Tying (or bundling) of telecommunications services is a feature desired by many telecommunications users. In Nigeria for instance, a telecommunications user may decide to purchase a black berry device bundled with a SIM card for mobile telecommunications service and data plan even though these services are distinct products. A typical tying arrangement occurs where a service provider sells one product or service over which it has market power (the “tying product”) on the condition that the purchaser purchase a second product or service (the “tied product”). A tying arrangement is expressly prohibited under the Nigerian Communications Act 2003 (NCA).
In this article, I examine whether particular practices of mobile network operators (MNOs) constitutes tying arrangement under the NCA.
Tying arrangement allows a service provider with market power in the tying product to obtain a competitive advantage in the market for the tied product. Tying will usually work where the demand for the two products (or services) are complimentary, such that end-users use them together (as in the example above) and not where the demands of the two products are independent such that the end user is unlikely to consume them together. Traditional tying arrangements require; (a) two separate product/service markets (See Eastman Kodak Co. v. Image Technical Services, 504 U.S. 451 (1992)); (b) the defendant’s sufficient market power over the tying product; (c) unlawful forcing; and (d) a not insubstantial amount of commerce in the tied product affected by the tie.
In vertically integrated markets such as the Nigerian Telecommunications market, tying can reduce competitors’ sales by capturing customers who would otherwise have purchased product A rather than products A and B together, thereby reducing the portion of the market for the tied product the service provider must compete for. If there are fixed costs in the production of the tied product, then the service provider may be able to reduce its competitors’ sales to the point where remaining in the market (or entering the market) is no longer viable. If the service provider succeeds in this form of elimination then it is said to have successfully “leveraged” its dominant position in the market for the tying product into the market for the tied product.
Tying in Nigeria’s Telecommunications market
Several MNOs operating in Nigeria are involved in one form of tying arrangement or another. For example, several MNOs tie the sale of tablet computers to core telecommunications services, one in particular ties its telecommunications service to an android running handset (named after a weird dressing American pop star) locked to its mobile network. In the case of another which ties the Huawei S7 tablet to its telecommunications services, its website says that the offer is open to only users purchasing SIM card or already having SIM card for use on its network. This implies that users will be locked-in the telecommunications service of this particular MNO for as long as they use its SIM card to make calls with the device.
Applicable legal standard for tying in Nigeria’s telecommunications market
Tying is expressly prohibited under § 91 (4) of the NCA. As a general rule this section provides that:
A licensee shall not, at any time or in any circumstance, make it a condition for the provision or supply of a product or service in a communications market that the person acquiring such product or service in the communications market is also required or not to acquire any other product or service either from itself or from another person.
A licensee as defined under § 157 of the NCA means a person who either holds an individual licence or undertakes activities which are subject to a class licence granted under this Act. No doubt MNOs hold individual licenses.
Section 12 (2) of the Competitions Practice Regulations 2007 (CPR) further provides that all tying arrangements are prohibited without the requirement of assessing their practical effects. Pursuant to this provision, all tying arrangements are outrightly illegal and should be condemned without elaborate investigation into its anti-competitive effect. This is a departure from traditional analysis of competition offences which requires the determination of the relevant market and the assessment of the competitive (or efficiency) effect of the offending practice consistent with sections 6 and 15 of the CPR where; (a) the definition of the relevant market or markets in accordance with the methodology under Part IV (of the CPR); (b) impact of the conduct on existing competitors in the identified markets; (c) impact of the conduct on market entry; (d) impact of the conduct on consumers; and (e) degree of interference with competition that injures competitors or consumers are taken into consideration.
As Part IV of the CPR mentions only § 92 (1), (2) and (3) of the NCA (in the same way § 12 (2) of the CPR mentions only § 91 (3) and (4) of the NCA), it is assumed that Part IV contemplates its application to only these provisions (as would § 12 (2) of the CPR). This interpretation is consistent with the Expressio unius est exclusio alterius (the express mention of one thing excludes all others) rule of statutory interpretation.
It is worth mentioning that the standard applied under § 12 (2) is similar to the per se standard applied in competition cases in the United States (US). Under the per se standard, certain arrangements are prohibited outright, such that no evidence of actual anti-competitive effects is required for the finding of illegality. The US Supreme Court in determining whether the appellant’s tying practice constituted unreasonable restraint of trade in Northern Pacific R. Co. v. United States-356 US (1958) held that “there are certain agreements or practices which, because of their pernicious effect on competition and lack of any redeeming virtue, are conclusively presumed to be unreasonable, and therefore illegal, without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” The per se rule applies to an arrangement or practice that “facially appears to be one that would always or almost always tend to restrict competition and decrease output, and in what portion of the market, or instead one designed to increase economic efficiency and render markets more, rather than less, competitive.” (See Broadcast Music, Inc. v. CBS, Inc, 441 U.S 1, 19-20 (1979)).
