" ITREALMS: Unified licensing is good, but ... Odufuwa

Thursday, January 19, 2006

Unified licensing is good, but ... Odufuwa


Chief Executive, eShekels Limited, Lagos, Mr. Fola Odufuwa, spoke with Senior Reporter, REMMY NWEKE on accelerating bandwidth and achieving the proposed Unified Licensing regime in the country.

You spoke recently at the OSIWA organized workshop on affordable bandwidth in West and Central Africa in Senegal, about deregulation and competition, what is your perception of that in West Africa?
Well, not West Africa particularly, even Africa generally, there have been much liberalization in the telecom sector. What has happened is that Global System for Mobile communications (GSM), the mobile services have been liberalized, but the entire spectrum; Internet Service Providers (ISP), Very Small Aperture Terminal (VSAT), Fixed, have not been liberalized. So, what you find is that, you still see monopolies in some areas, for instance, in the fixed, we still have one fixed operator across most African market.
Only a few countries have issued out Second National Operator (SNO) licenses and the effect of all of that is that there have not been effective competition that would drive down or lower prices for the generality of the people across the entire spectrum of services.
That has been the case and partly it has been due to the fact that absence of competition allowed what you can call ‘simulated’ competition, where an operator is offering about 30 cents for service and the other operator is offering 29 or 28 cents. So there has not been a pressure to improve on prices or even improve on customer services and network quality generally.
It is a key problem because without liberalization you would still have market distortions, market inefficiencies and there would be a feeling of helplessness on the part of the consumers, because, if you don’t like it you cannot do anything about it.
How do you relate this to inadequacies of bandwidth?
It is partly due to this issue of liberalization. Let me explain, in most of African countries, particularly in the West coast of Africa, we have two sources of bandwidth supply, one is the sub-marine cable SAT-3 or Atlantis to Dakar and all the rest or through satellite supplies, may be about six of them with fleets of satellites all over Africa. So, these six operators were charging already what in their own perception are their best rates, but these rates are several multiples; that is, several thousands above what is obtained even in developed economies.
So you find developed economies or rich countries paying extremely low prices for Internet and poor countries such as found in Africa paying extremely high for bandwidths, why? Because, it is what we call suppliers power. Supplier has a power, and is exhibiting significant market power because there are few of them and there is no competition, because, for SAT-3, for example there is only one and access to SAT-3 is in the hands of incumbent operators - national carriers, who have no reason beyond social responsibilities, for most of them who have no commercial reason to maximize the investment they have made by allowing consumer, and by offering lower prices in order to have high volume of people and still have same margin or even better margin.
I would share with you, we did a recent study of the global market wireless indicators like Apple and (EBITDA) from many countries, one of the trends we noticed was that even countries where you have low Apple like China and Egypt have very high EBITDA margins; EBITDA is like profit before tax - Earning Before Interest Tax Depreciation Amortization (EBITDA).
Now, in other words, even though operators in these countries were charging low prices, better still there is prevalence of low Apple in these economies and even in Africa, the margins were higher in the countries where the Apple rate is very high. The earnings and profit to the operator is much higher than in Japan or advanced countries where charges are higher. So, it is a key thing and it does not mean that where the charges are lower it does not necessarily translate to lack of profitability for the operators.
In Nigeria, for instance, you find out that every year, the operators that are growing are doubling their incomes, though they are now penetrating what we call the middle and bottom of the pyramid in terms of consumer segment. Nevertheless their annual revenues are doubling every year; from 40 to 80, 80 to 100 or 150 and now it is 200 and above. So, it is something that needs to be considered.
Now back to the question about the bandwidth. Africa needs to liberalise the availability of bandwidth by fibre in whatever route by authorizing people to install submarine cables and these things do not really cost so much money. SAT-3 cost about $250 million connecting South Africa to Portugal, now you can install the same network with one-third of that price. I mean these are things Africans don’t need to go and source for donor funding or World Bank or wherever to look for fund. Internally, within the continent and African communities, there are entrepreneurs with the capacities to make that kind of investments.
What do you make out of non-presence of the Nigerian government in this kind of workshop that has to do with bandwidth, intensely required in terms of development of Information and Communication Technologies (ICTs)?
Well, there are several reasons and it is not necessarily that they are regulatory efforts. The way it is, in what you called ICTs, is such that it is fragmented. You have telecoms with Nigerian Communications Commission (NCC), you have broadcasting with National Broadcasting Commission (NBC), you have IT with National Information Technology Development Agency (NITDA), and you have satellite space with National Space Research and Development Agency (NASRDA). So you have four agencies that are impacting on technology generally in the country and the four of them have different roles of impact or market impact.
