Between policy and regulation in telecoms industry over USSD
Beyond any inferences, stakeholders have expressed concerns that the latest suspension of direct charging of the price for the use of the USSD for digital financial transactions by the telecoms companies by the Minister of Communication and Digital Economy, Dr. Isa Pantami, has, again, revealed the clear danger of muddling policy action with regulations in the telecoms sector, which is often antithetical to the growth of the industry.
Such interference in the independence of a regulatory authority often results in distortion of industry regulatory processes and could impinge on the incremental growth of such industry and the USSD pricing issue appears to have generated more reactions from different quarters since the Minister’s intervention in the issue in the last few weeks.
Basically, USSD services are delivered over the Stand-Alone Dedicated Control Channel (SDCCH) which is also the channel telecoms operators’ use for voice call-set up, SMS set-up and delivery. This channel is used for the exchange of signalling messages between the mobile device and the network base station, and congestion on this channel is measured on a monthly basis by the Nigerian Communications Commission (NCC).
It sounds a bit complicated and can get technical very quickly, but for the purposes of financial inclusion, there are two key things to understand. First, when you dial a number that starts with * and ends with #, the person is using USSD. Second, USSD is currently the best available communications technology to deliver mobile financial services to low-income customers.
In the last few weeks, the USSD issue has become a heated debate in Nigeria, which had not only generated issues, but stirred up anger and controversies in the telecoms, banking sectors, and among Nigerians. There have been accusations and counter-accusations between players in the banking and telecommunications sectors over authorisation and activation.
The operator in the centre of the storm, MTN, had come out to inform the public that the banks were party to its planned N4 charge for every 20 seconds spent using the USSD platform, which happens to be its infrastructure. The backlash, denial on the part of the banks, and the Federal Government’s directive had forced the South African firm to make a U-turn, and subsequently, put the plan on hold.
While some consultations are currently on-going on the matter, insights from the industry showed that some quarters believed strongly that the determination and suspension of the USSD initiative should be at the prerogative of the NCC and not entirely the Ministry, as was championed by the Minister Pantami.
According to a telecoms expert, Kehinde Aluko, as much as the subscribers must be protected from various forms of manipulations and exploitations, “the issue at hand is a regulation and not policy.” Subsequently, the Minister, according to Aluko, ought to have sought an audience with the NCC, which happened to be the custodian of the operators before issuing a suspension notice of the plan.
Aluko stressed that it was more like the Minister usurping the power of the NCC, which is the custodian of regulations of telecoms activities, a development he and other industry stakeholders have suggested constitute “threats to the independence of the telecoms regulator as enshrined in the Nigerian Communications Act (NCA), 2003.
“Throughout the imbroglio, we never saw the Ministry of Finance issuing a directive to the banks. It was the Central Bank of Nigeria (CBN) that we saw making pronouncements and necessary interventions. I think Minster Pantami’s hasty intervention is something we need to avert in our industry to avoid reversal of whatever progress we have made in the telecoms industry so far because regulating the telecoms industry is a delicate balancing of the Act,’’ Aluko noted.
From his perspective, the Administrative Secretary, Association of Licensed Telecoms Companies of Nigeria (ALTON), Gbolahan Awonuga, who had expressed worry over the Minister’s move, also amplified Aluko’s voice, saying, “The issue being discussed is not policy, but regulation which has a legal document backing it.”
“We are confusing regulation with policy. There was a determination on this USSD, even before the appointment of the Minister,” he stated.
Gbolahan argued that the CBN is protective of the banks, but wondered why the telecom operators, who are even the owners of the USSD platforms, are being treated unfairly. “It is not about the good boy, but this is commercial and the normal things have been done. Operators did not come up overnight to charge N4. It was robustly deliberated upon and a decision jointly taken before the legal instrument was published for implementation by all parties involved,” he explained further.
Similarly, the President of the Association of Telecommunications Companies of Nigeria (ATCON), Olusola Teniola, vehemently queried where the autonomy of the NCC lies if the ministry continues to interfere.
Teniola stated that the Federal Government needed to allow the NCC’s independence to enforce decisions made, especially as it bothers on the development of the telecommunications industry.
Indeed, The Guardian checks showed that there is a legal basis for the NCC’s intervention to protect telecoms service consumers (i.e. bank customers who use USSD for financial transactions).
Specifically, Section 4 of the Nigerian Communications Act (NCA) 2003, wherein in Section 4 (1), the Commission is empowered to carry out such functions as: “facilitation of investments in and entry into the Nigerian market for provision and supply of communications services, equipment and facilities; the protection and promotion of the interests of consumers against unfair practices including but not limited to matters relating to tariffs and charges for and the availability and quality of communications services, equipment and facilities; ensuring that licensees implement and operate at all times the most efficient and accurate billing system.”
NCC is also saddled with the responsibility of promoting fair competition in the communications industry and protection of services and facilities providers from misuse of market power or anti-competitive and unfair practices by other service or facilities providers or equipment suppliers; and the responsibility to general responsibility of the Commission for economic and technical regulation of the communications industry.
