- Email: [email protected]
Self-destructive competition in cellular: regulatory options to harness the benefits of liberalisation
Telecommunications Policy 27 (2003) 11–19
Self-destructive competition in cellular: regulatory options to harness the benefits of liberalisation Muriuki Mureithi*,1 Summit Strategies Ltd., CEO, P.O. Box 6245400200, Nairobi, Kenya
Abstract The last 10 years has seen a dramatic growth of cellular service overtaking fixed line service in Africa. This paper reviews the evolution of cellular over the last 10 years. The review finds that increasing competition alone without a change of regulatory framework at the market level has a negative impact on continued expansion of cellular. Competition within the present regulatory framework has a negative impact on penetration and results in increased tariffs which in turn affect affordability due to reducing economies of scale. The paper recommends that governments should urgently review the regulatory framework to remove restrictions on international and national cellular infrastructure. r 2003 Elsevier Science Ltd. All rights reserved. Keywords: Cellular; Competition; Regulatory framework
1. Introduction The last 10 years has seen a dramatic growth of cellular service overtaking fixed line service in Africa. Today and increasingly in the future, cellular is going to be the predominant mode of access to the information society for African citizens. This paper reviews the evolution of cellular over the last 10 years using published data as well as in-house resources within Summit Strategies Ltd. as its basis. The review finds that increasing competition alone without a change of regulatory framework at the market level has a negative impact on continued expansion of cellular. Competition within the present regulatory framework has a negative impact on penetration and results in increased tariffs which in turn affect affordability due to reducing *Tel.: +254-2-575-824. E-mail address: [email protected], [email protected], [email protected] (M. Mureithi). 1 Telecommunications and ICT consultant with Summit Strategies Ltd—an ICT consultancy practice based in Nairobi Kenya with a focus on the Eastern African region. Also a Consultant Member of the Society of Telecommunications Consultants. 0308-5961/03/$ - see front matter r 2003 Elsevier Science Ltd. All rights reserved. doi:10.1016/S0308-5961(02)00096-4
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
12
economies of scale. The paper recommends that governments should urgently review the regulatory framework to remove restrictions on international and national cellular infrastructure as a short-term measure. In the medium term and taking into account convergence, the regulatory classification of fixed/mobile is unsustainable. Governments should nurture a new framework based on facility-based bandwidth suppliers on the one hand and solutions providers to the customers on the other. This will enhance the sharing of infrastructure resources and bring sustainable positive benefits from competition in the long term.
2. Context and background 10 years since cellular was introduced in Africa, growth has been phenomenal and has had a dramatic impact in all markets in Africa. The dramatic growth has been more significant in the last 7 years with the market opening fuelled by the telecommunications sector reform ushering competition in telecommunications markets. Cellular was and remains positioned in many markets as a ‘value-add’ and an extension to the fixed line services. Consequently in all markets, cellular has experienced restrictions. For example, cellular operators could not build international gateways, in certain markets could not build national transmission infrastructure, and have had to rely on the incumbent fixed line operator. The other side of the coin is that few if any operators had imposed universal service obligations to serve the rural areas. Starting with a huge unsatisfied demand, no government bureaucracy in its management, better technology and a national and international infrastructure upon which to piggy back, cellular has grown beyond expectation. By the end of 2001, cellular overtook fixed line services as indicated in the Fig. 1. Catching up: cellular or fixed (source : ITU. EMC)
30.000
25.000 lines connected (x 1000)
Fixed
cellular
20.000
15.000
10.000
5.000
1990
1992
1994
1996
Fig. 1.
1998
2000
2001
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
13
From 2001, no more would the erstwhile fixed line services continue to play a major role as an entry point to the emerging information society in the new century. Today and increasingly in the future, cellular operations are destined to grow larger than fixed line operators and will need more infrastructure than fixed line operators can offer. The model and market positioning of the past is unsustainable and a new approach is necessary to continue growth, take over universal service obligations and introduce new and improved technologies into the market. Along the way, some governments have recognised the benefits of competition in the cellular market and have introduced multiple players to increase penetration in the market. By the end of 2001, Africa had 104 cellular networks operational all on the GSM platform. This paper investigates features of liberalisation over the last 10 years of cellular growth and the lessons learned. A major finding is that dramatic growth was predicated on the cellular services riding on the infrastructure of the fixed line operator. Now that cellular has outgrown fixed line operators, the fast growth of the last 10 years cannot be sustained under the same regulatory framework. Regulators will have to restructure the sector to maintain growth and enable more operators to enter the market to further enhance competition under conditions of increasing competition. The paper makes proposals to enhance the benefits of liberalisation to increase penetration to cost conscious societies in Africa and in particular Sub Saharan Africa.
