Mixed signals from phone companies as NCC moves to review interconnect rates

By Olubunmi Adeniyi

Lagos. February 3, 2013: Some mobile phone networks have urged the Nigerian Communications Commission (NCC) to suspend its new cost-based interconnection rate regime for the mobile telephone industry amid plan by the regulator to usher in a new pricing regime in the telecoms market.

Opinion differed at the weekend when the telecoms regulator convened a stakeholder forum in Lagos to discuss the new interconnection rates that is expected to replace the current asymmetric rates adopted by operators as a baseline for pricing of their services.

At the forum the Commission through its consultants, PricewaterhouseCoopers (PWC) presented the final draft report on the interconnection cost model. NCC had engaged PWC to undertake cost studies of voice interconnection rates to enable it determine the new interconnect regime.

NCC says the new framework that is supposed to take effect on January 1 this year, was decided upon following consultation with operators. But the telecoms umpire was also mindful that some of the bigger operators were not very cooperative in the course of the data collection and so the consultants had to apply international benchmarked figures to populate the cost models.

At the NCC forum, the majority of the operators opposed the new cost-based interconnection rate regime proposed by the regulator citing that the regulator should still maintain the asymmetric interconnection rate that expired December 31, 2012.

Asymmetry is when companies pay mobile termination rates in proportion to their market size. The mobile termination or interconnection rate is the fee that operators pay each other for mutual exchange of traffic on their networks.

The interconnect termination rates for voice calls originating from mobile networks in Nigeria is currently charged N8.20k after gliding from N11.40k in 2006 following a regulatory determination by NCC.

On his part, Steve Evans, CEO,  Etisalat Nigeria says the asymmetric model is very critical to maintain a healthy competition in the sector underscoring that the cost termination rates will favour the big operators more than the smaller ones.

“We had a small operating profit in 2012 because we paid the big operators for the interconnection rates, Evans, who runs the last entrant GSM network, Etisalat Nigeria, told the forum.

For Evans, instead of the new cost structure, NCC should bring about a significant drop in the cost of termination.

Uche Ojo, Director, Visafone Communication notes that there are quantitative measures that needed to be blended with qualitative measures in the interconnect rate determination by NCC.

Because of the wide gap in the sector, he proposes that the CDMA operators should be allowed to enjoy a lower termination rates than their GSM counterparts.
On his part, Osondu Nwokoro, Director, Regulatory Affairs, Airtel Nigeria, adds that, “we feel the issue of asymmetric should be looked at again. Our stand is that there should be three levels reflecting the dominant operator, a second level for other smaller operators and a third one for the CDMA operators.”

Also commenting on the new cost-based regime, Oyeronke Oyetunde, GM, Regulatory Affairs, MTN Nigeria, urges the regulator to give the operators ample time to review the model, adding that NCC should help to lower termination cost rates.

Olajide Aremu, Head, Network Operations, Globacom, also based his comment on the reduction of termination rates by NCC as opposed to the argument in favour of asymmetric interconnection rates.

In his response, Eugene Juwah, Executive Vice Chairman, NCC says that, “we do not expect to arrive at a consensus here or on the issue at all, the reason for this forum is to help shape our determination.”  

The regulatory boss adds that, “very early next week the models will be made available to all the operators and they will be given seven days to review and make their input.”

According to him, in 2006, NCC reviewed the interconnection rate by applying multiple rates for mobile and fixed voice services in recognition of far-end and near-end calls termination principles.

“Notably, the subsisting 2009 glide path interconnection rates for voice services is the first time the Commission implemented the glide path asymmetric rates in the industry. This was in recognition of late entrants and the commencement of the Unified Service Licensing regime in order to create an enabling environment for healthy competition in the telecommunications markets among the active players”, Juwah adds.

While presenting the final draft report and finding of the Consultants, PWC firm, Alastair Macpherson, the representative of the consulting partner, said that a sound functional interconnection regime is an essential step in the process of fine-tuning the regulatory regime and leading the Nigerian market towards full competition and effective regulation.

MacPherson explains that asymmetric is not a long term system to have but it is a useful tool for dynamic competitive market operation system.

According to him, the extension of the regime might tend to create an ineffective market but NCC believes that the current state of the telecoms market in Nigeria justifies the continuation of a degree of asymmetry into the next price control period which will apply to new entrants and smaller operators.

The PWC executive reckons that several approaches can be taken in order to bring the rate of interconnection in line with the cost of interconnection over time through the use of a glide path and one such approach is to bring down the costs linearly.

According to PWC, notes that since the initial interconnection study was carried out the volumes of traffic in Nigeria has dramatically increased such that “between 2009 and 2011, voice traffic within Nigeria has almost doubled. This is projected to grow by 59 per cent by 2013.”

In the same vein, on-net and off-net traffic is predicted to grow at a similar rate, with on-net traffic growing 32 per cent annually and off-net traffic showing 28 per cent annual growth.

“At present in Nigeria on-net tariffs are around N12 per minute while the interconnection rate is N8.2k. The N8.2k is between the lower rates of Kenya and Ghana and the rates of Tanzania and South Africa,” MacPherson of PWC says.

He projects that the cost of interconnection is expected to change in the future due to the increased demand, increased coverage, changes in exchange rates and changes in labour and land costs.