Echoes of Suspension of New Price Floor for Data Services

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Emma Okonji examines the reasons for NCC’s suspension of the new price floor for data services and network operators’ continued agitation over the regulator’s action

The Nigerian Communications Commission (NCC), the telecoms industry regulator, on Wednesday last week, suspended the re-introduced interim price floor for data services, and asked all operators to revert to the old price floor. The regulator directed all operators to maintain the status quo until the conclusion of study to determine retail prices for broadband and data services in Nigeria.

The Director, Public Affairs for NCC, Mr. Tony Ojobo, who signed the statement for the suspension, said the development became necessary, following the general complaints by consumers across the country, who perceived that the interim price floor would lead to hike in the cost of data services across networks. He said the decision to suspend the directive was taken after due consultation with industry stakeholders.

But the suspension has continued to elicit reactions from telecoms operators, who felt aggrieved that the reversal to the old floor price for data services, would continue to eat deep into their revenue, a situation, they said, could affect the quality of data services across networks, since operators were running at a loss with the old rate.

The genesis
NCC had on November 1, 2016, written the mobile network operators (MNOs) on the determination of an interim price floor for data services after a stakeholder’s consultative meeting of October 19, 2016. As at November 1, 2016, the industry average for data tariff floor for dominant operators including MTN Nigeria Communications Limited, EMTS Limited (Etisalat) and Airtel Nigeria Limited was N0.53k/MB. But the interim price floor as introduced by NCC, which was to commence with effect from December 1, 2016, seeks to increase the industry average for data tariff from 53k/MB to 90k/MB.
Statistics of the old rate showed that Etisalat offered (N0.94k/MB), Airtel (N0.52k/MB), MTN (N0.45k/MB) and Globacom (N0.21k/MB). It was based on these rates that NCC initially came up with an average data tariff of 53k/MB for dominant operators.

But the smaller operators/new entrants like Smile Communications, Spectranet, and ntel, charged different rates. Smile Communications charged N0.84k/MB, Spectranet charged N0.58k/MB and ntel charged N0.72k/MB.
Considering the initial rate of 45k/MB, which MTN charged and the new rate of N90k/MB as contained in the interim floor price for data services, which was supposed to take effect from December 1, 2016, MTN, went ahead to inform its over 61 million subscribers that it would increase data tariff with effect from December 1, 2016, as approved by the NCC. The information to MTN subscribers which was sent via Short Message Service (SMS) otherwise known as text message, raised a lot of dust among subscribers across networks, who started calling on NCC and the operators to rescind the decision of data tariff hike.
Following the complaints from subscribers, NCC decided to suspend any further action in that direction.

What price floor is all about

Price floor is one of the regulatory safeguards normally put in place by the telecommunications regulator to check anticompetitive practices particularly by the dominant operators. It is therefore a minimum price on a good, commodity, service among others as stipulated by government or the regulator.
Without a price floor, the dominant operators can engage in predatory pricing to squeeze other operators which could create industry monopoly.

Why NCC introduced price floor

According to Ojobo, the introduction of price floor for data services in the country was to address market distortions, unhealthy price wars and value erosion that could threaten the concern of the service providers.
“Consequently, there is a gradual paradigm shift from voice telephony services to data and digital services. In line with the global trend to drive the vision of Internet of Things (IoT), the network service providers in the country embarked on aggressive promotional campaigns. As a result, all market players follow each other in introducing daily packages and engage in serious price war. Some operators were actually pricing below cost and this will affect the ability to continue in operational existence if the issues were not addressed urgently,” Ojobo said.
According to him, it became clear that NCC needed to act quickly to ensure the integrity of the network and availability of service to Nigerians, hence it introduced price floor for data, in order to address the situation.

Reasons for introduction and removal of floor price

NCC, in 2014, first introduced floor price for data services in the telecoms market, but later removed it in 2015 for obvious reasons. In 2014, a benchmark study was conducted and a price floor of N3.11/MB was set for data services for the big operators, because the data market segment became very aggressive in price competition in 2014, thus posing risks of prices falling below costs, which could negatively impact sustainability in the industry.
According to Ojobo, NCC had to introduce data tariff floor that year in order to safeguard investment in the industry; to check and control anticompetitive practices by operators who were dominant in the upstream market; to prevent further value erosion in the industry; to create a level playing field for all operators and to maintain the integrity of the network.

