of QoS information by NCC. The regulations empower NCC to take one or more of the following enforcement measures against communications licensees who commits any of these offences. These enforcement measures are; requiring that the licensee submit and publish additional information about its QoS measurements including (but not limited to) implementing a remedial action plan to improve its QoS KPIs, issuing directions pursuant to its power under S. 53 of the NCA including but not limited to effect that consumers been compensated for its QoS, imposing fines on licensees in accordance with the regulations.
With the break neck competitions currently experienced in the Communications sector, it may seem fair to argue that QoS is the resultant effect of the ongoing tariff wars between incumbent licensees, but then cheaper tariffs should never be sacrificed at the expense of poor QoS and in the same breath Communications services should be affordable by all. The QoS standards are indeed coming at a time when the QoS levels and Network Performance are both at its lowest. These standards will serve as a consumer protection measure on one hand, by enabling the average customer to make informed choices about the quality and price of a particular mobile telephone service and on the other hand, improve competition by ensuring that measurements accurately reported and published will discourage mobile network operators from service quality that falls short of the benchmarks, what remains to be seen is how far NCC is willing to ensure that licensees abide by the strict letters of these regulations.
Licensees under the Communications Act 2003 are required under the regulations to report, measure (these parameters in accordance with the defined measurement method) and submit the measurements to NCC for publication within the stated period. Only two services are subject to reporting in accordance with the reporting parameters under these regulations. They are; Wireline Services (fixed wireline telephone services for end users) and Wireless Service (which are mobile/wireless telephone services for end users and mobile internet/data services. The targets or key performance indicators (KPIs) have been defined by the regulations as the “a value that is reached by a given parameter where the relevant service identified in these regulations…. In other words, the KPIs are the range of values to be obtained for a particular service to be regarded as satisfactory.
The reporting period when Communications licensees are required to perform QoS measurements, reporting and record keeping is every month starting from the 1st day of a calendar month to the last day or as NCC may determine while the geographical areas for which QoS measurements are to be reported and recorded by are thirty-eight (38) in all. They are; a specific geographical area (1), the various states of the federation (36) and the Federal Capital Territory (1) which are to be taken separately unless the prior written approval of NCC is obtained for two or more reporting geographic areas to be combined into one reporting area. The measurements taken and reported are to be submitted to NCC with one week after the end of the reporting period. Where so directed by NCC, Communications licensees will publish the measurements within one month after the end of the reporting period. Communications licensees are also required to retain the QoS data including all measurements and related records for a minimum of twelve months after the end of the reporting period.
It is important to note that these regulations impose on Communications licensees the obligations to resolve a consumer complaint within the time stated. Where this obligation is not met, then the consumer has a right to be compensated and NCC may impose a fine on the offending Communications licensee. A Communications licensee will also be sanctioned where the rate of occurrence of a particular complaint exceeds the maximum number allowed under the regulations.
NCC may decide to publish all or part of the QoS measurements received from Communications licensees and such publishing must be done within two (2) months after the end of the relevant reporting period. The regulations also empower NCC to investigate some or all the QoS data received or retained by Communications licensees.
It is an offence under the regulations where a Communications licensee; fails to perform QoS measurement and record keeping, fails to attain the target set for a parameter and the service, fails to submit the QoS data within the time specified, submits or publishes false or misleading information about the QoS measurements and obstructs or prevents an investigation or collection of QoS information by NCC. The regulations empower NCC to take one or more of the following enforcement measures against communications licensees who commits any of these offences. These enforcement measures are; requiring that the licensee submit and publish additional information about its QoS measurements including (but not limited to) implementing a remedial action plan to improve its QoS KPIs, issuing directions pursuant to its power under S. 53 of the NCA including but not limited to effect that consumers been compensated for its QoS, imposing fines on licensees in accordance with the regulations.
With the break neck competitions currently experienced in the Communications sector, it may seem fair to argue that QoS is the resultant effect of the ongoing tariff wars between incumbent licensees, but then cheaper tariffs should never be sacrificed at the expense of poor QoS and in the same breath Communications services should be affordable by all. The QoS standards are indeed coming at a time when the QoS levels and Network Performance are both at its lowest. These standards will serve as a consumer protection measure on one hand, by enabling the average customer to make informed choices about the quality and price of a particular mobile telephone service and on the other hand, improve competition by ensuring that measurements accurately reported and published will discourage mobile network operators from service quality that falls short of the benchmarks, what remains to be seen is how far NCC is willing to ensure that licensees abide by the strict letters of these regulations.