For instance, if you say you want to liberalise a Nigerian satellite it is not going to be done by NCC or NBC and even though the people, the users of these satellite are going to be people licensed by NBC, and NCC alright. And if you say you want to liberalise the market, there is no history of external fibre optic connection and there is history of regulation in that area so it has to be invented. That also requires some push and if there is nobody who has written a letter saying he wants a license to install a link between Lagos and United States, I mean, nobody would be thinking about it. So, that is the kind of issue at stake and it is not really the fault of any regulator but sometimes a function of market pressures and market demand that leads to the opening up of certain areas.
But NCC seems to be very prominent among all other government agencies within these agencies you have listed. Now, would it be that you are advocating for the harmonization of these agencies for the regulation of these sub-sectors?
It is inevitable that there would be a convergence particularly two or three regulatory bodies if not all the four of them. That has to be, because, for instance, if you buy a Personal Computer (PC), you may be looking at NITDA, but when you open the PC, reboot it or want to do anything on it in the terms of communication whatever, then you would be looking at NCC. And when you now want to talk about the content, you would be looking at NBC and whatever you are doing that involves satellite on the same PC you have to talk or look at NASRDA.
It may have worked historically but in the current world and at the pace at which technologies are converging it does not work. Nowadays, you have phases like ‘I would listen to my PC’, ‘I would watch my radio’ and even in Nigeria in some hotels, you can browse the Internet on your television set. These are why technologies require the convergence of the regulatory bodies; with Internet Protocol Television (iPTV), video streaming, you now know you don’t know which is what anymore.
For instance, how do you count a television viewer, is it the one who have a television set box or the one who is watching it on his computer and the person who is listening to his radio via his computer through a radio website audio streaming. In Nigeria, there are a number of radio stations in the east and west, who are transmitting through the Internet, I mean, how do you count the person; when is he a radio listener? When he carries a traditional radio transistor in his palm or when he listens to it via the PC.
And the real truth is that the convergence of technologies requires that there should be a convergence of regulators, whether it is done now or later, but the quicker it is done the better for us.
What do you make out of the Unified Licensing regime NCC is proposing to take off this quarter?
It is a good development but requires lots of deep thinking because there would be a lot of fallouts. For instance, are we going to have or what would happen if an operator has a unified license, is it going to be required or mandated to offer the entire spectrum of services across the entire breathe of the country or are we going to have regional players, city-wide players and village-wide players.
And those village-wide players would they also be required to offer all spectrum services, both mobile, fixed and the rest. Then, what is the incentive if I have a unified license like what happened in the past, I have an SNO license and I have not really used it but focused on mobile license or I have a Fixed Wireless Access (FWA) license and I am focusing on the data aspect but I am not dealing with the voice aspect because the terminals in the person’s opinion is high and then there is no obligation to fulfill the entire license. That kind of issues are going to come up, where would the frequency spectrum to support these; is it unlimited or limited to say how it would be grouped, say 4, 8, 12, 6. Now the over 200 operators in the industry including ISPs, VSAT, mobile and fixed lines companies are they going to have eight companies or 12 companies offering everything?
So, it requires a lot of deep strategic thinking, otherwise, what you would find if not carefully done is going to create a market distortion again and then the consolidation that is hopeful would now be in abyss. But if it is well done, it could actually lead to the consolidation of the industry and make both big and small operators co-habit without any problems. It could also force or reduce the possible presence of a significant dominator because now you would have a level playing field for everybody and this would usher in full competition and growth. It could also enhance the bargaining power of operators and even of consumers as well. Operators with their suppliers, because, for instance, where I was buying a megabit of bandwidth at $3,000 now I can buy a hundred megabits because I have the capacity to distribute that for a $1,000 or even less.
What of the consumers?
Yes, then, for the consumers, there is a greater ability to bargain because prices are reducing and you could switch within eight operators instead of a hundred. Those are permutations and we still have to bear in mind that actually it has never been done anywhere in the world yet, in terms of converging all three sectors. Yes, there is convergence of two, that is, broadcasting and communications in some markets but not of three or four.
So it is good that we also not end up making ourselves guinea pigs, or case studies of how unified licenses should not be done. In fact, it may even create a situation nobody does unified licensing any more, because it did not work as well.
You know for instance, that people are not selling the Third Generation (3G) license at the same rate it was being sole three, five years ago, because everybody agrees that that model did not work and many telecommunications companies failed because of that.
So we may need to be also careful so that we may not create undue pressure and market failure in the industry.

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