‘Why NCC wants upward price review for data services in Nigeria’
The battle for the upward review of data prices in Nigeria’s $68 billion telecommunications sector is not over.
Although, the move has been suspended by the Nigerian Communications Commission (NCC) based on several outcries that greeted it from across the country, including the Senate, the regulator has however, reiterated the need to have the prices reviewed upward.
The Guardian gathered through a document, which emanated from the NCC that the commission planned the Price Floor to address market distortions, unhealthy price wars and value erosion that could threaten the going concern of the service providers in the country.
According to NCC in the document, which was sent to the Special Adviser on Media and Publicity to President Muhammdadu Buhari, Femi Adesina, the Price Floor was one of the regulatory safeguards normally put in place by the telecommunications regulator to check anticompetitive practices particularly by the dominant operators.
NCC said a price floor is a minimum price on a good, commodity, service among others by a government or other organisations. It stressed that the Organisation of the Petroleum Exporting Countries (OPEC), generally sets price floor for oil.
The Commission said without a price floor, the dominant operators can engage in predatory pricing to drive down other operators, saying that if this is allowed to happen, the industry could be moving towards a monopoly.
The document showed that NCC actually met with service providers in October 2016, to share with them industry anti-competitive practices witnessed in the data market segment and to get their comments and inputs on what the price floor should be.
At the meeting, which actually formed the need to raise data prices, the Commission said it observed among others the need to create a balance by ensuring that the interim price floor is not too low in order to provide a cushion for small operators and new entrant to offer competitive products. Also that the price floor should not be too high to ensure affordability by consumers and that the rate should be fixed at a level that will encourage growth, roll-out services and ultimately attract investments into the telecom sector.
Subsequently, the Commission fixed an interim price floor of N0.90k/MB for big operators, adding that the rate will subsist pending the finalization of the study on the Determination of Cost Based Pricing for Retail Broadband and Data Services in Nigeria.
“In order to promote a level playing field for all operators in the industry, encourage small operators and new entrant to acquire market share and operate profitably, they should be exempted from price floor for data services. It is important to note that this rate is only applicable to big or major operators. Small operators such as Smile, Spectranet are not affected,” it stated.
The Price Floor had earlier been introduced in 2014 because of what the NCC referred to as the aggressiveness of the market, but the commission withdrew in 2015 on the basis that globally, there was a paradigm shift from the provision of voice telephony services to data and digital services.
“Therefore, in a bid to ensure sustainability, growth and development of the data market segment; and to promote pervasive broadband deployment, adoption and usage, the commission took a decision to lift the price floor for data services in October 2015.
“This decision also took into cognizance complaints by service providers to waive the price floor for data service to enable roll-out infrastructure and growth of the data market segment. However, it was clearly stated that the commission will restore the price floor if any distortion is witnessed within the market segment,” the document reads.
As such, the commission said after it continued to monitor activities in the data market segment, it observed a significant reduction in current market prices for data services; in addition to complaints by subscribers to re-introduce the price floor for data services, “which necessitated the December 1 re-introduction of Price Floor.”
NCC said some service providers were actually pricing their services below cost, a situation which it said could spell doom for the industry.
The commission also discovered that there were dominant operators in the wholesale leased line market, which also operate in the retail market and has embarked on massive predatory pricing, a conduct capable of substantially lessening competition.
The regulator added that the removal of floor price for data resulted in eroding value in the market; the need to safeguard investment and ensure growth, development and sustainability of the telecoms industry and that it was important to maintain the integrity of the network as operators lack capacity to accommodate the volume of transaction on their network.
NCC posited that the telecommunications industry is in a time of intense transformation, as the traditional source of telecommunications revenue – voice telephony services continue its decline, there is increased pressure to roll out services beyond traditional offering.
Consequently, the commission said there has been a gradual paradigm shift from voice telephony services to data and digital services, stressing that in line with the global trend to drive the vision of Internet of Things (IoT), the network service providers in the country have embarked on aggressive promotional campaigns.
As a result, NCC said all market players follow each other in introducing daily packages and engage in serious price war.