3. Liberalisation and competition The level of competition was found to differ widely at the national level. Tanzania had five cellular operators (the highest) while at the other end, some countries had no cellular service by 2001, e.g. Eritrea. The majority of the countries in Africa (18) had two cellular operators. Such countries with two cellular operators experienced the highest penetration as shown Fig. 2. Such countries also had the highest penetration (115/1000) along with the highest average GDP/capita. While there are many factors that are at play including internal sector management, there is a strong case that an increased number of operators in the market reduces the market opportunities for the individual operator and thereby produces a loss of economies of scale. This will result in higher tariffs to recoup investments. An in-depth survey in East African countries and Ghana indicated that higher competition in Ghana (four operators) and Tanzania (five operators) resulted in higher tariffs than Kenya (two operators) and roughly half the penetration. All the countries had comparable levels of GDP/capita and population. Even where competition was high, one or two operators controlled the market. Cases in point are Ghana (Spacefon) and Tanzania (Vodacom and Mobitel) which translate into a monopoly or oligopoly with other operators playing a marginal role in the market. In both markets cited above, the poor performance of some operators is an internal management issue and not a market failure. The worst performers also are the oldest in the market. Taken further, this line of argument suggests that fewer operators in the market are desirable due to low purchasing power in small markets. Fewer operators can exploit economies of scale to reduce operating costs, expand coverage and reduce tariffs. This position also benefits incumbent
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
14
1400
140
Competing for penetration: income is the winner (source: ITU, EMC, WB )
Penetration /1000 & no countries
100
1000
no of countries penetration Average GDP/Capita US$
80
800
60
600
40
400
20
200
Average GDP/Capita US$
1200
120
0
0 1
2
3
4
5
number of operators/country
Fig. 2.
cellular operators; indeed the strategic equity partners in these operators negotiated for some form of market entry control to safeguard their investments from competition. The desire for fewer operators in the market unfortunately may militate against the interest of the consumers whose choice is reduced. Additionally, a country should always take into account possible collusion among the operators or even collapse of one of the operators reducing the choice even further. A reduced number of operators is therefore unsustainable in the long run from a consumer perspective, a consideration that should be of paramount concern to the regulator. Finally, as incumbent cellular operators entrench themselves in the market, it becomes difficult for new players to gain market entry.
4. Income levels and penetration It is clear that countries with high-income levels enjoy high penetration. Competition in the market has little impact in markets with low income levels. Eighteen countries with incomes of less than a dollar a day have a penetration of 7/1000 and despite higher levels of competition in those markets, there is no significant impact on penetration (Fig. 3).
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
15
penetration vis income (source: EMC, WB) 250
penetration/1000
200
150
100
50
0 Lower
Low
Lower middle
Upper middle >US$2895
Fig. 3.
Increasing the penetration of services is based on disposable incomes on one hand and to some extent reduced tariffs on the other. Regulators have no control over the economy; they could however influence investments costs to reduce tariffs and therefore increase affordability. Similarly, very high-income countries with only two operators recorded very high levels of penetration as depicted in Fig. 4. Regulators therefore face a dilemma of fostering market forces to increase quality of service, reduce tariffs, and encourage increased investment to expand coverage while recognising that potential operators thereby perceive reduced market opportunities and market barriers to entry and competition with incumbent cellular operators.
5. Other features of liberalisation 5.1. Market demand vis a vis registered waiters Telecommunications planners have in the past used ‘registered waiters’2 as a barometer to measure demand for telecommunications services. The shorter the lists of registered waiters, the better the service from the fixed line operator. The fast growth of cellular now indicates that the concept of ‘registered waiters’ is, in fact, no longer an effective measure of latent demand for telecommunications services. The explosive growth of cellular service has meant that supply now vastly exceeds demand rendering otiose old telecommunications business models. 2
This refers to applications received by telephone companies for a telephone line and not served due to lack of technical facilities to provide the service. According to the Africa Telecommunications Indicators Report published by ITU the total numbered of registered waiters in the continent was 3.672 m by end of 2001.
