7 February 2013

Nigeria: Addressing Telcos' Imbalance With Interconnect Cost Model


Emma Okonji writes on NCC's recent plan to adopt a new interconnect cost model for voice services for the telecoms industry, operators' divergent positions, and the choice of international consultant, among others

The Nigerian Communications Commission (NCC) has always believed that with the right interconnect cost model in place, vis-a-vis the current market indices, it could maintain a balance in addressing unhealthy competition in the telecoms industry. With this in mind, the NCC had consistently reviewed the industry's interconnect rate model every three years, but the current review is creating some form of ripples, as telecoms operating companies are already jittering, not knowing the model that the NCC will finally adopt, after it must have taken a critical look at the report of its international consultant-the Price Waterhouse Coopers of the United Kingdom (UK)- that was commissioned to review the 2009 industry interconnect rates and to come up with a report on the market dynamics that will enable NCC adopt a new interconnect model for voice services.

Past Reviews

The Nigerian Communications Commission (NCC) had consistently reviewed the industry interconnect rates in every three years from 2003 to date. The interconnect rates determination for 2003 was based on international benchmark, with adjustments for the Nigerian operating environment, due to dearth of industry statistical data.

In 2006, which was the year when the five year exclusivity period granted the Global System for Mobile Communications (GSM) operators expired, the commission reviewed the interconnect rates and introduced multiple rates for mobile and fixed voice services in recognition of far-end and near-end calls termination principles.

In 2009, NCC through an international consultant PriceWaterhouseCoopers (Pwc) of the United Kingdom (UK), introduced the 'Glide Path Interconnection Rates' for voice services, which is the 'Asymmetric Model' that allows cost differentials in terminating calls. The introduction of the 2009 model, according to NCC, was as a result of the late entrants and the commencement of the Unified Service Licensing Regime (USLR) in order to create an enabling environment for healthy competition among active players in the telecoms industry.

Issues with Current Review

Although the NCC has not disclosed the new model it would adopt for the new interconnect rate, telecoms operators are already divided on the actual model to be adopted by the NCC.

While the smaller operator like Etisalat wants NCC to maintain the Asymmetric Model that allows for differential payment and which mandates the bigger operator to pay higher interconnect rates to smaller operators each time calls are terminated on the network of smaller operators, the bigger operators like Globacom and MTN are pushing for the 'Symmetric Model', which allows uniform call termination rates. The Code Division Multiple Access (CDMA) operators are agitating for a third tier of model that will favour the CDMA operators.

According to the Executive Vice-Chairman of NCC, Dr. Eugene Juwah, the commission had already detailed the same Pwc of UK to review the 2009 interconnect rate model, with a view to introducing a new interconnect rate that would be based on current market competition, volume of traffic generated by the operators and the inputs from telecoms operating companies.

But a heated argument, which was openly displayed by telecoms operators during stakeholders' forum last week, on the presentation of a draft copy on the new interconnect rates' determination for voice services, painted a picture of disagreement among the telecoms operating companies.

Chief Executive Officer of Etisalat, Mr. Steve Evans, who spoke in support of asymmetric model, said it would be a better way to maintain healthy competition in the industry, but the Director of Interconnect Network for Globacom, Mr. Aremu Olajide, opposed to it, insisting that the asymmetric model was not a long-term rate, but a dynamic tool introduced by the NCC to protect smaller operators. He said in 2009, Globacom was denied the privilege of enjoying asymmetric model, for the reason that it was already six years old in the industry as at then. Olajide explained that no GSM operator is currently less than five years old in the industry, and called on NCC not to consider years of operation in determining model for the new interconnect rate.

Senior Manager, Regulatory Affairs for MTN, Mrs. Oyeronke Oyetunde, maintained that the cost of doing telecoms business, remained the same across networks, be it big or small operator. She called on NCC to be careful in determining the new interconnect rate, insisting that every operator that had benefitted from asymmetric model in the past, should be evaluated to find out the extent to which they have benefitted, before considering them for another asymmetric model.

A director at Visafone, Mr. Isah Ojo, who spoke on behalf of CDMA operators, said the current interconnect rate of N8.20k did not in any way, reflect what Visafone and other CDMA operators have as interconnection cost. He said the CDMA operators were marked out by large economics of scale in the telecoms industry, which puts them far apart from GSM operators.