Tying arrangements are analysed under the per se standard in U.S. The per se standard is appropriate only if courts, having had sufficient experience with a practice, can determine with confidence that the practice is anticompetitive in almost all circumstances when applying the rule of reason. (See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2713 (2007)).
It is also worth mentioning that it is unknown whether the Nigerian Communications Commission (NCC) has authorized MNOs to engage in these tying practices in accordance § 93 (1) of the NCA which provides:
(1) A licensee may apply to the Commission prior to engaging into any conduct which may be construed to have the purpose or effect of substantially lessening competition in any aspect of the Nigerian communications industry, for authorisation for the conduct.
Even if NCC authorised the tying practices of MNOs, such authorisation must be in the national interest (See § 93 (2) of the NCA). In my view, for a tying arrangement to meet the threshold of national interest, it must also be pro-competitive.
Conclusion
However I also note that traditional cases of tying from the U.S seems to indicate that a tying arrangement will usually be condemned under the per se standard if the plaintiff can show both market power in the tying product and a “not insubstantial” amount of commerce affected in the tied product market (See Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 73 S.Ct. 872 (1953)), but this does not seem to be the case in Nigeria’s telecommunications market where the relevant statutes does not require the consideration of elaborate arguments favouring pro-competitiveness and expressly condemns this practice without taking these arguments into account.
Tying is as anti-competitive as it is pro-competitive. Tying can harm consumers in circumstances where a service provider with monopoly power in one market acquires another monopoly power in a secondary market or continues to perpetuate its monopoly in the market for the tying product; and is pro-competitive especially in cases where technological tying results in innovations, even if the innovative products makes the complementary products of competitors incompatible.
As case law in this area of practice is still developing in Nigeria, it would be interesting to see how this debate finally concludes.
Tuesday, May 8, 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.
Wednesday, January 18, 2012
FOI: PUBLIC INTEREST IN DISCLOSING THE QUALITY OF SERVICE (QoS) REPORT
For many years telecommunications consumers in Nigeria have not had the opportunity to compare QoS levels of the various mobile network operators (MNOs) operating in Nigeria, but however towards the ending of 2012 and in a marked deviation from previous trend, the Nigerian Communications Commission (NCC), the telecommunications sector regulator published the annual QoS report for year 2011. This singular act seems to be hinged on NCC’s power of monitoring and report under § 89 of the Nigerian Communications Act, 2003 (NCA).
In this article, I examine the public interest in disclosing the QoS report pursuant to a freedom of information request under the recently enacted Freedom of Information Act 2011 (FoIA).
The meaning of Public Interest
According to Webster's New World Dictionary, public interest means “the people’s general welfare and well being; something in which the populace as a whole has a stake.” In the Communications realm this definition will naturally transpose to mean “the Communications consumer’s well being or something in which the Communications consumer as a whole has a stake.”In essence something “in the public interest” is simply something which serves the interests of the public.
Section 25 (1) (c) of the FoIA provides “where the Court makes a finding that the interest of the public in having the record being made available is greater and more vital than the interest being served if the application is denied, in whatever circumstance.” The effect of this provision is that where an interest in non-disclosure competes with public interest in disclosing an information, the court can only compel disclosure where it is of the opinion that the interest of the public is greater served than any interest being protected. In such circumstance, public interest considerations will generally refer to considerations affecting the good order and functioning of community and governmental affairs, for the well-being of citizens. In general, the public interest consideration is one which is common to all members of the community (or a substantial segment of them), and for their benefit.
The nexus between Public Interest and Quality of Service
The QoS report is a document that evidences or reports the measurement of certain indicators by both Communications licensees and NCC in accordance with a defined measurement method, and it is a detailed account of the QoS level of aspects of a service being offered by a Communications licensee and provides a clear indication of what consumers experience when using a particular network or Communications service, in the words of NCC, “these QoS standards [and report] ensures that consumers continue to have access to high quality telecommunications service by setting basic minimum quality levels for all service providers.”