“Some operators were actually pricing below cost and this will affect the ability to continue in operational existence if the issues are not addressed urgently by the commission. It is therefore our collective responsibility to ensure the steady growth, development and sustainability of the telecoms industry in the country. This responsibility is further underlined by the current economic challenges facing the country. Some of these major operators also have capacity issues. It was clear to the Commission that there was need to act quickly to ensure the integrity of the network and availability of service to Nigerians.
“We cannot afford to have a crisis in the ICT sector as this will have widespread ramifications on the entire economy,” NCC said.
Already, the Association of Licensed Telecommunications Operators of Nigeria (ALTON) had expressed dissatisfaction over NCC’s action to suspend implementation of the new data tariff floor.
A statement signed by ALTON Chairman, Gbenga Adebayo, and its Publicity Secretary, Damian Udeh, said: “While we fully understand the public sentiments that would appear to have greeted the announcement of a minimum data tariff being introduced by the Nigerian Communications Commission (NCC), the Association of Licensed Telecommunications Operators of Nigeria (ALTON) wishes to make the following comments in respect of this development. We note that the NCC intervened to set the data tariff floor in exercise of its statutory responsibility to promote healthy competition by periodically reviewing voice and data tariffs in the industry and ensure the sustainability of the Nigerian telecommunications industry. It is noteworthy to mention that the NCC commenced extensive consultation with the industry prior to the finalization of the data tariff floor. Further, the Commission has, since yesterday, suspended the implementation of its Determination on the data tariff floor.”
ALTON noted that it is within the statutory remit of the NCC for it to make decisive interventions to address the data price concerns which had led to data prices falling to unreasonably low levels with the effect that telecommunications operators were unable to recover the cost of providing data services and reinvest in capacity expansion to accommodate the increased usage arising from lower tariffs. The situation has been compounded by the recent economic challenges characterized by the steep depreciation of the naira, the need to resort to the parallel market and foreign exchange scarcity which have considerably increased the capital and operational cost of providing telecommunications services, thus making current data tariffs unsustainable.
This situation, according to them, if left unaddressed, could result in a sustained deterioration in the quality of data services across all networks and the attendant poor quality of experience for users. In this regard, our members await the conclusion of NCC’s market study when the Commission will be in a position to determine its requisite intervention, the statement further stressed.
Also, the Centre for Digital Economy and Innovation (CeDEI) has urged the Senate to rescind its decision to halt the introduction of price floor for data services by the NCC, arguing that price floor was needed in the marketplace to protect both the operators and consumers.
The centre said that establishing a price floor means that no operator will go lower than the agreed floor thereby making market dominance by one or two operators which will lead to the promotion of monopoly impossible.
The Nigerian Senate had last week asked the NCC to immediately halt the proposed data tariff hike. The new data tariff regime which was billed to commence Thursday, December 1, was arrived at after consultation between the regulator and the operators where it was agreed that there was need to create a level field for robust competition in the industry by allowing both the old and new operators ample space to co-exist.
According to CeDEI, the Nigerian telecom regulator acted within the limit of the regulatory rules which empowers it to set the data tariff floor in exercise of its statutory responsibility to promote healthy competition by periodically reviewing voice and data tariffs in the industry and ensuring the sustainability of the market.
But last Wednesday, the Senate, following a motion under matter of urgent importance by Senator Bala N’ Allah, the Senate Deputy Leader, condemned the planned introduction of price floor, and asked the NCC to halt the increase immediately. The motion was unanimously endorsed.
But CeDEI has urged caution and introspection among the lawmakers and Nigerians who condemned the new tariff, adding that there was obvious misunderstanding of the concept of price floor.
The Centre said in a statement: “We have carefully studied the arguments against the introduction of price floor for data and we can categorically say that there is not enough understanding of the issues by the public.
“Nigerian telecom industry needs a price floor for data services because it is the only way to engender robust competition. It means that no operator will go below a prescribed price, meaning that big operators will not muzzle the smaller operators out of existence”, the Centre said in a statement signed by its Coordinator, Mr. Chris Agafe .
There have been concerns about how some operators have been crashing their data prices in a manner that undermined competition. The Association of Licensed Telecommunications Operators of Nigeria (ALTON) has expressed its disappointment at the suspension of the price floor regime.
According to ALTON, if the issue is left unaddressed, it could result in a sustained deterioration in the quality of data services across all networks and the attendant poor quality of service experienced by users.”