16
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
Fig. 4.
Monopoly models resulted in denial of service to the majority now served by cellular. Present restrictions on international access and deployment of basic infrastructure, have the same impact—denial of service. The initial policy frameworks were pro—fixed line operators and their survival. The time has surely arrived for a thoroughgoing policy review. Key issues to consider are whether the current players can deliver to the market and how the regulator can play an effective role in the developing industry. An immediate requirement is for the regulator to conduct a fundamental review of market structure, remove barriers imposed on cellular and reposition cellular as mainstream service.
5.2. Serving the rural communities With a national penetration below 1% and 80% of the available telephones located in urban areas, governments in Sub Saharan Africa have understandable concerns over telecommunications access in the rural areas. The greatest concern advanced by the fixed line operator is the possible marginalisation of the rural and the poor by incoming private and profit motivated operators. From this perspective, government set out clear policies and elaborate targets for serving the rural market. In the particular case of East Africa, Uganda and Tanzania have
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
17
developed and promulgated elaborate rural telecommunications policies and targets as set out below. The rural on target: no less a citizen (Summit Strategies, policy documents)
Kenya
Target penetration/100
Baseline teledensity %
Policy instrument for development
Regulatory tool
1%(2015)
0.16
Govt subventions Licensing obligations Rural telecommunication development fund Licensing obligations Rural telecommunications fund
Regional telecom operators Regionalisation of cellular, paging operators now abandoned
Tanzania 1 line per village (2020)
Uganda
0.05
66000 lines in rural 0.04 areas in 5 yrs from 1996. Reviewed in 2001 to ensure that counties with over 5000 people have basic access by 2005 An internet PoP in every district by 2003
Special funding and licensing regime
Licensing obligations
Tanzania and Kenya have designed and tendered for regional cellular and fixed line licences in a bid to focus attention on regions outside the capital cites. While concerns over the fate of the rural customer retain validity, liberalisation of cellular entry has taken care of many worries. Cellular has expanded significantly in all the countries and over 40% of the population is now within cellular signal coverage. Never again will universal service be measured by distance to a service point (walking or cycling) but rather coverage by a signal. Increased expansion will cover increasingly more of the population. While the provision of universal services has typically focused on the role of the fixed line operator, today, and in the future, cellular operators are coming to play an increasingly more important role than that occupied by the fixed line operator. As telecommunications evolve towards more data centric applications, governments have been forced to redefine ‘basic service’ to include data as well as voice. Certainly, with the increased value of the Internet and multimedia applications, it is imperative that universal service includes all such advances. The Uganda policy review of 2001 is in this spirit and has the objective of building a point of presence (PoP) in every district by the end of 2004. Cellular operators must respond by building GPRS networks as a step towards 3G. This calls for a long-term strategy to increase bandwidth at national level. At present, such bandwidth is inadequate at national level in most countries in Sub Saharan Africa.
18
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
5.3. Affordability of service High tariffs for cellular services before 1995 were a matter of concern because they effectively locked out the majority from the new communications technologies. This was a matter of concern to every government forcing them to reserve powers to control tariffs should this become necessary. In the emerging competitive markets, new operators have redefined the market model. Cellular operators have revolutionised the market by focusing on higher volumes of traffic achieved through lower tariffs and consequently lower operating margins. This has been the main factor leading to the dramatic uptake in the market. Competition has ade a big impact on affordability of both terminals and usage. It is now time for the governments to review the role they can play to reduce such costs even further. Typical areas for concern are taxes on usage charges and high licence fees reflected in end-user tariffs. Market action by operators has lowered barriers to entry through reduced prices of terminals, connection charges and indeed the ability to receive calls and make emergency calls once connected.