The emphasis placed on making the QoS report available to the public is exemplified in § 2 subparagraph d of the draft Quality of Service Regulations 2011 which provides: “Making information available to help with informed Consumer choice of services and Licensees.” From this provision it is noted that Communications consumers are entitled to receive information concerning QoS to enable them make an informed choice. In particular, it is important for consumers to base their choices of services on objective evidence rather than on personal anecdotes. To be able to make an informed choice, consumers must have access to material information, in essence the Quality of Service Regulations regards QoS measurements (and reports) as material information. The requirement for material information is central and goes to the root of any consumer protection measure.
In the context of Communications services, the QoS report indicates the level of QoS experienced by consumers, it therefore represents information that the average Communications consumer needs in order to make an informed transactional decision, see The Office of Fair Trading v. Purely Creative Limited & 8 Ors [2011] EWHC 106 (Ch), para. 73. In essence it is material information that will guide owners of the over 122 million connected (GSM and CDMA) lines in Nigeria in making an informed choice about the service provider or service they intend to subscribe to.
No doubt there is public interest in protecting Communications consumers. As set out in the National Policy on Telecommunications, NCC is charged with ensuring that public interest is protected in the Communications market. It is submitted that the “public interest” contemplated under the National Policy on Telecommunications would encompass the broad objectives of the NCA which inter alia provides in § 1 (g) that the rights of consumers are protected. In this regard, it is also noted that the requirement for Communications licensees to comply with QoS standards is a consumer protection measure embedded under § 104 of NCA. As rightly well put by NCC, “these QoS standards [and report] ensures that consumers continue to have access to high quality telecommunications service by setting basic minimum quality levels for all service providers.” Thus in circumstances where the QoS report is not available, consumers of mobile telecommunications services are not able to ascertain whether particular service providers have been able to achieve the “minimum quality levels” set by NCC and are thus denied the opportunity to be able to make an informed choice from the use of this information.
Clearly non-disclosure of the QoS report will significantly deprive mobile telecommunications consumers of the opportunity to make a free or informed choice about mobile telecommunications services and would make it virtually impossible to confirm claims of service providers about their QoS standing. A consumer’s right to access information and freedom of choice is reinforced by United Nation General Assembly Resolution 39/248 Guidelines for Consumer Protection adopted on 9 April 1985 in particular § 3 (c) which provides “Access of consumers to adequate information to enable them to make informed choices according to individual wishes and needs.” It is also submitted that the consumer’s right to access information as users of products or services constitute legitimate grounds of public interest to justify the disclosure of the QoS report. See Canal Satélite Digital SL v Adminstración General del Estado, and Distribuidora de Televisión Digital SA (DTS) [2002] ECR I-607, para 34.
In Re Kenmatt Projects Pty Ltd and Queensland Building Services Authority (1996 S0094, 27 September 1996), a building contractor contested access being given to certain files held by the respondent Building Service Authority relating to disputes which have arisen concerning the building contractor’s works. The building contractor argued that the files qualified for exemption under § 45 (1) (c) of the Queensland (Australia) Freedom of Information Act 1992 which exempts from disclosure; information concerning the business, professional, commercial or financial affairs of an agency or another person and which could reasonably be expected to have an adverse effect on those affairs or prejudice the future supply of such information. The Queensland Information Commissioner found that public interest considerations favouring disclosure outweighed any such apprehended adverse effects. In particular the Information Commissioner held at para 48 that:
...there is a significant public interest in members of the public, many of whom are potential homebuyers or home renovators, having access to information about the performance of builders, and their responses to complaints, to enable them to make informed choices about the builder they engage. I believe that it is valuable for consumers to have before them as much information as possible about the performance of builders they might choose to engage.
Conclusion
It is clear that public interest considerations would favour the disclosure of the QoS report, no doubt if awareness of the QoS report were to be made available to the public, service providers would strive to achieve the best results, and consumers would ultimately be the winners. In concluding the words of NCC during the public hearing on the draft Quality of Service Regulations 2006 aptly comes to mind and I quote “The primary purpose for publishing QoS information is to provide [consumers] timely, relevant, accessible, accurate and comparable information that would enable them make informed decisions.”
In this article, I examine the public interest in disclosing the QoS report pursuant to a freedom of information request under the recently enacted Freedom of Information Act 2011 (FoIA).
The meaning of Public Interest
According to Webster's New World Dictionary, public interest means “the people’s general welfare and well being; something in which the populace as a whole has a stake.” In the Communications realm this definition will naturally transpose to mean “the Communications consumer’s well being or something in which the Communications consumer as a whole has a stake.”In essence something “in the public interest” is simply something which serves the interests of the public.
