Lagos — The Nigerian Communications Commission (NCC) has explained why it is introducing new spectrum fees and pricing strategy on the national spectrum. It has also described its new fees as "very fair and competitive."

The Commission said in Abuja that this has become imperative because study has shown that the current fees be implemented by the Ministry of Communications is defective in many ways.

According to the NCC, it was discovered that spectrum was priced on a per-subscriber basis even as there were lots of inconsistencies on the amount charged per subscriber. NCC said while some were charged N50,000 per subscriber, others were charged N5,000 or N2,500 per subscriber for exactly the same spectrum band.

The Commission also found that frequency licence was renewable every year, frequency assignments were not accompanied with licence conditions to enable each assignee know his rights and obligations.

NCC further pointed out that fees tied to subscriber base were punitive, discouraged expansion and efficient use of spectrum and led to false declaration of actual subscriber base by operators.

The annual frequency renewal has the tendency of increasing administrative overhead costs and constitutes insecurity for investors just as it encourages licence renewal evasion.

The method eventually led to strong protests by operators, loss of confidence in the licencing process by investors and higher costs of services to consumers.

Having taken a critical look at these findings and the latest ITU approach to handling such issues, the NCC decided on an approach which included that:

the price of spectrum for commercial applications will be determined by competitive methods to be selected by NCC from time to time

these will include but are not limited to auction, beauty contest, etc.

the method selected ensures that frequency resources gets into the hands of those who will make the most efficient use of it.

Price of spectrum should reflect market or economic value

spectrum fee should be directly proportional to spectrum size

incentive fee approach adopted in order to achieve government policy objectives and NCC goals - (i) even development of the country, (ii) universal access and service

Price of spectrum will vary from state to state

price of spectrum will not be based on number of subscribers in order to encourage efficient use of spectrum and stimulate growth

adequate consultation with all stakeholders

fee mechanism should be simple, easily understood and predictable

fee structure must fully recover administrative costs of spectrum management

standard licence duration will be five years in order to ensure tenure security and bring it in line with the duration of NCC's operating licences

NCC said that it has used the results of the recently-concluded FWA auction process has been used as a basis for the determination of spectrum fees. It said that bid values are a reflection of the market value of the spectrum and that other factors considered are spectrum size, demand pattern from band to band; licence duration; price variation from state to state; shared and exclusive spectrum use, etc. and that based on all these considerations, it has come up with a pricing formula.

NCC also adopted in fixing price has divided the nation into 36 licencing areas for the purpose of pricing and said spectrum fees will henceforth vary from state to state in accordance with market potentials and levels of economic activities.

There are five tiers under this arrangement: Tier 1 is made up only of Lagos State; Tier 2 has Rivers, FCT, Delta, Kaduna and Kano; Tier 3 consist of Ogun, Edo, Oyo, Anambra, Abia.

Tier 4, the fullest has Enugu, Akwa Ibom, Benue, Ondo, Bayelsa, Plateau, Cross River, Imo, Osun, Niger, Kwara, Kogi, Borno and Bauchi. Nasarawa, Ebonyi, Gombe, Adamawa, Ekiti, Jigawa, KJatsina, Kebbi, Sokoto, Taraba, Yobe and Zamfara made up Tier 5.

With this different categorisation, NCC said that henceforth the price of spectrum will vary according to frequency band and that band price will reflect the level of congestion in the band, market demand and the relative cost of deploying network infrastructures.

Also fees payable will not be based on subscriber population and that "the more you use, the more you pay. The price of spectrum will be directly proportionate to the size of spectrum assigned."

The NCC has also decided that frequency licence will be given for a Short Term Permit of three months which is non-renewable; Medium Term Licence of one year which is renewable and a Long Term Licence of five years which is also renewable.

For the price announced, Tier 1 consisting of Lagos alone will attract a price of N5 million per MHZ for 5 years; licencing areas in Tier 2 will attract a fee of N7 million; for Tier 3, it would be N5.5 million in each of the regions.

Other prices announced are for Tier 4, N3 million each; and Tier 5, N1.5 million each.

NCC pointed out that spectrum bands which have the possibility of being shares among large number of users will be assigned under class licences. These include microwave frequencies, DECT frequencies and point-to-point VHF/UHF radio channels.

Comparing the new fees with what obtained in the past, the NCC declared that its price is "very fair and competitive."