6. Conclusions and recommendations African markets have accepted cellular technologies and cellular operators have to date largely served the urban markets beginning with the major cities. Rolling out extensive networks across the country is both a regulatory and business imperative to maintain or even increase market share. The greatest challenge to achieve this goal is lack of national infrastructure in all parts of the country due to the inadequate capacity built in the past. More telecommunications infrastructure is needed to reach out to people with less capacity to pay as measured by average revenue per user (ARPU). There is a clear need for policies aimed at removing barriers to the implementation of national infrastructure across the country. In so doing, governments should encourage any player that can bring bandwidth into the market to do so. These include but are not limited to electricity companies, railways, pipeline companies, etc. Already in Tanzania, the railway company is providing bandwidth via optic fibre. In Uganda, the electricity company is building optic fibre while Voltacom in Ghana has entered the telecom market to serve cellular operators using optic fibre lashed onto the power grid. By bringing in cheaper national and international bandwidth, cellular operators can then focus on infrastructure integration and the achievement of better consumer service. Indeed, licensing regimes in future should encourage liberalisation of facilities and services. Implicit in any new regime is the assumption that infrastructure supply should be provided by any entity that can supply telecommunications services competitively. Such could embrace any of the sectors cited above. Service operators will simply tap into this infrastructure. An important advantage of such liberalised provision is that a country will be able to leverage its resources to bring more bandwidth into the telecommunications market. Infrastructure investments by incumbent operators have been a significant barrier to entry for new operators as discussed earlier. By licensing new infrastructure suppliers to reduce market entry barriers, this will foster a healthy competition that is sustainable. Service operators will focus on the core business to
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
19
connect the customer. Importantly, the classification of licences as ‘cellular’ or ‘fixed’ will become increasingly redundant. 7. A way forward Below are some suggested principles for future telecommunications policy within an African context: *
*
*
*
*
*
Focus should be placed on a mobile information society—with recognition of cellular operators as mainstream service providers with similar rights and obligations granted and imposed on all suppliers. Regulatory provisions currently based around technologies should give way to service based goals so as to leave the operators to choose the best technology strategy in order to achieve objectives. Investment should be enticed into the market through stable and predictable market policies not regulatory edicts. Competition should be fostered as a driver of improved service guarantees to the consumer in all market segments. Synergistic partnerships should be fostered to anchor international capital, skills and management. This should be a long-term strategy to shield regional markets from the excesses of international interests. An issue that should concern African governments is that strategic equity partners can pull out for a number of reasons as demonstrated in Uganda (Vodafone), undertake restructuring thus changing the scope of operations (Orascom) or face financial problems at home requiring withdrawal from African markets. Governments need to build local capacity to run services in the long term with international partners as technology suppliers. National resources should be leveraged to increase bandwidth and reduce investment costs. Electricity companies, railways, and pipeline owners should all be encouraged to build fibre.
Self-destructive competition in cellular: regulatory options to harness the benefits of liberalisation Muriuki Mureithi*,1 Summit Strategies Ltd., CEO, P.O. Box 6245400200, Nairobi, Kenya
Abstract The last 10 years has seen a dramatic growth of cellular service overtaking fixed line service in Africa. This paper reviews the evolution of cellular over the last 10 years. The review finds that increasing competition alone without a change of regulatory framework at the market level has a negative impact on continued expansion of cellular. Competition within the present regulatory framework has a negative impact on penetration and results in increased tariffs which in turn affect affordability due to reducing economies of scale. The paper recommends that governments should urgently review the regulatory framework to remove restrictions on international and national cellular infrastructure. r 2003 Elsevier Science Ltd. All rights reserved. Keywords: Cellular; Competition; Regulatory framework
1. Introduction The last 10 years has seen a dramatic growth of cellular service overtaking fixed line service in Africa. Today and increasingly in the future, cellular is going to be the predominant mode of access to the information society for African citizens. This paper reviews the evolution of cellular over the last 10 years using published data as well as in-house resources within Summit Strategies Ltd. as its basis. The review finds that increasing competition alone without a change of regulatory framework at the market level has a negative impact on continued expansion of cellular. Competition within the present regulatory framework has a negative impact on penetration and results in increased tariffs which in turn affect affordability due to reducing *Tel.: +254-2-575-824. E-mail address: [email protected], [email protected], [email protected] (M. Mureithi). 1 Telecommunications and ICT consultant with Summit Strategies Ltd—an ICT consultancy practice based in Nairobi Kenya with a focus on the Eastern African region. Also a Consultant Member of the Society of Telecommunications Consultants. 0308-5961/03/$ - see front matter r 2003 Elsevier Science Ltd. All rights reserved. doi:10.1016/S0308-5961(02)00096-4
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
12
economies of scale. The paper recommends that governments should urgently review the regulatory framework to remove restrictions on international and national cellular infrastructure as a short-term measure. In the medium term and taking into account convergence, the regulatory classification of fixed/mobile is unsustainable. Governments should nurture a new framework based on facility-based bandwidth suppliers on the one hand and solutions providers to the customers on the other. This will enhance the sharing of infrastructure resources and bring sustainable positive benefits from competition in the long term.