Section 25 (1) (c) of the FoIA provides “where the Court makes a finding that the interest of the public in having the record being made available is greater and more vital than the interest being served if the application is denied, in whatever circumstance.” The effect of this provision is that where an interest in non-disclosure competes with public interest in disclosing an information, the court can only compel disclosure where it is of the opinion that the interest of the public is greater served than any interest being protected. In such circumstance, public interest considerations will generally refer to considerations affecting the good order and functioning of community and governmental affairs, for the well-being of citizens. In general, the public interest consideration is one which is common to all members of the community (or a substantial segment of them), and for their benefit.
The nexus between Public Interest and Quality of Service
The QoS report is a document that evidences or reports the measurement of certain indicators by both Communications licensees and NCC in accordance with a defined measurement method, and it is a detailed account of the QoS level of aspects of a service being offered by a Communications licensee and provides a clear indication of what consumers experience when using a particular network or Communications service, in the words of NCC, “these QoS standards [and report] ensures that consumers continue to have access to high quality telecommunications service by setting basic minimum quality levels for all service providers.”
The emphasis placed on making the QoS report available to the public is exemplified in § 2 subparagraph d of the draft Quality of Service Regulations 2011 which provides: “Making information available to help with informed Consumer choice of services and Licensees.” From this provision it is noted that Communications consumers are entitled to receive information concerning QoS to enable them make an informed choice. In particular, it is important for consumers to base their choices of services on objective evidence rather than on personal anecdotes. To be able to make an informed choice, consumers must have access to material information, in essence the Quality of Service Regulations regards QoS measurements (and reports) as material information. The requirement for material information is central and goes to the root of any consumer protection measure.
In the context of Communications services, the QoS report indicates the level of QoS experienced by consumers, it therefore represents information that the average Communications consumer needs in order to make an informed transactional decision, see The Office of Fair Trading v. Purely Creative Limited & 8 Ors [2011] EWHC 106 (Ch), para. 73. In essence it is material information that will guide owners of the over 122 million connected (GSM and CDMA) lines in Nigeria in making an informed choice about the service provider or service they intend to subscribe to.
No doubt there is public interest in protecting Communications consumers. As set out in the National Policy on Telecommunications, NCC is charged with ensuring that public interest is protected in the Communications market. It is submitted that the “public interest” contemplated under the National Policy on Telecommunications would encompass the broad objectives of the NCA which inter alia provides in § 1 (g) that the rights of consumers are protected. In this regard, it is also noted that the requirement for Communications licensees to comply with QoS standards is a consumer protection measure embedded under § 104 of NCA. As rightly well put by NCC, “these QoS standards [and report] ensures that consumers continue to have access to high quality telecommunications service by setting basic minimum quality levels for all service providers.” Thus in circumstances where the QoS report is not available, consumers of mobile telecommunications services are not able to ascertain whether particular service providers have been able to achieve the “minimum quality levels” set by NCC and are thus denied the opportunity to be able to make an informed choice from the use of this information.
Clearly non-disclosure of the QoS report will significantly deprive mobile telecommunications consumers of the opportunity to make a free or informed choice about mobile telecommunications services and would make it virtually impossible to confirm claims of service providers about their QoS standing. A consumer’s right to access information and freedom of choice is reinforced by United Nation General Assembly Resolution 39/248 Guidelines for Consumer Protection adopted on 9 April 1985 in particular § 3 (c) which provides “Access of consumers to adequate information to enable them to make informed choices according to individual wishes and needs.” It is also submitted that the consumer’s right to access information as users of products or services constitute legitimate grounds of public interest to justify the disclosure of the QoS report. See Canal Satélite Digital SL v Adminstración General del Estado, and Distribuidora de Televisión Digital SA (DTS) [2002] ECR I-607, para 34.
In Re Kenmatt Projects Pty Ltd and Queensland Building Services Authority (1996 S0094, 27 September 1996), a building contractor contested access being given to certain files held by the respondent Building Service Authority relating to disputes which have arisen concerning the building contractor’s works. The building contractor argued that the files qualified for exemption under § 45 (1) (c) of the Queensland (Australia) Freedom of Information Act 1992 which exempts from disclosure; information concerning the business, professional, commercial or financial affairs of an agency or another person and which could reasonably be expected to have an adverse effect on those affairs or prejudice the future supply of such information. The Queensland Information Commissioner found that public interest considerations favouring disclosure outweighed any such apprehended adverse effects. In particular the Information Commissioner held at para 48 that:
...there is a significant public interest in members of the public, many of whom are potential homebuyers or home renovators, having access to information about the performance of builders, and their responses to complaints, to enable them to make informed choices about the builder they engage. I believe that it is valuable for consumers to have before them as much information as possible about the performance of builders they might choose to engage.
