Thinking the unthinkable
An agenda
for regulators in the 21st
Century
WITH
certain honourable exceptions, African regulators - and the governments who
drive their policy frameworks - have been sleep-walking backwards towards
the future. Since News Update was launched over two years ago, significant
numbers of African fixed line operators remain in government ownership and
overshadow their domestic markets. Fully competitive markets are few and far
between. The rise of mobile operators has been the continent’s success story
but it has not helped address fundamental infrastructural issues. The
governments have either lacked the courage or the will to make the kind of
progress made on other continents. In this issue Russell Southwood provides
a sketch of what a different future might look like, one in which
governments and regulators embrace the future and look at how it can best
benefit their citizens.
Regulatory processes are incremental. Even in developing countries that now
have over ten years or more experience of pushing out the envelope of what
is possible, it has been done in gentle steps. Nevertheless the early
benefits in terms of access price and services spur on further progress.
The difficulty with this incremental process is that it’s hard to see what
it would be like when you’ve got there: what consultants are wont to call
the "end-state". In Africa without a clear vision of this sort, there is
only fear and loathing of the future. There is the fear of job losses and
lack of national control and a loathing of the idea of giving up a valuable,
hard currency cash cow like the incumbent telco.
One of the few people who have talked about what a practical competitive
framework would look like in Africa is Mike Van den Bergh of Gateway
Communications who chairs the South African VANS Association, a private
sector lobby group:" You would have an effective competent regulator. There
would be a minimum of three full-service network operators. There would be
well structured, competitively trading distribution channels with wholesale
and retail providers. And there would be unrestricted access to facilities.
There would also be subsidiary licences for broadband and the local loop".
Whether this is your idea of competition nirvana or not, the log-jam that
prevents progress is usually the sale of the incumbent telco as it presents
the government with a conflict of interest. The South African government
pulled the idea of a third national operator because it did not want to
prejudice the Telkom IPO. The twin headed hydra of privatisation and
regulation cannot be tackled alone and the sooner African governments sell
off the majority of their telco stake the better.
Getting from here to there will require a series of fundamental mind-shifts:
*
Governments need to go from owning telcos and taking money out of them
directly (anything from profits to corrupt skimming) to taking income in
regulation fees and taxes. According to the Nigerian Vice President Atiku
Abubakar, the Nigerian government has earned N130b ($1 billion) from
telecommunications licensing since the commencement of the deregulation of
the sector. Whilst not all countries have the scale of markets found in
Nigeria the point still holds good at a smaller scale for other countries.
If governments collect tax through VAT from companies that collect the tax
on their behalf, then each one of those millions of phone calls can be
taxed. The usual problem of collecting taxes from inidividuals or companies
in Africa is greatly reduced. You are taxing a relatively small number of
companies who have the skills and systems to collect tax on your behalf.
In this way you begin to exchange the current inefficiencies, and poor
service for a stream of traffic-related income. You leave the private sector
to create greater efficiency, higher profits and better service. No world is
perfect (as Nigerian mobile users will currently tell you) but with enough
competition, not only will things get better but the market will grow
faster.
*
By selling off all or a large part of the incumbent telco, the role of
Government changes. It then has to express its national interests through
having a clearly expressed policy that describes what it is trying to
achieve. Then both government and the regulator should be acting in a
facilitating role: making sure that anyone who can genuinely help bring
about the policy objectives will be facilitated to do so.
No government gives up control without a struggle and the approach described
above requires a clear understanding that governments can no longer (if
indeed they ever could) bring about changes by themselves. In Africa these
difficulties are compounded by the governance issues of the continent.
Governments seek to be strong on issues like security and political control
but are weak in terms of actually implementing policy and delivering
services to their citizens.
But in order for the full benefits of liberalisation to reach a wider range
of citizens, government needs to be able to set a policy framework and then
step back and let others help deliver it. It needs to operate at
"arms-length" when policing this framework. It cannot, as currently happens
in Ghana, both have the relevant Minister as Chair of the regulatory body
and as de facto Chair of the incumbent telco. Powers have to be separated
and should vigorously contested on both sides: in public or behind closed
doors, you can take your pick.
