Policy influence process in Research ICT Africa - Alison Gillwald

Policy inﬂuence process inResearch ICT AfricaDIRSI Young Scholar Programme, Santiago, May2012.Prof Alison Gillwald, University of Cape Town.

Research ICT Africa RIA seeks to build an African evidence and knowledge base in support of ICT policy and regulatory processes, and to monitor and review policy and regulatory developments on the continent. Part of this effort is the generation of relevant information for policy makers and regulators. The RIA 2011 e- Access & Usage Survey delivers nationally representative indicators on household, individual and small business level. The survey uses national census sampling frames in co-operation with National Statistical Ofﬁces to deliver crucial data in a cost effective way.

Ministry of Communication develops overall policy for the telecommunications sector from which Department develops strategies Parliament Stake- holders/ Informs laws Civil society/ inputs Policy inputs Regulator & Consumers, Formulation Competition citizens, Process Commission operators, service providers, academia, initiates & formulates unions MinistryIt is required that the regulator and competition authorities are consulted and that public hearings are held before a policy is gazetted. Once it is a bill Parliament, through a multiparty parliamentary committee, will also hold public hearings before pasing the law

The Parliaments passes laws based on policies laws Parliament Stake- holders/ Informs laws Civil society/ inputs Policy inputs Regulator & Consumers, Formulation Competition citizens, Process Commission operators, service providers, academia, initiates & formulates unions policy Ministry directivesThe Minister can provide policy directives to the regulator between major policy reviews.

The policy determines the institutional arrangement for the sector - the degree of autonomy of the regulator, competition commissionand USA - through the appointment process, funding, and delegation of powers. laws Parliament (institutional arrange- licensing Civil ments) society Informs laws conduct Stake- Regulator holders/ inputs Policy inputs Market Consumers, Formulation Competition Structure citizens, Process Commission operators, regulation service providers, Universal academia, initiates & formulates Service unions. Agency market failure policy Ministry directivesThe policy also determines the market structure through requiring the regulator to licence certain categories of operators/serviceproviders and exempting others. Market conduct is in response tothe market structure and determines the nature of the regulation.

The performance of the sector - competitiveness reﬂected inaccess, range choice of services, price and quality - is the outcomesof the policy and legal framework and creates the conditions either conducive to investment in the sector or not. laws Parliament Civil conduct society/ Informs laws Stake- holders/ inputs Policy inputs Regulator & Consumers, Formulation Competition regulation Market citizens, Process Commission Structure operators, service providers, academia, initiates & formulates unions. policy Ministry directives Policy outcomes: competitiveness - choice, prices, quality of infrastructures, services and products

Integrated strategy POLICY INFLUENCE DisseminationCAPACITY TECHNICAL Training RESEARCH NetworkingBUILDING ASSISTANCE Publication RESEARCH INFLUENCE

Evidence-based policy Telecom Regulatory Enviro (TRE) (stakeholder perception survey) NRA website analysis Indicators Regulatory & Policy Impact Assessment Data-mining and economic modelling - gender, mobile-banking, informal sector usage ICT Sector HH SurveyPerformance Review SME Survey Supply Side Data Demand Side Data

Case Study Namibia

International trends and bestpractice ‘Best practice’: Termination rate = cost of termination of efficient operator: Promote economic efficiency Provide incentives to invest in new technologies to reduce costs and expand product offerings Promote competition Promote universal service (through low access/retail prices) if passed on/effectively regulated NGN / IP based: voice traffic will become insignificant...new pricing principles RPNP...hence SKA

Mobile termination costs Namibia (N$/ZAR):MTC being the most efﬁcient operator Current MTR 1,06 MTC total expenditure per minute 1,02 MTC opex per minute 0,97 MTC direct cost and depreciation per minute 0,48 MTC direct cost per minute 0,34MTC 50% of dircet cost and depriciation per minute 0,24

CellOne Telecom Namibia MTCModel 1: Immediate 2nd choice: if 2nd choice: Removing No commentN$0.30 accompanied by other distortionary factors immediately regulatory but request higher transit charge interventions for outgoing international callsModel 2: Symmetric 2nd choice: if 1st choice: Compensates for No commentglide path to N$0.30 accompanied by other market distortions of pastthat started 1 July regulatory years2006 interventionsModel 3: Symmetric Rejected: sees no Rejected: only gradually No commentglide path to N$0.30 reason to wait to removes market distortions andstarting 1 July 2009 remove market disadvantage TN and consumers distorting factors unjustifiably for two years longerModel 4: Asymmetric 1st choice: because Rejected: only gradually No commentglide path to N$0.30 of current traffic removes market distortions andstarting 1 July 2009 imbalance disadvantage TN and consumers unjustifiably for two years longerMTC model: Rejected: same as for Rejected: same as for Model 3 Otherwise: Dropreduction to N$0.60 Model 3 in EBITDA marginuntil 2011 to 37% because of having to compete on a level playing field