2. Context and background 10 years since cellular was introduced in Africa, growth has been phenomenal and has had a dramatic impact in all markets in Africa. The dramatic growth has been more significant in the last 7 years with the market opening fuelled by the telecommunications sector reform ushering competition in telecommunications markets. Cellular was and remains positioned in many markets as a ‘value-add’ and an extension to the fixed line services. Consequently in all markets, cellular has experienced restrictions. For example, cellular operators could not build international gateways, in certain markets could not build national transmission infrastructure, and have had to rely on the incumbent fixed line operator. The other side of the coin is that few if any operators had imposed universal service obligations to serve the rural areas. Starting with a huge unsatisfied demand, no government bureaucracy in its management, better technology and a national and international infrastructure upon which to piggy back, cellular has grown beyond expectation. By the end of 2001, cellular overtook fixed line services as indicated in the Fig. 1. Catching up: cellular or fixed (source : ITU. EMC)
30.000
25.000 lines connected (x 1000)
Fixed
cellular
20.000
15.000
10.000
5.000
1990
1992
1994
1996
Fig. 1.
1998
2000
2001
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
13
From 2001, no more would the erstwhile fixed line services continue to play a major role as an entry point to the emerging information society in the new century. Today and increasingly in the future, cellular operations are destined to grow larger than fixed line operators and will need more infrastructure than fixed line operators can offer. The model and market positioning of the past is unsustainable and a new approach is necessary to continue growth, take over universal service obligations and introduce new and improved technologies into the market. Along the way, some governments have recognised the benefits of competition in the cellular market and have introduced multiple players to increase penetration in the market. By the end of 2001, Africa had 104 cellular networks operational all on the GSM platform. This paper investigates features of liberalisation over the last 10 years of cellular growth and the lessons learned. A major finding is that dramatic growth was predicated on the cellular services riding on the infrastructure of the fixed line operator. Now that cellular has outgrown fixed line operators, the fast growth of the last 10 years cannot be sustained under the same regulatory framework. Regulators will have to restructure the sector to maintain growth and enable more operators to enter the market to further enhance competition under conditions of increasing competition. The paper makes proposals to enhance the benefits of liberalisation to increase penetration to cost conscious societies in Africa and in particular Sub Saharan Africa.
3. Liberalisation and competition The level of competition was found to differ widely at the national level. Tanzania had five cellular operators (the highest) while at the other end, some countries had no cellular service by 2001, e.g. Eritrea. The majority of the countries in Africa (18) had two cellular operators. Such countries with two cellular operators experienced the highest penetration as shown Fig. 2. Such countries also had the highest penetration (115/1000) along with the highest average GDP/capita. While there are many factors that are at play including internal sector management, there is a strong case that an increased number of operators in the market reduces the market opportunities for the individual operator and thereby produces a loss of economies of scale. This will result in higher tariffs to recoup investments. An in-depth survey in East African countries and Ghana indicated that higher competition in Ghana (four operators) and Tanzania (five operators) resulted in higher tariffs than Kenya (two operators) and roughly half the penetration. All the countries had comparable levels of GDP/capita and population. Even where competition was high, one or two operators controlled the market. Cases in point are Ghana (Spacefon) and Tanzania (Vodacom and Mobitel) which translate into a monopoly or oligopoly with other operators playing a marginal role in the market. In both markets cited above, the poor performance of some operators is an internal management issue and not a market failure. The worst performers also are the oldest in the market. Taken further, this line of argument suggests that fewer operators in the market are desirable due to low purchasing power in small markets. Fewer operators can exploit economies of scale to reduce operating costs, expand coverage and reduce tariffs. This position also benefits incumbent
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
14
1400
140
Competing for penetration: income is the winner (source: ITU, EMC, WB )
Penetration /1000 & no countries
100
1000
no of countries penetration Average GDP/Capita US$
80
800
60
600
40
400
20
200
Average GDP/Capita US$
1200
120
0
0 1
2
3
4
5
number of operators/country
Fig. 2.
cellular operators; indeed the strategic equity partners in these operators negotiated for some form of market entry control to safeguard their investments from competition. The desire for fewer operators in the market unfortunately may militate against the interest of the consumers whose choice is reduced. Additionally, a country should always take into account possible collusion among the operators or even collapse of one of the operators reducing the choice even further. A reduced number of operators is therefore unsustainable in the long run from a consumer perspective, a consideration that should be of paramount concern to the regulator. Finally, as incumbent cellular operators entrench themselves in the market, it becomes difficult for new players to gain market entry.