Conclusion
It is clear that public interest considerations would favour the disclosure of the QoS report, no doubt if awareness of the QoS report were to be made available to the public, service providers would strive to achieve the best results, and consumers would ultimately be the winners. In concluding the words of NCC during the public hearing on the draft Quality of Service Regulations 2006 aptly comes to mind and I quote “The primary purpose for publishing QoS information is to provide [consumers] timely, relevant, accessible, accurate and comparable information that would enable them make informed decisions.”
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.
Wednesday, September 28, 2011
IMPROVING THE TRUSTWORTHINESS OF ONLINE TRANSACTIONS IN NIGERIA
The Cashless Lagos initiative currently led by the Central Bank of Nigeria (CBN) is set to go live on the 1st of January, 2012. The next couple of weeks will also see the CBN sensitizing stakeholders in Lagos on this new initiative for a cashless economy and the safe and secure options for making electronic payments. An electronic payment in its simplest sense is the making of payment(s) via an electronic terminal or platform and forms an integral part of the e-commerce ecosystem. The importance of e-commerce seems to be hinged on the prediction of JP Morgan senior analyst Imran Khan that global ecommerce revenue is expected to grow nearly 19 per cent in 2011 to the tune of $680 billion.
Electronic payment systems can be grouped into four broad categories: online electronic cash system, electronic cheque system, smart cards based electronic payment system and online credit card payment system (which is the main emphasis of this article). Each payment scheme has its advantages and disadvantages for the customers and merchants. These payment systems have a number of unique requirements: e.g. security, acceptability, convenience, cost, anonymity, control, and traceability. Online credit card payment system seeks to extend the functionality of existing credit cards for use as an online payment tools. According to Laudon and Traver 2002, this payment system has been widely accepted by consumers and merchants throughout the world, and by far the most popular methods of payments especially in the retail markets. This form of payment system has several advantages, which were never available through the traditional channels of payment. Some of the most important are: privacy, integrity, compatibility, good transaction efficiency, acceptability, convenience, mobility, low financial risk and anonymity.
But this payment system has raised several problems before the consumers and merchants. Irrespective of the convenience offered by this form of payment, it is still fraught with a lot of security challenges. Recent experience has shown that cyber criminals have evolved in response to the current trend for making payments online by engaging in phishing attacks such as website spoofing. Web site spoofing occurs where the cybercriminal masquerades as a known entity by setting up a phony website very similar to the website operated by the entity and attempts to obtain valuable information such as the credit card details from the online consumer. In response to this threat, trusted entities in the website community established the Extended Validation (EV) Certificate. An EV certificate is a type of public key certificate issued to a website operator according to a specific set of identity verification criteria. These criteria require extensive verification of the requesting entity's identity by the issuing “trusted third-party” certification authority before the certificate is issued. A website secured with the EV certificate is important in two ways; it identifies the legal entity that operates the web site by providing a reasonable assurance to the online consumer that the web site the consumer is accessing is controlled by a specific legal entity identified in the EV Certificate by name, address of place of business, jurisdiction of incorporation or registration and registration number or other disambiguating information and prevents a a-man-in-middle attack by facilitating the exchange of encryption keys in order to enable the scrambling of debit/credit card details when exchanged between the online consumer and the web site, however the primary purpose seems to be in establishing the legitimacy of a business claiming to operate a web site.
