Mobile termination rates and sector’s growth

The current Termination Rates used in Nigeria for Mobile Network Operators’ voice calls is N3.90k/ per minute. This Termination Rate was set by the industry regulator, Nigerian Communications Commission (NCC) after a cost-based study, which produced a cost-oriented interconnection rate adopted for the sector in 2013.

Recall that the industry had experienced four interconnect cost determination regimes beginning from 2003, 2006, 2009 and 2013 and the last 2013 review of interconnection rate was pegged with International Termination Rate (ITR) at $0.03/minute and National Termination Rate at N3.90K/minute.

The commission had its first intervention in the interconnection rate in the telecoms industry with the Telecommunications network Interconnection Regulations 2003, the full liberalisation of the sector was still at its infancy stage therefore required data for its determination was not available. The commission used international benchmarking to set the rates.

The Interconnection regulation 2003 was reviewed in 2006 with a view to aligning it with the Nigerian Communications Act 2003, which was enacted after the regulation was made. It also addressed the major challenges faced by the industry at that time taking cognisance of industry best practices.

The commission carried its first detailed cost study by employing LRIC cost model (Long Run Incremental Cost Model). LRIC is a cost model used in telecommunications regulation to determine the price paid by competitors for services provided by operator with significant market power. It assists in the determination of the cost of termination services for an efficient operator.

The commission employed LRIC because it is forward looking, looks at replacement costs and not historical costs. Historical costs are not relevant to decision making.

In 2009, the commission conducted another study and adopted the asymmetrical cost profile. The commission carried out another review in 2013.

“But, based on unfriendly economic realities in the country, current Termination Rates of N3.90k and $0.03, can no longer sustain operations and expansion of telecommunications industry, especially when juxtaposed with foreign exchange of $1 to less than N500,” this, some industry watchers argued.

A random market survey can reveal in its entirety, how the excruciating economic recession is changing prices of goods and services, at astronomical rate. Within an era of a year, prices of goods and services have tripled at the mercy of rising inflation.

The telecoms market observers noted that operating cost of Mobile Networks Operators (MNOs) has also gone up with the inflationary pace, while the purchasing power of Nigerians is declining speedily.

NCC’s policy on Mobile Termination Rates
The Mobile Termination Rate (MTR) has been a major tool of regulation used by the NCC, in formulation of its policies. The commission has been using Mobile Termination Rate as an incentive to encourage new entrants into the industry and create conducive environment of expansion for smaller operators, by ensuring a level playing field for all.

For instance, Mobile Termination Rate for new entrants MNOs can be cheaper when compared with big operators. This is deliberately initiated by the regulator, the NCC, in other to create room for growth, encourage healthy competition in the sector and checkmate monopoly in the system.

International Termination Rates Policy
Another aspect of Interconnection Rate is called International Termination Rates (ITRs). ITR, which is interconnection charges, set by international mobile traffic carriers as carrier-to-carrier charges, whenever international call is established.

The ITRs are assessed by mobile carriers on calls originating from other networks, including both fixed-line networks and rival mobile networks, with identical charges usually applied to all off-net calls, irrespective of whether they are local, long-dance, or international calls.

The ITRs become effective when a subscriber put a call across to a different network in other countries. The originating calls pass through the National Switch to International Gateway, where it is transmitted via International Gateway to National Switch of the intending country, from where it is transmitted again to the terminal end—the receiver.

This international voice call is made possible, as a result of agreed terms of sharing revenues among the MNOs in different countries of the world. The terms or “sharing formula” is called International Termination Rate (ITRs).

Interconnection Rates in African countries
According to data obtained from International Telecommunications Union (ITU) that compared Interconnection Rates in African countries after well-articulated survey and research, one of the results of the survey showed that Nigeria ranked in the lowest cadre in continent. The Nigeria’s ITR is put at $0.03/minute for in-bound and out-bound calls. The $0.03/minutes ITR became effective in 2013 regime, when the last determination was carried out for mobile voice terminal rates—for national; N3.90k/min and international calls—$0.03.