*
In an internationally competitive environment, the point of contention is
not the cumbersome but dying rate-fixing cartel of the ITU but the terms
under which competition policy operates decided by the WTO. Let’s not be
misunderstood. The ITU is a fine body and may well have a role to play in
closing the digital divide and in other areas but the accounting rate system
is dead. Stop flying to those meetings and simply put the money into
something more useful.
Almost all African countries have signed up to the World Trade
Organisation’s 1994 General Agreement on Trade in Services (GATS) that
covers basic telecommunications services. Algeria is on the point of joining
the fold. The exceptions are: Eritrea, Ethiopia, Liberia, Libya, Seychelles,
Somalia and Sudan.
It now covers 90% of world telecommunications markets (whether in terms of
revenue, investment or traffic). On the basis of this agreement, each
country will therefore have signed what is known as the "Fourth Protocol"
laying out specific commitments to opening up markets in a document known as
"the schedule". Some have agreed to complete competition, while others have
opted for limited competition in mobile and data markets. Get in there and
argue the terms but don’t resist the inevitable outcome of greater
competition. Policy statements like the Halfway Proposition from Richard
Bell provide a good starting point for these discussions (see issue 130).
KNOWING THE PRICE OF EVERYTHING
BUT THE VALUE OF NOTHING - UNDERLYING PRINCIPLES
Without some underlying set of principles for a new policy framework, it
would be easy to view the whole area as simply an act of maximising
financial gain for the government. We would suggest the following broad
principles:
*
Let go and stop trying to control everything. Regulators have tried to
control and licence everything from IXPs to cybercafes through to repair
engineers. They are even trying to licence (and charge for) access to the
ISM band that was put aside for "social" uses. You have to stop trying to
licence everything that moves and let the market decide. It’s undoubtedly
scary (often even private sector Africans talk nervously of a possible "wild
west") but it will help things happen more quickly. If unsuccessful,
companies can and will "go bankrupt" or be bought out by others. Regulation
should be seen not simply as an act of control but as one way of encouraging
economic growth.
*
Regulation should be "technology-agnostic". Don’t try and stop new
technologies coming into the market. Things like VOIP and new mobile
wireless standards will either find a place in the market or fail. For
Africa to connect its rural areas it will require a wide basket of different
technologies including VSAT, wireless and radio. If different technologies
have consequences for incumbent players, that’s one of the consequences of
being in a competitive market.
*
Insist that everything interconnects. Mobile players are still protecting
their markets and minutes by not agreeing interconnection in some countries.
Make it a cardinal principle that if something is legal that it can be
connected into the main networks. Don’t be put off by existing players
arguing that it can’t be done. In the majority of cases it will be possible.
*
Make the processes as transparent as possible so that Africa’s new consumers
can drive up expectations. Encourage lobbying from consumer groups, NGOs and
the private sector. Set clearly announced service obligations that have
costs if they are not met. For example, if someone’s fixed line phone is not
working, the telco has to repair it in 24 hrs or pay a penalty to the
consumer. A financial threat of this kind would marvellously focus the minds
of those responsible for service. In this way it would create a sense that
better is possible so that telecoms and related sectors might become the
vanguard of African business practice.
*
Put an end to cronyism where those who get to bid locally for licences are
the "usual suspects". Encourage local investors from outside those who count
as friends of government. Open out the regulatory debate so that a wide
range of people can get involved. You won’t be able to please everyone -
there’s often simply too many divergent interests - but who said being a
regulator was going to make you popular?
IT’S NOT WHAT YOU DO BUT THE
WAY THAT YOU DO IT
There are many African regulatory issues that might be tackled but we would
suggest that the strategic "high-ground" can be captured in three broad
areas:
1. The strange case of VOIP
African regulators have got themselves into a terrible twist over VOIP. In
almost every African country anywhere between 5-10% of the international
call market uses VOIP illegally. Ghana’s regulators tried to put in jail
ISPs who it was alleged were using it. Other regulators (Ethiopia and Kenya)
conduct occasional equipment seizures using the police in a vain attempt to
beat back the inevitable. And what’s illegal for some is increasingly being
adopted by the incumbent telcos to cut their own international call rates.
Companies like ITXC and iBasis have built up a wide-ranging customer base
with incumbent telcos. But trying to stop the use of the technology does not
tackle the central issue: the monopoly that most African incumbent telcos
have on terminating international calls.