A recent development in website assurance is the use Trustmarks. Trustmarks are electronic labels or visual labels indicating that an e-merchant has demonstrated its conformity to standards regarding e.g. security, privacy and fair business practices. E-merchants hope that, by displaying the trustmark on their websites, online consumers will trust their certificate practice and be more likely to divulge their personal data and transact with them. Against this background, it is worthwhile to mention that the guidelines on electronic banking introduced by the CBN in 2003 is silent on the obligations of financial service providers to ensure that websites used for e-banking are protected with EV certificates or even any forms of secure socket layer (SSL) encryption technologies. The closest this guidelines comes to mentioning this obligation is by requiring that banks Ensure that adequate information is provided on their websites to allow potential customers to make an informed conclusion about the bank's identity and regulatory status of the bank prior to entering into e-banking transactions and that ISPs should exercise due diligence to ensure that only websites of financial institutions duly licensed by the CBN are hosted on their servers. ISPs that host unlicensed financial institutions would therefore be held liable for all acts committed through the hosted websites. However the circumstances under which the information provided by the banks on their websites is deemed to be adequate and that due diligence has properly been exhibited by ISPs has unfortunately not been made any clearer under the Guidelines. In my view, such operators of websites capable of processing online transactions owe it as a duty of care to their numerous online consumers to ensure that as a minimum their websites are “trusted” and that transactions processed on it are secure. On this score, the need arises for our federal legislators to pass the cybercrime bill which was unfortunately killed in the last legislative session. Recently the demand for a Cybercrime Framework has been renewed by the charismatic IT evangelist Gbenga Sesan through an e-petition on the www.change.org website. A cybercrime regime will go a long way in complementing the efforts of website operators in assuring their websites and will also work decisively to intervene where phishing attacks and other forms of cyber nuisance are committed in cyberspace.
Electronic payment systems can be grouped into four broad categories: online electronic cash system, electronic cheque system, smart cards based electronic payment system and online credit card payment system (which is the main emphasis of this article). Each payment scheme has its advantages and disadvantages for the customers and merchants. These payment systems have a number of unique requirements: e.g. security, acceptability, convenience, cost, anonymity, control, and traceability. Online credit card payment system seeks to extend the functionality of existing credit cards for use as an online payment tools. According to Laudon and Traver 2002, this payment system has been widely accepted by consumers and merchants throughout the world, and by far the most popular methods of payments especially in the retail markets. This form of payment system has several advantages, which were never available through the traditional channels of payment. Some of the most important are: privacy, integrity, compatibility, good transaction efficiency, acceptability, convenience, mobility, low financial risk and anonymity.
But this payment system has raised several problems before the consumers and merchants. Irrespective of the convenience offered by this form of payment, it is still fraught with a lot of security challenges. Recent experience has shown that cyber criminals have evolved in response to the current trend for making payments online by engaging in phishing attacks such as website spoofing. Web site spoofing occurs where the cybercriminal masquerades as a known entity by setting up a phony website very similar to the website operated by the entity and attempts to obtain valuable information such as the credit card details from the online consumer. In response to this threat, trusted entities in the website community established the Extended Validation (EV) Certificate. An EV certificate is a type of public key certificate issued to a website operator according to a specific set of identity verification criteria. These criteria require extensive verification of the requesting entity's identity by the issuing “trusted third-party” certification authority before the certificate is issued. A website secured with the EV certificate is important in two ways; it identifies the legal entity that operates the web site by providing a reasonable assurance to the online consumer that the web site the consumer is accessing is controlled by a specific legal entity identified in the EV Certificate by name, address of place of business, jurisdiction of incorporation or registration and registration number or other disambiguating information and prevents a a-man-in-middle attack by facilitating the exchange of encryption keys in order to enable the scrambling of debit/credit card details when exchanged between the online consumer and the web site, however the primary purpose seems to be in establishing the legitimacy of a business claiming to operate a web site.
A recent development in website assurance is the use Trustmarks. Trustmarks are electronic labels or visual labels indicating that an e-merchant has demonstrated its conformity to standards regarding e.g. security, privacy and fair business practices. E-merchants hope that, by displaying the trustmark on their websites, online consumers will trust their certificate practice and be more likely to divulge their personal data and transact with them. Against this background, it is worthwhile to mention that the guidelines on electronic banking introduced by the CBN in 2003 is silent on the obligations of financial service providers to ensure that websites used for e-banking are protected with EV certificates or even any forms of secure socket layer (SSL) encryption technologies. The closest this guidelines comes to mentioning this obligation is by requiring that banks Ensure that adequate information is provided on their websites to allow potential customers to make an informed conclusion about the bank's identity and regulatory status of the bank prior to entering into e-banking transactions and that ISPs should exercise due diligence to ensure that only websites of financial institutions duly licensed by the CBN are hosted on their servers. ISPs that host unlicensed financial institutions would therefore be held liable for all acts committed through the hosted websites. However the circumstances under which the information provided by the banks on their websites is deemed to be adequate and that due diligence has properly been exhibited by ISPs has unfortunately not been made any clearer under the Guidelines. In my view, such operators of websites capable of processing online transactions owe it as a duty of care to their numerous online consumers to ensure that as a minimum their websites are “trusted” and that transactions processed on it are secure. On this score, the need arises for our federal legislators to pass the cybercrime bill which was unfortunately killed in the last legislative session. Recently the demand for a Cybercrime Framework has been renewed by the charismatic IT evangelist Gbenga Sesan through an e-petition on the www.change.org website. A cybercrime regime will go a long way in complementing the efforts of website operators in assuring their websites and will also work decisively to intervene where phishing attacks and other forms of cyber nuisance are committed in cyberspace.