After several consultations withall operators: Industry consensus Immediate drop of termination rates to N$0.60 to catch up with the region and international developments Glide path to the estimated cost of an efﬁcient operator + 25% mark-up, ie NS0.30 Immediate ﬁxed-mobile convergence of termination rates It gives time to MTC and CellOne to conduct LRIC studies and contest the results

The best outcome for Namibia Fair competition among telecommunication operators Lower consumer prices Better services Maximum job creation Highest income for government through company tax and individual income tax Reasonable returns for shareholders / investors (including government)

Termination RatesUS cents14,40 MTR FTR 9,00 8,20 8,20 6,80 6,80 5,50 5,50 4,10 4,10 Jan 2009 July 2009 Jan 2010 July 2010 Jan 2011

MTC key performance indicators 2005 2006 2007 2008 2009 2010Subscribers in million 0,40 0,56 0,74 1,00 1,28 1,53EBITDA Margin 61% 60,2% 52,2% 50,9% 53,8% 55,8%After-tax proﬁt millionUS$ 39,90 45,94 46,27 48,53 52,79 54,10Dividend paid in million US$ 14,99 10,90 33,38 30,11 50,41 52,26Capital Expenditure in 35,4 55,9million US$Tax payments in million US$ 19,96 23,35 24,11 24,62 27,10 25,5

Namibia now among the 10 cheapestcountries in Africa: moved from rank 22 to 9 Cheapest Low User USD Mar-11 Jun-11 1 Egypt 1,54 D.R. Congo 1,36 2 Sudan 1,89 Egypt 1,54 3 Kenya 1,90 Sudan 1,89 4 Tanzania 2,21 Kenya 1,9 5 Algeria 2,25 Algeria 2,09 6 Uganda 2,30 Tanzania 2,21 7 Mauritius 2,39 Mauritius 2,39 8 Ghana 2,87 Ethiopia 2,61 9 Sierra Leone 3,09 Namibia 2,81 10 Ethiopia 3,16 Ghana 2,87 22 Namibia 7,67 Source: Research ICT Africa

Case StudySouth Africa

Multiple cross cutting interventions Build research capacity and rigorous research for evidence based policy. Advocacy through capacity/building technical assistance Leverage outcomes in other jurisdictions in which we have had success and share experiences Adjust and align to national/local context

All Operators Cheapest!Namibia!June!2009! Cheapest!South!Africa!June!2009! 285.52!! !201.52!! 140.33!! !89.48!! 68.18!! !40.93!! OECD!low!user!basket! OECD!medium!user!basket! OECD!high!user!basket!

Termination Rates April 2009 MTR N$ India 0,04 Cyprus 0,24 Austria 0,54 Sweden 0,55 Finland 0,59 Kenya 0,62 Tanzania 0,63 Botswana 0,71 Slovenia 0,77 France 0,83 Uganda 0,86 UK 0,93 Namibia 1,06 South Africa Peak 1,25South Africa Off peak 0,75