4. Income levels and penetration It is clear that countries with high-income levels enjoy high penetration. Competition in the market has little impact in markets with low income levels. Eighteen countries with incomes of less than a dollar a day have a penetration of 7/1000 and despite higher levels of competition in those markets, there is no significant impact on penetration (Fig. 3).
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
15
penetration vis income (source: EMC, WB) 250
penetration/1000
200
150
100
50
0 Lower
Low
Lower middle
Upper middle >US$2895
Fig. 3.
Increasing the penetration of services is based on disposable incomes on one hand and to some extent reduced tariffs on the other. Regulators have no control over the economy; they could however influence investments costs to reduce tariffs and therefore increase affordability. Similarly, very high-income countries with only two operators recorded very high levels of penetration as depicted in Fig. 4. Regulators therefore face a dilemma of fostering market forces to increase quality of service, reduce tariffs, and encourage increased investment to expand coverage while recognising that potential operators thereby perceive reduced market opportunities and market barriers to entry and competition with incumbent cellular operators.
5. Other features of liberalisation 5.1. Market demand vis a vis registered waiters Telecommunications planners have in the past used ‘registered waiters’2 as a barometer to measure demand for telecommunications services. The shorter the lists of registered waiters, the better the service from the fixed line operator. The fast growth of cellular now indicates that the concept of ‘registered waiters’ is, in fact, no longer an effective measure of latent demand for telecommunications services. The explosive growth of cellular service has meant that supply now vastly exceeds demand rendering otiose old telecommunications business models. 2
This refers to applications received by telephone companies for a telephone line and not served due to lack of technical facilities to provide the service. According to the Africa Telecommunications Indicators Report published by ITU the total numbered of registered waiters in the continent was 3.672 m by end of 2001.
16
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
Fig. 4.
Monopoly models resulted in denial of service to the majority now served by cellular. Present restrictions on international access and deployment of basic infrastructure, have the same impact—denial of service. The initial policy frameworks were pro—fixed line operators and their survival. The time has surely arrived for a thoroughgoing policy review. Key issues to consider are whether the current players can deliver to the market and how the regulator can play an effective role in the developing industry. An immediate requirement is for the regulator to conduct a fundamental review of market structure, remove barriers imposed on cellular and reposition cellular as mainstream service.
5.2. Serving the rural communities With a national penetration below 1% and 80% of the available telephones located in urban areas, governments in Sub Saharan Africa have understandable concerns over telecommunications access in the rural areas. The greatest concern advanced by the fixed line operator is the possible marginalisation of the rural and the poor by incoming private and profit motivated operators. From this perspective, government set out clear policies and elaborate targets for serving the rural market. In the particular case of East Africa, Uganda and Tanzania have
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
17
developed and promulgated elaborate rural telecommunications policies and targets as set out below. The rural on target: no less a citizen (Summit Strategies, policy documents)
Kenya
Target penetration/100
Baseline teledensity %
Policy instrument for development
Regulatory tool
1%(2015)
0.16
Govt subventions Licensing obligations Rural telecommunication development fund Licensing obligations Rural telecommunications fund
Regional telecom operators Regionalisation of cellular, paging operators now abandoned
Tanzania 1 line per village (2020)
Uganda
0.05
66000 lines in rural 0.04 areas in 5 yrs from 1996. Reviewed in 2001 to ensure that counties with over 5000 people have basic access by 2005 An internet PoP in every district by 2003
Special funding and licensing regime
Licensing obligations
Tanzania and Kenya have designed and tendered for regional cellular and fixed line licences in a bid to focus attention on regions outside the capital cites. While concerns over the fate of the rural customer retain validity, liberalisation of cellular entry has taken care of many worries. Cellular has expanded significantly in all the countries and over 40% of the population is now within cellular signal coverage. Never again will universal service be measured by distance to a service point (walking or cycling) but rather coverage by a signal. Increased expansion will cover increasingly more of the population. While the provision of universal services has typically focused on the role of the fixed line operator, today, and in the future, cellular operators are coming to play an increasingly more important role than that occupied by the fixed line operator. As telecommunications evolve towards more data centric applications, governments have been forced to redefine ‘basic service’ to include data as well as voice. Certainly, with the increased value of the Internet and multimedia applications, it is imperative that universal service includes all such advances. The Uganda policy review of 2001 is in this spirit and has the objective of building a point of presence (PoP) in every district by the end of 2004. Cellular operators must respond by building GPRS networks as a step towards 3G. This calls for a long-term strategy to increase bandwidth at national level. At present, such bandwidth is inadequate at national level in most countries in Sub Saharan Africa.