However, in October 2015, NCC took a decision to lift the price floor for data services, having perceived that it would stifle pervasive broadband deployment, adoption and usage, in the country.
This decision, according to Ojobo, also took into cognisance, the complaints by service providers to waive the price floor for data service to enable roll-out of infrastructure and growth of the data market segment. He, however, said that NCC clearly stated that it would restore the price floor if any distortion is witnessed within the market segment.

In October 2016, NCC, re-introduced price floor for data services in line with its mandate of promoting fair competition in the telecom industry.

How NCC arrived at the interim price floor

Giving reasons for the re-introduction of an interim price floor for data services, Ojobo said NCC later discovered that some service providers were actually pricing their services below cost, a situation that could spell doom for the industry.

He said dominant operators in the wholesale leased line market, who also operate in the retail market embarked on massive predatory pricing, a conduct capable of substantially lessening competition.
Ojobo said the dominant operators took undue advantage of the removal of floor price to erode value in the market, hence its intervention, to safeguard investment and ensure growth, development and sustainability of the telecoms industry.

But before the re-introduction of an interim price floor for data services, NCC sent letters to service providers requesting for their comments and inputs regarding the rate to be fixed as interim floor price for data services pending the finalisation of the study on the determination of cost based pricing for retail broadband and data services in Nigeria.

NCC, however, maintained that there should be no price floor for small operators and new entrants.
Based on the comments and inputs received from operators and in line with the Commission’s principle of participatory regulation, NCC invited and held stakeholders’ meeting with service providers in October 2016, to share the industry anti-competitive practices witnessed in the data market segment and to get their comments and inputs on what the price floor should be.

Based on the comments from the service providers, NCC observed the need to create a balance by ensuring that the interim price floor is not too low in order to provide a cushion for small operators and new entrant to offer competitive products. NCC also noted that the price floor should not be too high to ensure affordability by consumers, and that rate should be fixed at a level that will encourage growth, roll-out services and ultimately attract investments into the telecoms sector.
Subsequently, the Commission fixed an interim price floor of N0.90k/MB for big operators. NCC, however, said the rate would subsist pending the finalisation of the study on the determination of cost based pricing for retail broadband and data services in Nigeria.

In order to promote a level playing field for all operators in the industry, encourage small operators and to enable new entrant to acquire market share and operate profitably, NCC gave a standing order that all small operators and new entrants should be exempted from the interim price floor for data services.
But unknown to NCC, subscribers strongly detested the introduction of interim price floor because they perceived it would increase cost of data services, especially now that the country is facing economic recession. Subscribers had to protest immediately MTN announced the plan to hike data tariff based on the introduction of the interim price floor for data services by the NCC. The complaints also got to the National Assembly members, who summoned the Minister of Communications, Adebayo Shittu and Executive Vice Chairman of NCC, Prof Umar Danbatta for questioning.

Why operators opposed suspension
Following the action of NCC to suspend the interim price floor, telecoms operators, under the aegis of the Association of Licensed Telecoms Operators of Nigeria (ALTON), condemned in strong terms, the decision of NCC to suspend the interim price floor, which seeks to increase data tariff. In a statement signed by its Chairman, Mr. Gbenga Adebayo and its Publicity Secretary, Mr. Damian Udeh, ALTON said that price changes for data services across all networks following any intervention by the NCC are not expected to have a detrimental effect on broadband penetration contrary to some sentiments being expressed in the media.

“ALTON wishes to emphasise that while it is imperative that telecommunications operators continue to explore opportunities to provide their subscribers with more value for their money, it is important that prices be set at realistic levels which ensure that subscribers are not only able to afford services but that operators are also in a position to provide first-rate quality of service to their subscribers,” Adebayo said.
According to him, while ALTON fully understood the public sentiments that greeted the announcement of the introduction of interim data tariff, it should be known that if the situation is left unaddressed, it could result in a sustained deterioration in the quality of data services across networks and the attendant poor quality of experience for users.

Now that NCC has given reasons why it introduced price floor for data services, it will be nice if the NCC also considers the business sustainability of operators in determining prices, as operators await the conclusion of NCC’s market study on price floor for data services.