Someone we spoke to recently described this monopoly as "a drug that the
regulators don’t know how to wean them off." There are ways that it can be
done. Senegal’s Sentel gathered together the illegal operators and reached
an arrangement with them. It didn’t end up with what it might have charged
but it retained a proportion of its income and it reduced the size of the
grey market at a stroke. This is the gentle approach where you encourage the
incumbent telco to wholesale international bandwidth.
The more radical approach is the Chilean model where you open up
international calling to competition. The international rates are published
in the paper every day and you don’t need a special phone to choose a
cheaper operator. (see issue 34)
At least one African country is edging nervously towards opening up
international calling through VOIP and Mauritius has recently pulled forward
the date when its incumbent telco will lose its monopoly. Yes, those dates
can and should be moved forward.
2. Not just a second national
operator (SNO) but more
The recent announcement by Angola that it will licence four fixed line
operators shows that simply going from a monopoly to a duopoly may not be
enough. It’s important to think about how having several operators would
accelerate investment and would allow maximum opportunities to enlarge
coverage.
The issue is not one solely of number of competitors but also types of
competitors. Telcos are notoriously ill-accustomed to competition and
therefore having two does not always produce the desired effect. A Tanzanian
source close to the regulator pointed out that in the mobile field it was
not until Vodacom entered the market that there was a genuinely competitive
market. Perhaps African regulators should allow at least one non-traditional
operator to enter the marketplace to change the terms of competition. Why
not open out the field to those involved in corporate networks or the
internet?
The recent debates in Ghana about the new infrastructure company that might
be put together from all the different networks owned by the government has
focused on whether this will distract much-needed investment from the
incumbent telco Ghana Telecom. But the "national interest" is better served
by trying to attract private investment (local and international) so that
the two can compete and improve what’s offered in the process.
3. The Rural Challenge and much
more besides
African regulators’ biggest challenge is to deliver on the kind of social
obligations that used to be the direct responsibility of Government. The
most crucial of these areas is the rural challenge: getting connectivity out
in an affordable form to Africa’s largely rural populations.
Andile Ngcaba of South Africa’s Department of Communications was talking two
years ago about how if the incumbents would not connect up rural areas then
these areas should be offered to small-scale rural operators who should be
allowed to connect to the main network. By all accounts, talking like this
encouraged Telkom to start connecting those types of areas somewhat more
speedily. But leaving that incidental benefit aside it remains a good idea.
The regulators need to stretch the marketplace so that increasingly large
areas can be covered by one or other of the main players or by small-scale
licensed players. Andrew Dymond of consultants Intelicon has pointed out how
this process can be encouraged by differential pricing: those ringing from
urban areas to rural places will pay more than those ringing out from rural
areas. In this way those who a greater capacity to pay will help finance
rural roll-out.
Rural areas tend to be poor but that’s not the whole story: they are not
universally poor. Tanzania’s TaTedo did survey of who could afford solar
panels in rural areas. 15-25% could afford to pay cash and 35-40% could pay
by credit facility. Approximate cost of solar panels? US$2500. This is one
small speck of evidence but doesn’t it make you want to know more?
Where even the market cannot be stretched, the regulators will need to use
their Universal Service Access funds to fund provision. One of the strongest
cases for funding provision of this kind must surely be for education in
schools. The case for a special low-cost e-rate is unarguable in
developmental terms: these are places where the skills of tomorrow will come
from. If schools are encouraged to "wire-up" in rural areas then they need
to be accessible out of school hours to the wider population. "Wiring-up"
should not compete with providing basic items like buildings, wages and
books but could provide a spur to other improvements.
So imagine if you will a point three years from now. Each African country
has three or more fixed line operators. The telecom and related sectors have
grown by 10-30% bringing new jobs and skills. The improvements in
infrastructure have allowed African companies to compete in world ICT
markets in previously unimaginable ways. The palpable social changes that
mobiles are already wreaking on how Africa thinks of itself have gone up a
notch. People can actually see how a different future might be possible.
It’s possible to get a phone installed in 48 hours and international calling
charges have fallen by 30-50%. The first major roll-outs of broadband would
be happening outside South Africa, Fantasy? It will be if African regulators
and governments don’t pick up the challenge and embrace the future.
This
summary of Russell Southwood's presentation is drawn from:
http://www.balancingact-africa.com/news/back/balancing-act_135.html
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