BusinessDay - ALLISON GILLWALD: Cellphone rates 2010/11/17 10:17 AM Other BDFM titles Quick Links Site Search Log in | Register | Subscribe to E-Edition Johannesburg Pretoria Bloemfontein Hi 20 C Hi 23 C Hi 27 C Low 14 C Low 16 C Low 14 C View more cities | View 7 day forecast Home Opinion & Analysis Companies Markets Economy & Business Mining Management Sport Lifestyle Tech National News World News Business Education Blogs Mobile Advertising Weather News Headlines Euro ‘crisis of survival’ as EU mulls Irish lifeline | Law firms in tangle over names Tools ALLISON GILLWALD: Currencies Commodities JSE Today ‘Ghana, Kenya, Tanzania and Uganda Cellphone rates have already seen increased usage with RAND/US$ 7.0690 1.11% Lower termination fees may spark telecoms more affordable prices’ ZAR/GBP RAND/EURO 11.2203 9.5260 0.46% 0.39% turnaround ZAR/AUD CALC 6.5582 0.00% EUR/USD CALC 0.7419 0.08% Published: 2010/11/17 07:36:18 AM GBP/USD 0.6302 0.12% JSE data provided by INET. Markets Data delayed by 15 minutes. MUCH has been made of Vodacom ’s R800m loss of revenue in the six months to September, owing to the reduction in termination rates from R1,25 to 89c in March, reported in its interim results last week. Find Share As if to confirm the dire warnings by MTN and Vodacom following the decision by the Independent Communications Authority of SA (Icasa) late last month to cut further the rates of dominant operators, this loss of revenue has been used to flag the threat of a future loss of earnings that would have been received from terminating the calls of their competitors on their networks. From a policy and regulatory perspective, these results demonstrate a far more positive outcome than was widely reported in the media. Despite the loss of earnings from interconnection — an expected outcome of the introduction of regulated cost-based pricing following years of extractive pricing — overall revenue and operating profits have continued to grow. It is true that this was at a slower rate, with Vodacom’s earnings before interest, tax, depreciation and amortisation (ebitda) increasing by only 7% in the first six months of this year, compared with 10,5% for the whole of last year. But ebitda margins remain constant at a healthy 33,2% over the past three years, and Vodacom’s share price is constantly on the rise. Historically, prices have been exceptional as a result of unregulated pricing in a duopoly market. In the five years before the impending entry of the third cellphone operator, Vodacom and MTN increased their termination rates by 500%, where they have remained since 2002, despite world prices dropping to a fraction of this. Cost-based termination rates limit these pricing distortions in the market and reduce barriers to fair Management(Tip competition. !When! the! job!market!picks!up,!the!first!to!leave!are The transfer between operators caused by above-cost termination rates is generally to the disadvantage often! a! company’s! most! valuable! employees. of fixed-line operators, small cellphone operators and new entrants to the markets, while it is to the Unfortunately,! you! may! be! inadvertently!encouraging advantage of the dominant cellphone operators. these! future! leaders! to! say! their! goodbyes! by! treating them! as! cogs! in!a!wheel!rather!than!the!individuals!that While the focus has been on the loss of revenue, reduced termination rates of course also decrease the they!are.! costs of termination for operators. This produces efficiencies in the network that can reduce end-user prices and offset losses in interconnection revenue through increased demand and usage, and the more !!! !,(Harvard(Business(Review(and(HBR.org productive use of the network. Usage has indeed increased, with average revenue per user and minutes of use up, though this is best explained by the disconnection of millions of subscribers unable to comply with the statutorily required registration of SIM cards. From a policy perspective, the Regulation of Interception of Communications and Provision of Editors Picks Communication-Relation Information Act (Rica) has alienated poorer South Africans from communications services, with debatable security gains. With the effects of this stabilising, however, Claim of Aurora mine death threats Vodacom gained more than 1-million voice subscriptions in September alone. This, together with MTN’s continued subscriber growth over this period, suggests SA will soon follow the trends elsewhere in the world, where subscriber growth has accompanied the reduction of termination rates. The speed and degree to which this happens depends on the speed and degree to which the reduced cost of Most Read Most Commented terminating calls on competitors’ networks is passed to consumers. Despite warnings from the dominant operators that this cost saving in interconnection charges does not 1. Institute says police ‘out of touch with automatically get passed through to customers and that retail prices could even be used to offset reality’ termination-rate losses, Vodacom reports that effective rates per megabyte have fallen by 16%, and effective rates per minute on voice have declined by 16,9% in the six months to September 30, 2. Sisulu criticises MP’s ‘irresponsible’ demonstrating some competitive pressure on pricing, most likely attributable to greater pricing flexibility approach to defence issues enabled by reduced termination rates. 3. Euro ‘crisis of survival’ as EU mulls Irish The question for the regulator is whether these reductions are sufficient in relation to the termination- lifeline rate reductions of about 30% and, if not, will it prompt a review of cellphone retail rates? 4. Mooted change in ‘secrecy bill’ hailed 5. Ramos says SA can surpass Asia’s In most countries where termination prices have already been reduced to bring them towards cost, this progresshttp://www.businessday.co.za/articles/Content.aspx?id=126993 Page 1 of 3