NCC's Stand Point

Director, Policy Competition and Economic Analysis, Mrs. Lolia Emakpore, who spoke with THISDAY on the issue, said the operators had no reason to fret or raise argument over the model that would be adopted by the NCC, since the commission was yet to decide which model to adopt.

According to her, the debate on the adoption of asymmetric or symmetric model of interconnect rate, largely depended on the state of the market today, in terms of competition, market growth, volume of traffic generated, the number of transmission links, number of base transceiver stations (BTS) and the number of switches, among other factors.

"NCC needs to review the market and find out the model that best supports growth and competition in the market. After the review of the current economics scale of growth of both the big and small operators, we should be able to determine the best model for the market.

"We have to be careful in our choice of model because we do not want a situation where the adoption of symmetric model will create a scene where smaller operators will be marginalised or forced out of business as a result of imbalance in traffic, neither do we want a situation where the adoption of asymmetric model will bring imbalance in the system. What we want to achieve is to create equilibrium in our choice of model," Emakpore said.

Choice of International Consultant

Responding to the choice of Pwc of UK, as against expectations of some Nigerians for a Nigerian consultant, Emakpore told THISDAY that the first reason for the choice of an international consultant is to remove bias from the industry, to a large extent. She however said that NCC made the bidding process, an open tender, where it allowed companies of international background, local companies, as well as local companies with international affiliation to bid for the consulting job. "At the end of the bidding process, NCC took the best, which is Pwc of UK and that was in 2009. Their second engagement in 2012 was to review the existing interconnect cost model, which we already have on ground since 2009," she said.

Highlights of Pwc's Review

Giving some clarifications on the findings of its review of the 2009 interconnect cost model, the international consultant, the Price Waterhouse Coopers, said the review was based on economics of scale in the telecoms industry, with a view to arriving at a position where the interconnect cost could be further reduced, based on the volume of subscribers registered with various networks.

Partner, Strategic Consulting, Pwc, UK, Mr. Alastair Macpherson, and Manager, Pwc, UK Carlos Soto, who gave some insights into the review, said

"The new economics of scale with the mobile network is such that as the volume of traffic increases, there is a reduction in the cost of call termination rate. We see a continuous decline in termination cost and we are projecting N5 per unit call termination rate, with an expectation that in the next four years, it will further drop to N3."

"What we did was to look at the various market structures and the cost of doing business with vendors. We looked at the economics of scale in the market and the future demand and the rate of change of future demand. We also looked at the volume of business and traffic carried by each operator, without considering the number years each operator has spent in the market, and we benchmarked out data with what is obtainable in some international markets, in order to present a clear overview of the market situation, that will enable the NCC adopt a model that is best suitable for the Nigerian telecoms industry," Macpherson told THISDAY.

Achieving Balance with Past Rates

According to Emakpore, the initial interconnect rates stood at between N8.20k and N10, but it expired in 2012. She explained that a new and flat rate of N8.20k was adopted by NCC since January 1, 2013, pending the determination of a new rate that will guide the industry in the next three years.

"This rate will continue until NCC comes out with the new interconnect rate that is currently under review," Emakpore said. She explained that NCC was able to achieve a strong balance in the interconnection rates adopted in the past, as there had been considerable reduction in volume of indebtedness on interconnection rates among operators and the issue of indiscriminate disconnection of smaller operators by the bigger operators have been addressed by our constant intervention and review of interconnect rates for the telecoms industry.

Subscribers' Gain

Telecoms subscribers under the aegis of the Association of Telecoms Subscribers of Nigeria (NATCOMS) have hailed the efforts of NCC in reviewing the industry interconnection rate every three years, since 2003.

According to its National President, Mr. Deolu Ogunbanjo, the reviews, which had always been carried out with considerations for current market indices, have helped in maintaining price stability in the telecoms industry over the years.

He said subscribers had in the past, suffered the brunt when operators argue over interconnect cost settlement, a situation, he said, often lead to indiscriminate disconnection of the network of smaller operators by the bigger operators.

When such things happen, subscribers on the smaller network will find it difficult to have smooth calls.

"What most big operators do then, was to reduce the channel of traffic flow coming from smaller operators and vice versa, and in most cases, they will completely block the communication channel, and create artificial congestion on the network of smaller operators."

He welcomed the decision for a constant review of interconnect cost model for the industry, but advised that operators patronise interconnect clearing houses that were licensed by the NCC to facilitate interconnect debt settlements.

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