Reason WHY NCC asked big operators to raise data tariffs

The Nigerian Communications Commission (NCC) approved a new “floor plan”, or minimum pricing, for data services by mobile operators “to address market distortions, unhealthy price wars and value erosion that could threaten the going concern of the service providers”, according to reports from TheCable.

In a letter to the big operators, the commission had directed that the floor plan for data should be 0.90k/MB effective December 1, 2016 “pending the finalisation of the study on the determination of cost-based pricing for retail broadband and data services in Nigeria”.

As virtually all the big operators were already charging below the new floor rate, the directive meant an automatic increase in charges for data services.

However, small operators and new entrants in the data market, such as Spectranet, Ntel and Smile, are still allowed to charge below 0.90k/MB.

NCC defines “small operator” as one that has less than 7.5% market share and “new entrant” as one that has operated for less than three years.

The regulator is of the opinion that without a price floor, the dominant operators can engage in predatory pricing to drive down other operators, meaning the industry could be moving towards a monopoly.

A senior NCC official told TheCable that CDMA operators – such as Multilinks and Starcomms – were muscled out of the by the Big Four because of their market power.

“At the rate they are crashing data tariffs, there is every chance that they will soon kill all the small operators and new entrants. Part of the functions and duties of NCC is to check monopolistic and oligopolistic behaviours in the telecom market,” the official said.

Globacom currently charges 21k/MB apparently because of the economies of scale advantage, compared to Smile which charges 84k/MB, or four times Glo’s rate, in order to break even.

Under the new tariff regime, Smile can continue to charge 84k but Glo will have to move up to 90k/MB – a 328% increase.

MARKET PRICES

The document seen by TheCable says in line with its mandate of promoting fair competition in the industry, the commission monitored activities in the data market segment “and observed that a significant reduction in current market prices for data services; in addition to complaints by subscribers to re-introduce the price floor for data services”.

It gave five reasons for re-introducing the price floor, which was first introduced in 2014 and suspended in October 2015.

The reasons are:

1. Some service providers were actually pricing their services below cost, a situation which could spell doom for the industry.
2. 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.
3. The removal of floor price for data resulted in eroding value in the market.
4. The need to safeguard investment and ensure growth, development and sustainability of the telecoms industry.
5. It is important to maintain the integrity of the network as operators lack capacity to accommodate the volume of transaction on their network.

It said: “When markets work efficiently, companies provide customers with more choice, lower prices better quality products and services. However, due to market imperfections, market forces alone cannot be entirely relied upon to discipline the operators to ensure efficient market conducts and promote market efficiency.

“It is in recognition of the above that regulatory intervention is required and has become a veritable tool to facilitate competition and create a level playing field between competitors.”

STAKEHOLDERS’ INPUTS

TheCable understands that the big operators made inputs into the decision-making process.

A stakeholders’ meeting with service providers was held in October to discuss “anti-competitive practices” in the data market and to get their comments and inputs on what the price floor should be.

At the meeting, NCC, according to sources in the know, informed the operators on 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”.

It also said the price floor “should not be too high to ensure affordability by consumers” and that the rate should be fixed at a level that “will encourage growth, roll-out services and ultimately attract investments into the telecom sector”.

This the interim price floor of N0.90k/MB for big operators is expected to be reviewed after a study on the determination of cost-based pricing for retail broadband and data services in the country.