R E S E A R C H I C T A F R I C A P O L I C Y B R I E F N O . 1 Africa Prepaid Mobile Price Index 2012: South AfricaAmong 46 African countries studied, South Africa ranks poorly for prepaid mobile telephony affordability.Ranked 30th out of 46 African states, South Africa is now far behind countries where the regulator, has en-abled competition by enforcing cost-based mobile termination rates. The resulting competition has in many cases driven down prices for consumers. Not long ago, South Africa and Namibia shared the same mobiletermination rates and had similar end-user prices. Today, Namibia enjoys amongst the cheapest mobile pre-paid prices in Africa, as a result of the slashing of its termination rates to close-to-cost, which pressured the incumbents towards cost-based pricing, thereby increasing demand and remaining highly profitable. RIA Policy Brief No 1 March 2012SA ranks 30th Neighbouring countries Lack of pass-through of Cell C and 8ta SA operators do notMobile prices are cheaper in several times cheaper price reductions to end- Two relatively late market compete for price prepaid usersover 30 African countries entrants, Cell C and the The dominant mobile South Africanthan they are in South most recent entrant 8ta, operators, Vodacom and mobile prices are three times In South Africa, even theAfrica with prices in Kenya, have attempted to introduce MTN, have been able to more expensive than in modest reductions imposedMauritius, Egypt and on termination rates have cheaper mobile prepaid withstand the pricing Namibia.Namibia only a fraction of generally not been passed on products, but these products pressure from price cuts bythe price of even the lowest to end-users. have not forced down the later entrants, and allpriced services in South general price level. operator’s prices have settledAfrica. around the levels set by the dominant operators. peak prices between May 2011 and June 2011, while the dominantIntroduction operator, Safaricom, which dominates both the voice and data market with market shares of 75.9% and 92.18% respectively (CCK, 2011,Pricing is the key indicator of the competitiveness of markets. Yet in September 2010 data), increased both on-net and off-net tariffs be-South Africa there is very little pricing transparency to allow for any tween September 2011 and October 2011.meaningful assessment by consumers or even the regulator of mobilecommunication prices. Operator tariffs are filed with the regulator, Also in Tanzania, Rwanda and Uganda, the state-owned operatorsICASA, without any process of assessment or objection and lowest- are the cheapest in the country. In Tanzania, TTCL is the cheapestprice tariff calculators, set up by regulators and consumer groups in operator and it managed to keep its prices at a lower level than thecountries such as the UK, do not yet exist in South Africa. With more dominant operators (Airtel and Vodacom) throughout 2011. Also,than 100 voice products currently on offer in the market, no South since January 2011 Rwandatel has been the cheapest in Rwanda, andAfrican consumer can readily determine the best-priced package for it further reduced its tariffs in August 2011.her/his purposes. In Uganda, Uganda Telecom has the lowest tariffs in the country and has kept the same tariff plan throughout the year. In South Africa,Prepaid Mobile Prices across Africa new entrant 8ta, which is the mobile arm of Telkom South Africa, the partially state-owned incumbent fixed operator, kept its prices at aTable 1 illustrates the potential weakness just described by compar- lower level compared to its competitors until August 2011, when Celling the cost, based on the OECD 2006 low-user basket calculation, of C introduced its ZAR 0,99 on-net rates, a drop from ZAR 1,50, thusthe cheapest product available in a country with the cost of the becoming the cheapest operator.cheapest product from the country’s dominant operator. The sixth Meanwhile, in Mauritius, Namibia, Egypt, Sierra Leone, Libya,column compares these two costs and shows the difference between Congo Brazzaville, Senegal, Sao Tome & Principe, Madagascar, Mali,the cheapest lower-user product of the dominant operator and the Mozambique, Chad, Cote d’Ivoire, Togo, Central African Republic,cheapest low-user product across all operators in that country. Where Angola, Malawi and Cape Verde, the dominant operator is thethe price of the dominant operator’s cheapest low-user package is cheapest.significantly higher than the cheapest low-user package in the coun-try, then this should indicate an absence of pricing pressure on the Table 1 shows that in Namibia, Chad, Congo Brazzaville, Mali anddominant operator in that market. Senegal, the cheapest product available from dominant operators, using the OECD 2006 low-user basket calculation, decreased in 2011However, several of the countries surveyed in Table 2 which are in by between USD 0,7 (in Senegal) and USD 11 (in Namibia).actual fact experiencing high levels of competition have low-userpackages much cheaper than the dominant operator’s cheapest low-user package – thus misleadingly suggesting a lack of competition,and showing the potential weakness of the basket method. In Kenya,for instance, Orange Kenya cut both on-net and Orange-fixed off-RIA Policy Brief SA No 1 2012

News - Top International - Topwww.techcentral.co.za/?x=0&y=0&s=Research+ICT+Africa+pricing www.techcentral.co.za/?x=0&y=0&s=Research+ICT+Africa+pricing 1/3 1/3 • Coverage in Business Day, Mail & Guardian (weekly), Tech Central, IOL , and News 24. Connect with TechCentral www.techcentral.co.za/?x=0&y=0&s=Research+ICT+Africa+pricing 1/3

Budget vote May 2012• Minister of Communications ask for transparency in mobile pricing• Head of Parliamentary Portfolio Committee on Communication (ANC) cites Policy Brief in opening response and announces Parliament to hold public hearing on pricing in June 2012.• Ofﬁcial Opposition Party response draws verbatim on brief request on challenges within sector.• Opposition Party (COPE) extensively quotes RIA SA Sector Performance Review.• Operators call for off -the-record meeting.

• This research is made possible with the support of IDRC, Google and OSI.• See www.researchICTafrica.net

Policy influence process in Research ICT Africa - Alison Gillwald

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