To many Nigerians, the use of USSD sounded new, but checks by The Guardian showed that the initiative has been in effect since 2014.
This initiative, however, got a boost this year, when the NCC did a determination report on it.
The report obtained from NCC’s website termed ‘Determination of USSD Pricing,’ dated July 23, 2019, and signed by the Executive Vice Chairman of the Commission, Prof. Umar Danbatta, revealed, among other things, that a USSD session is 20 seconds; the cost of a USSD session is N1.63K; the price floor for a 20 seconds USSD service is N1.63k while price cap for a 20 Seconds USSD Session is N4.89k.
The Determination stated that telecom operators are to price at cost plus margin but stresses that the determination does not apply to the currently zero-rated USSD services such as customer service, balance inquiry, purchase of airtime and data services, among others related to telecommunications services.
The Determination document envisaged the implementation of the USSD charges by the mobile network operators (MNOs) to take effect from September 1, 2019, and remains valid and binding on licensees. However, Whether the MTN took official permission before its announcement to its customers remains unclear, as telecoms licensees are obligated to always get official approval/permission of the regulator before going to market to introduce any new tariff or pricing regime to their subscribers.
The legal document also notes that “the Commission reserves the right to amend and review this Determination at any time, as well as to consider other options to incentivise the communications industry,” and not the ministry. It further states that such a review may be necessitated by major change in the market conditions and/or the underlining principles of this Determination.
In the formulation of this Determination, it was gathered that the banks had applied to the NCC for USSD codes for their mobile transactions, where they were now directed to the Mobile Network Operators (MNOs) independently.
Meanwhile, ALTON’s accounts of how the USSD usage by the banks began and the support of the Commission in allowing the banks to use the USSD platform to facilitate digital financial inclusion is also revealing in the document obtained by The Guardian.
According to ALTON, while telecommunication services and infrastructure became more accessible in the country, the banks identified the USSD channel as a cost-efficient way of delivering financial services to their customers.
“The banks subsequently applied for and were granted USSD shortcodes to deliver financial services to bank customers by the Nigerian Communications Commission (“the Commission”).
‘‘At the nascent stage of USSD development for the financial services sector, the billing mode adopted by our members was to charge the telecommunications service consumer directly, which is referred to as end-user billing.”
However, “following complaints by its customers with regard to disappearing/illegal airtime deductions, ALTON said there was a consensus with the banks to implement corporate billing where the banks absorbed the costs associated with deploying the USSD platform for financial services.’’
These are according to a letter obtained from the Ministry, which was dated October 28, 201 and addressed to the Minister Pantami and duly signed by ALTON Chairman and Executive Secretary, Gbenga Adebayo, and Kazeem Ladepo respectively.
Taking a swipe at the banks, ALTON said rather than open new banking locations and deploying more Automated Teller Machines (ATMs), the banks increasingly used the USSD platform to provide a bouquet of services not initially contemplated by its members, which included account balance enquiries, funds transfers, account opening for tier one customers and other services unique to each Banks portfolio of services.
The body also said the banks also used this channel to grow significant revenues running into billions of Naira in view of the large disparity between the cost charged by its members and the charge imposed by the banks on their customers.
For instance, data from the Nigerian Inter-Bank Settlement System (NIBSS) showed that between January and March 2019, USSD-based transactions conducted through mobile money by some 2.3 million customers averaged 41.1 million valued at N810 billion worth of transactions. This, alone, according to industry watchers, indicates the high volume of USSD-based transactions that are enabled monthly by the MNOs’ infrastructure.
ALTON noted that these new services continued to place a strain on its members’ network resources, which resulted in their continued and further investments to ensure that the SDCCH channel was dimensioned to handle the increased traffic as a result of the new banking services being deployed on it.
The telecoms body pointed out that services provided by the banks constitute a minimum of 90 per cent of the total traffic on the USSD channels of its members.
However, since the suspension of the USSD charges by the Ministers, no authority has stopped the banks from charging customers an amount ranging from N10- N50, according to ALTON and confirmation by sources within the banking industry. “We are the landlords, that is, the owners of the infrastructure, we have been asked not to charge our tenants, who are the banks, yet the tenants continue to charge customers, even unfairly through their hidden and non-transparent billing, as bank customers hardly know how much they are being charged,” said Adebayo.
However, the Governor of CBN, Godwin Emefiele and the Body of Banks’ CEOs (BOBCEOs) have since denied their being party to the Determination, contrary to the evidence obtained by The Guardian the determination document while the CBN has patted the banks on the back to maintain the status quo.
Stakeholders have, therefore, called for immediate industry stakeholder forum to resolve the lingering issue in to ensure appropriate billing in line with legal document developed by the NCC with a view to accelerating financial digital inclusion in to prevent growth reversal in the country’s digital inclusion drive.