The ITR for some African countries, according ITU data are as follows: Kenya-0.11 dollars per min; Ghana-0.21 dollars per min; Benin-0.17 dollars per min; Senegal-0.30 dollars per min; Togo-0.31 dollars; Ethiopia-0.20 dollars; Tanzania-0.31 dollars/min; Uganda-0.25 dollars/min; Zambia-0.14 dollars/min; Rwanda-$0.23/min; Niger-$0.27/min; Chad-$0.50/min; South Africa-$0.03; Burkina Faso-$0.27/min; Gambia-$0.70/min; Guinea Bissau-$0.50/min; Somalia-$0.44/min; Nigeria-$0.03/min; Liberia-$0.38/min; Cameroon-$0.28/min; Angola-$0.20; Egypt-$0.09/min and so on.

Current termination charges in Nigeria
The current Termination Rates being used in Nigeria for voice calls is N3.90k/minute. This Termination Rate was set in 2013 by the NCC after a cost-based study which produced cost-oriented interconnection rate. The 2013 review of interconnection rate pegged ITR at $0.03/minute and National Termination Rate at N3.90K/minute. Based on bedevilling economic realities in the country, current Termination Rates of N3.90k and $0.03, may no longer sustain operations and expansion of telecommunications industry, especially when juxtaposed with foreign exchange of $1 to less than N500.

How forex bottlenecks affects MNOs
Depreciation of Naira has contributed immensely in the reduction of foreign exchange earned, as result of In-bound International Termination Rate (ITR) into the economy and invariably loss of revenue being suffered by the MNOs. The devaluation of the local currency—the Naira by market forces, has drastically weakened the revenue strengths of MNOs, as regards to their contemporary overseas.

This development has affected the capacity of the MNOs in Nigeria to meet up with the contractual agreements to pay Termination Rates for international voice calls made from their networks to other networks abroad. And this incapacitation has grossly affected in-bound international calls coming into Nigerian networks. It has also reduced Foreign Direct Investment in the industry.

In the foregoing context, the MNOs need to convert the tariffs paid to them in local currency by Nigerian subscribers, to foreign exchange, in other to meet up with contractual responsibility with foreign MNOs, as stipulated by ITU’s settlement procedures.

Naira devaluation challenge
Between 2015 and now, naira has lost over 250 per cent of its original market value in foreign exchange. The unmitigated free fall of the nation’s legal tender is mortgaging the sustainability and growth of the telecom industry. A pathetic situation where MNOs charges their tariffs in local currency, that is depreciating at the speed of light, while importing most of their equipment with foreign exchange, does not argue well for the sector.

The present Mobile Voice Termination Rate of N3.90k/minute does not conform to economic realities on ground today. Be that as it may, unless there is an upward review in the MTRs charged by MNOs to be in tandem with market realities, MNOs will find it very difficult to operate in the economy.

Danbatta’s submissions on Voice Termination Rates In light of current market realities, NCC is set to review the interconnection rates for voice services, which has been fixed in 2013.

Danbatta said at a Stakeholders’ Forum on Cost-Based Study for the Determination of Mobile Voice Termination Rate that the commission had carried out an in-depth cost study.

He said that since the last determination, which took effect April 2013, the country’s communication market had witnessed tremendous growth in both subscriber numbers as well as traffic volumes.

“The sector has witnessed changes in available technologies (2G, 2.5G, 3G and 4G) and other network elements, including global financial markets, which have an impact over inputs such as cost of capital.

“The scale of changes will inevitably affect the unit cost of providing services, including interconnection, and may lead to differences between regulated interconnection rates and underlying costs.

“This, in turn, may result in differences between on-net and off- net retail tariffs.

“It is very important we ensure that interconnection services are not only fairly-priced and non-discriminative, but should reflect the cost of providing such services in the market.

“It is in this regard that the commission has decided to review the rates set in its 2013 determination, in the light of current market realities,’’ Danbatta said.

Subscribers seek downward review of rates
Meanwhile, the National Association of Telecommunications Subscribers (NATCOMS) has appealed to the NCC not to review the interconnection rates for voice services upward.

NATCOM’s President, Chief Deolu Ogunbanjo, stated in Lagos, recently, that the review of the interconnection rates was not necessary, with the present economic situation of the country.

’I don’t think this is the right time to do any upward review. Government and its agencies should be sensitive to the plight of the people. “’Government should understand that we are in recession and it is affecting every pocket; so, it is not a right time of increasing telecommunications tariffs,’’ Ogunbajo said.

He said that instead of reviewing the rates upward, the regulatory body should consider a downward review.