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, July 25, 2011
An Innovative way of Improving Quality of Service in Mobile Telecommunications Service with the Nigerian Sovereign Wealth Investment Fund
With a teledensity of 64.70 per cent and a total connected lines (GSM and CDMA) of 115,140,681 (and still counting), network congestion has continually been the bane of poor quality of service (QoS) levels in mobile telecommunications services in Nigeria, Africa’s largest telecommunications market. This article seeks to propose an innovative way of applying the Infrastructure Fund created by the Nigerian Sovereign Wealth Authority Act to fund projects expanding mobile network capacity by building additional base stations. This investment decision would not only be consistent with the statutory objective of assisting the development of critical infrastructure in Nigeria that will attract and support foreign investment, economic diversification and growth, but would have the resultant effect of improving the QoS levels currently experienced in mobile telecommunications service in Nigeria.
On the 10th of May, 2011, the Senate passed the Nigerian Sovereign Wealth Investment Authority Bill into Law, this was subsequently followed by passage of the same Bill by the House of Representatives on the 19th of May, 2011. The Bill now an Act establishes the Nigerian Investment Authority which is statutorily charged inter alia with the mandate to enhance the development of Nigerian Infrastructure by establishing the Nigerian Infrastructure Fund. The Nigerian Infrastructure Fund is part of the Nigerian Sovereign Wealth Investment Fund and is primarily set up to support through investment predicated financial returns the development of basic, essential and efficient critical infrastructure in Nigeria (such as mobile telecommunications networks) in order to stimulate the growth and diversification of the Nigerian economy and create jobs for Nigerians.
This article proposes that part of the Infrastructure Fund should be applied to funding projects expanding mobile networks by building additional base stations only in geographic areas where QoS parameters such as network coverage, service accessibility and service retainability are perceived by mobile telecommunications users to be low. The proposed structure would involve the grant of long term (say 25 years) soft loan to cover at least 70 per cent of the cost building these base stations to the project company or the Special Purpose Vehicle (SPV) set up by Mobile Telecommunications Service Providers in Nigeria. This SPV would be specifically incorporated to build-own-operate (BOO) the additional base stations throughout its lifecycle. In line with this arrangement, the project company would also be required to enter into a long term Infrastructure Service Agreement with the existing mobile telecommunications service providers (both GSM & CDMA service providers). This contractual arrangement is similar to an Offtake contract or Power Purchase Agreement (used for a project producing electricity) which assures; on one hand, the GSM & CDMA service providers (the purchasers) that these mobile networks will always be available and on the other hand, that the SPV will have a ready market to lease out the base stations on a long term basis at a preagreed price.
As this is a type of public sector funding, arguments against this approach would contend that it lacks the discipline inherent in private sector financing. Typical due diligence undertaken where a private sector lender is involved usually entails the careful evaluation of all the risks involved in the project and their proper allocation to parties other than the SPV. This practice is derived from the principle that risks should be allocated to the party best able to manage it; however the argument supporting this investment approach contends that the Infrastructure Fund would provide a form of low-cost public sector finance for mobile network expansion that retains the benefit of private sector management and control (since the SPV is constituted by both the GSM and CDMA service providers), this is beside the fact that long term investment like this would also improve upon the return for the Sovereign Wealth Investment Authority (as the major investor), taking advantage of the fact that debt is actually cheaper than equity. The major point argued is that why not have the project benefit from the best of both worlds by having the public sector provide the project with debt, in partnership with equity stakes to be held by the private sector investors in the SPV.
Improving the QoS of mobile telecommunications services by investing in the construction of additional base stations is likely to have an effect on deciding potential locations of foreign direct investments as the nature of an economy’s overall infrastructure plays a key role in its ability to respond to changes in demand and prices or to take advantage of other resources. In terms of economic growth, additional investment in telecommunications infrastructure would see an improvement of the GNP and the production of higher value added services and products driven by the secondary or tertiary telecommunications industries. As the economy grows and telecommunications services improves, there is likely to be a correlating increase in investments by foreign companies (such as Alcatel-Lucent, Nokia, Siemens, Ericcson) dealing in modern communications technologies.