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, November 15, 2010
WILL ALL VOICE CALLS IN NIGERIA BE SUBJECT LAWFUL INTERCEPTION: A BRIEF COMMENTARY OF THE PROPOSED TELECOMMUNICATIONS FACILITIES (LAWFUL INTERCEPTION OF INFORMATION) BILL, 2010.
Introduction
The impressive growth recorded in the Nigeria telecommunications market has unfortunately been challenged by criminal activities. Recent evidence emanating from Law Enforcement Agencies have indicated that criminal activities such as [Armed] Robberies, Advance Fee Fraud (aka 419 named so after the popular section 419 of the Nigerian Criminal Code) and more recently detonating an explosive device have been facilitated with the aid of mobile phones.
The House of Representative in responding to these threats initiated legislative proposal titled HB: 395 titled “An Act Requiring Telecommunications Facilities To Facilitate The Lawful Interception Of Information Transmitted By Means Of Those Facilities And Respecting The Provision Of Telecommunications Subscriber Information; And For Other Matters Connected therewith”[1] This Bill in its explanatory memorandum states:
This bill seeks to require telecommunications service providers to put in place and maintain certain capabilities that facilitate the lawful interception of information transmitted by telecommunications and to provide basic information about their subscribers to the Nigeria police force and the state security service.
The legal question therefore becomes will all voice calls be subject to lawful interception taking into consideration the rate at which telecommunications services have evolved in Nigeria from a teledensity of about 508,316 connected lines in 1999 to about 74,000,000 connected lines in 2009.[2]
This question will form the basis of my commentary.
As can be gleaned from the Bill’s explanatory memorandum, the Bill will require that that all telecommunications service providers have technical capability for lawful interception. The Bill sets forth assistance capability requirements, compelling telecommunications service providers to build and sustain their equipment in a manner that allows authorized law enforcement agents to lawfully intercept communications. The Bill therefore preserves the ability of law enforcement agencies to execute authorized electronic surveillance by requiring that telecommunications service providers have the technical capability to intercept communications.
Interception under section 53 (1) (c) of the Bill “includes listen to, record or acquire a communication” Lawful Interception generally refers to the lawfully authorized interception and monitoring of communications traffic (which could either be voice, data, audio or a combination of any or all of them) pursuant to the order of an authorized person for the purpose of gathering evidence or forensic analysis.
With the rapidly expanding telecommunications infrastructure, Nigeria currently has capability for two types of voice calls; telephone calls made through a telecommunications facilities or network as rightly defined under Section 53 of the Bill and Voice over Internet Protocol (VoIP) which is voice communications over the internet or any packet switching network; the most popular of these been Skype and Yahoo Messenger Call.
It is important to note that VoIP services is derived from Internet services, the meaning of which was neither provided for in the Bill nor was it defined in the earlier Nigerian Communications Act, 2003, however the internet in its most fundamental level is simply the interconnection of computer networks that is so seamless as to appear to the user as one network, this service in itself is entirely different in terms of technical architecture and communications protocols from Telecommunications Service.
Going forward, Section 53 of the Bill defines communications as any “communication effected by means of telecommunications and includes any related transmission data or other ancillary information” while telecommunications service under the same section is defined as a “service or a feature of a service, that is provided by means of telecommunications facilities, whether the provider owns, leases or has any other interest in or right respecting the telecommunications facilities and any related equipment used to provide the service”. It is important to note that the use of the words “Telecommunications Services” is intended to exclude other forms of internet services like email, Internet, Voice-over-Internet Protocol (VoIP) provided by internet service providers.
However, the implication of this provision is subject to Section 6 of the Bill which retains the capability of telecommunications service providers to intercept communications, even when they offer new services, as long as such a service is provided through their network. In essence, where a telecommunications service provider provides other forms of information services like internet services or VoIP through its network, such a service would be subject to intercepts by law enforcements agents.
The long and short of this legal analysis is that VoIP services provided by internet service providers are not subject to the proposed bill unless such services is provided via telecommunications service networks, however it is important to note that Section 147 of the Nigerian Communications Act, 2003 will subject both telecommunications service providers and internet service providers to lawful interception on the determination of the Nigerian Communications Commission.
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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