18
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
5.3. Affordability of service High tariffs for cellular services before 1995 were a matter of concern because they effectively locked out the majority from the new communications technologies. This was a matter of concern to every government forcing them to reserve powers to control tariffs should this become necessary. In the emerging competitive markets, new operators have redefined the market model. Cellular operators have revolutionised the market by focusing on higher volumes of traffic achieved through lower tariffs and consequently lower operating margins. This has been the main factor leading to the dramatic uptake in the market. Competition has ade a big impact on affordability of both terminals and usage. It is now time for the governments to review the role they can play to reduce such costs even further. Typical areas for concern are taxes on usage charges and high licence fees reflected in end-user tariffs. Market action by operators has lowered barriers to entry through reduced prices of terminals, connection charges and indeed the ability to receive calls and make emergency calls once connected.
6. Conclusions and recommendations African markets have accepted cellular technologies and cellular operators have to date largely served the urban markets beginning with the major cities. Rolling out extensive networks across the country is both a regulatory and business imperative to maintain or even increase market share. The greatest challenge to achieve this goal is lack of national infrastructure in all parts of the country due to the inadequate capacity built in the past. More telecommunications infrastructure is needed to reach out to people with less capacity to pay as measured by average revenue per user (ARPU). There is a clear need for policies aimed at removing barriers to the implementation of national infrastructure across the country. In so doing, governments should encourage any player that can bring bandwidth into the market to do so. These include but are not limited to electricity companies, railways, pipeline companies, etc. Already in Tanzania, the railway company is providing bandwidth via optic fibre. In Uganda, the electricity company is building optic fibre while Voltacom in Ghana has entered the telecom market to serve cellular operators using optic fibre lashed onto the power grid. By bringing in cheaper national and international bandwidth, cellular operators can then focus on infrastructure integration and the achievement of better consumer service. Indeed, licensing regimes in future should encourage liberalisation of facilities and services. Implicit in any new regime is the assumption that infrastructure supply should be provided by any entity that can supply telecommunications services competitively. Such could embrace any of the sectors cited above. Service operators will simply tap into this infrastructure. An important advantage of such liberalised provision is that a country will be able to leverage its resources to bring more bandwidth into the telecommunications market. Infrastructure investments by incumbent operators have been a significant barrier to entry for new operators as discussed earlier. By licensing new infrastructure suppliers to reduce market entry barriers, this will foster a healthy competition that is sustainable. Service operators will focus on the core business to
M. Mureithi / Telecommunications Policy 27 (2003) 11–19
19
connect the customer. Importantly, the classification of licences as ‘cellular’ or ‘fixed’ will become increasingly redundant. 7. A way forward Below are some suggested principles for future telecommunications policy within an African context: *
*
*
*
*
*
Focus should be placed on a mobile information society—with recognition of cellular operators as mainstream service providers with similar rights and obligations granted and imposed on all suppliers. Regulatory provisions currently based around technologies should give way to service based goals so as to leave the operators to choose the best technology strategy in order to achieve objectives. Investment should be enticed into the market through stable and predictable market policies not regulatory edicts. Competition should be fostered as a driver of improved service guarantees to the consumer in all market segments. Synergistic partnerships should be fostered to anchor international capital, skills and management. This should be a long-term strategy to shield regional markets from the excesses of international interests. An issue that should concern African governments is that strategic equity partners can pull out for a number of reasons as demonstrated in Uganda (Vodafone), undertake restructuring thus changing the scope of operations (Orascom) or face financial problems at home requiring withdrawal from African markets. Governments need to build local capacity to run services in the long term with international partners as technology suppliers. National resources should be leveraged to increase bandwidth and reduce investment costs. Electricity companies, railways, and pipeline owners should all be encouraged to build fibre.