No doubt it goes without saying that telecommunications services drive the development of new businesses, as evidenced by the enormous growth throughout the world in recent years of cellular and internet-based business models. In return, the growth of these business activities would drive demand for telecommunications services, thus forming a virtuous circle. Increasingly as businesses, especially private businesses develop in Nigeria, the need to address and develop the market for advanced telecommunications services will also arise. One consequence is a strong support to the development and transition of the economy as a whole which is given impetus by the rationale for investing with the Nigerian Sovereign Wealth Fund.
On the 10th of May, 2011, the Senate passed the Nigerian Sovereign Wealth Investment Authority Bill into Law, this was subsequently followed by passage of the same Bill by the House of Representatives on the 19th of May, 2011. The Bill now an Act establishes the Nigerian Investment Authority which is statutorily charged inter alia with the mandate to enhance the development of Nigerian Infrastructure by establishing the Nigerian Infrastructure Fund. The Nigerian Infrastructure Fund is part of the Nigerian Sovereign Wealth Investment Fund and is primarily set up to support through investment predicated financial returns the development of basic, essential and efficient critical infrastructure in Nigeria (such as mobile telecommunications networks) in order to stimulate the growth and diversification of the Nigerian economy and create jobs for Nigerians.
This article proposes that part of the Infrastructure Fund should be applied to funding projects expanding mobile networks by building additional base stations only in geographic areas where QoS parameters such as network coverage, service accessibility and service retainability are perceived by mobile telecommunications users to be low. The proposed structure would involve the grant of long term (say 25 years) soft loan to cover at least 70 per cent of the cost building these base stations to the project company or the Special Purpose Vehicle (SPV) set up by Mobile Telecommunications Service Providers in Nigeria. This SPV would be specifically incorporated to build-own-operate (BOO) the additional base stations throughout its lifecycle. In line with this arrangement, the project company would also be required to enter into a long term Infrastructure Service Agreement with the existing mobile telecommunications service providers (both GSM & CDMA service providers). This contractual arrangement is similar to an Offtake contract or Power Purchase Agreement (used for a project producing electricity) which assures; on one hand, the GSM & CDMA service providers (the purchasers) that these mobile networks will always be available and on the other hand, that the SPV will have a ready market to lease out the base stations on a long term basis at a preagreed price.
As this is a type of public sector funding, arguments against this approach would contend that it lacks the discipline inherent in private sector financing. Typical due diligence undertaken where a private sector lender is involved usually entails the careful evaluation of all the risks involved in the project and their proper allocation to parties other than the SPV. This practice is derived from the principle that risks should be allocated to the party best able to manage it; however the argument supporting this investment approach contends that the Infrastructure Fund would provide a form of low-cost public sector finance for mobile network expansion that retains the benefit of private sector management and control (since the SPV is constituted by both the GSM and CDMA service providers), this is beside the fact that long term investment like this would also improve upon the return for the Sovereign Wealth Investment Authority (as the major investor), taking advantage of the fact that debt is actually cheaper than equity. The major point argued is that why not have the project benefit from the best of both worlds by having the public sector provide the project with debt, in partnership with equity stakes to be held by the private sector investors in the SPV.
Improving the QoS of mobile telecommunications services by investing in the construction of additional base stations is likely to have an effect on deciding potential locations of foreign direct investments as the nature of an economy’s overall infrastructure plays a key role in its ability to respond to changes in demand and prices or to take advantage of other resources. In terms of economic growth, additional investment in telecommunications infrastructure would see an improvement of the GNP and the production of higher value added services and products driven by the secondary or tertiary telecommunications industries. As the economy grows and telecommunications services improves, there is likely to be a correlating increase in investments by foreign companies (such as Alcatel-Lucent, Nokia, Siemens, Ericcson) dealing in modern communications technologies.
No doubt it goes without saying that telecommunications services drive the development of new businesses, as evidenced by the enormous growth throughout the world in recent years of cellular and internet-based business models. In return, the growth of these business activities would drive demand for telecommunications services, thus forming a virtuous circle. Increasingly as businesses, especially private businesses develop in Nigeria, the need to address and develop the market for advanced telecommunications services will also arise. One consequence is a strong support to the development and transition of the economy as a whole which is given impetus by the rationale for investing with the Nigerian Sovereign Wealth Fund.
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