-The impact of floor pricing and regulatory surcharge
After years of intensive lobbying by Orange and MTN, the Government of Liberia has agreed to provide unprecedented intervention to support telecom companies and their profitability. Orange and MTN, operate in a duopoly in Liberia, and have been indicating that their current competition does not allow for them to generate sufficient profits. This is in spite of the fact that in most countries in which they both operate, there is much heavier competition with at least 4 or more operators.
Meanwhile, it is unclear what the Operators actual profit margin is. It is widely reported that such multinational operators charge themselves brand fees, management fees and interest so as to transfer their profits overseas to their mother company. This practice has recently been called into question in numerous countries in West Africa as potentially prohibited.
Despite this aggressive form of transferring profits, the Government has conceded to the Operators and agreed to intervene in the market on their behalf. This was done after a careful study conducted by the LTA determined that the Government would need to also raise its share of tax revenues on the sector, after many years of declining tax revenues.
To lure the Government into establishing price floors that abolish the $1 for 3 day promotion and raise the cost of internet service, the Operators agreed that the Government would also establish regulatory surcharges, just as the Operators experience in several other countries. This compromise was to ensure that while the Operators enjoy windfall profits from new regulations, the Government can also raise sufficient revenues to finance its development and Pro Poor Agenda.
While governmental intervention to provide Operators price floors is unique, regulatory surcharges are very common across West Africa. In neighboring Guinea where both MTN and Orange both operate profitability, the government regulator levied the same regulatory surcharges on the telecom sector. In spite of these surcharges, the Guinean telecom sector remains highly profitable and continues to expand. Meanwhile, consumers in those countries continue to enjoy highly competitive prices.
It's worth noting that the Price Floor is already positively impacting the sector's revenue. However, until the surcharges on the Operators takes effect in March 2020, the Government is realizing a very small benefit relative to the Operators. In the meantime, the Operators have a window of time to enjoy a windfall without sharing much of the benefit. Meanwhile, given the windfall the Operators are enjoying, it is clear they will have the capacity to finance the surcharges, as they already do in other countries where consumers enjoy quality service.