Regulating competition the Nigerian way

Last week, history was made in Nigeria as Competition Law principles were rewritten in the telecommunications sector. The Nigerian Communications Commission directed the Mobile Network Operators to review their data charges based on a new price floor, for a variety of reasons, including giving new market entrants a chance to compete and gain market share. The same statement said the NCC was still investigating cost-based pricing for broadband and data services.

Following the national outrage that ensued, the NCC issued another statement suspending the implementation of the price floor. To everyone’s surprise, the MNO association kicked against the suspension. Apparently, there had been a stakeholder’s meeting between the NCC and the operators where some had complained about low prices they were charging for data (it’s confusing, yes) and the consensus was to introduce the floor. The NCC issued another statement and tweets from its official Twitter handle. One of these tweets said “The Commission cannot allow Market Forces to determine data price because there will be distortion in market competition.” A paradoxical oxymoron, if ever. There is virtually no other country with an industry competition regulatory in which these sequence of events could have happened. Here is why.

Competition law, to attempt a simple definition, is the system of rules and regulations put in place to ensure that businesses do not adversely affect the market by their conduct. Its ultimate aim is protecting consumers from exploitation and market distortion and it encourages businesses to innovate to gain market share. Competition law is the framework that prevents large companies from carrying out malicious activity that can force smaller competitors out of the business. It also prohibits these large, or “dominant”, actors from colluding to set prices (flashback to when British Airways and Virgin Atlantic got fined heavily for doing so).

Competition law generally prohibits agreements between competing firms to control prices). For example, the Federal Trade Commission (US competition regulator) advises that “Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor… A plain agreement among competitors to fix prices is almost always illegal, whether prices are fixed at a minimum, maximum, or within some range.” Section 11 of the NCC’s competition regulations do so too. As such, the fact that all the operators got into a room to discuss pricing is an issue of its own. That the NCC was in the room with them and apparently sanctioned the new pricing arrangement is doubly puzzling.

Secondly, the NCC said it was introducing a price floor to level the playing field and enable smaller operators compete. Without some more detail from the NCC, this is an unusual intervention for a regulator to make. On the one hand, a regulator cannot allow existing operators introduce unnatural barriers of entry into the market. On the other however, a regulator does not distort the market simply to favour small operators. If existing operators, due to the efficiency and innovation that their longevity in the market brings, are able to price efficiently at a level beyond where new entrants can compete, it falls to the new entrants to seek further investment, not to the NCC to make the market less efficient for their benefit.

Third, it is extremely rare for a competition regulator to make findings on pricing without robust supporting market analysis. The announcement (re)introducing a price floor did not say whether or not the current price for data was predatory (i.e. sale price below cost price to ensure that new market entrants cannot gain market share) or otherwise. In its subsequent announcement, it compared the data prices currently offered by the 4 major operators thus – “Etisalat offered (₦0.94k/MB), Airtel (₦0.52k/MB), MTN (₦0.45k/MB) and Globacom (₦0.21k/MB).” If it is the Globacom price that has put the others in a bind, what the NCC should be doing is to investigate whether or not Globacom’s price is artificially low; whether or not the laying of its submarine cables means it can now provide its service more cheaply than its competitors can.

The price floor intervention by the NCC, without more, will be a disincentive to innovation. Instead of compelling every operator to look for the technology or other solution to make them more competitive, everyone is assured of safety, regardless of efficiency, at the expense of the consumer. Its proponents might argue that one was previously existence but this the question remains whether it is right for one to exist in the first place. Furthermore, when one looks at the statistics on the NCC’s website, showing market share for data services between the 4 GSM companies, for the period Nov 2015 to October 2016, it has remained virtually flat – no party has either gained or lost significant market share. Why then, is the intervention necessary?

“When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors.” This quote is also from the FTC and underscores the point that market forces are generally what should determine prices and that consumer interest, regarding choice, is paramount. When our NCC says that it wants to prevent the distortion of the market by market forces, it really does give pause for thought.