Understanding the Data Tariff Hike

The price hike is only for data service, that means call plans and other services would still remain the same. Despite what your pocket, your capitalist leaning or liberalism anti-government leaning may tell you, price caps or controls are for your benefit. The need for the tool to be used appropriately, is where it becomes tricky and can lead to disastrous effects on the economy and consumers. However, if done well and accurately, it can be immensely beneficial.

The price cap exists to keep the market competitive but fair by ensuring that big market players do not, in a bid to stifle competition, under-price their services to such an extent as to compromise on quality. This also applies to the telecommunications industry.

Price caps are especially necessary, in a monopolistic environment or in one with wide disparities in market shares. However, for this strategy to be effective, the industry regulator, in this case Nigeria Communications Commission (NCC), needs to have comprehensive and accurate information on the structure of the market (past, present and future). Information and the manner in which it is used is essential, such as cost of investment of market players, the need for a safety net for customers, impact of pricing on productivity and most importantly market share.

The manner of collection of this information is usually flawed, because NCC has to rely on market players to provide the information. Without certainty as to the integrity of the information which forms the basis for its regulation, NCC’s ability to regulate effectively is thereby compromised — this is a major reason for the speculative regulatory pricing that has led to the implementation of the price hike.

In 2013, NCC introduced cost-based price caps as well other regulatory measures on data plans in response to predatory pricing from dominant market share holders and there were serious concerns about whether competition could be achieved, due to upstream supply which were jointly controlled by MTN and Globacom with a combined market share of 62% of the public terrestrial transmission infrastructure which is a bottleneck resource in the provision of voice and data services.

In a bid to dilute the market share of the upstream players in the retail market for voice and data service, as well as to increase penetration and competition in the market, it was necessary to invest in broadband, to expand the market. NCC auctioned the licensing of the remaining 30MHz of the 2.3GHz spectrum, adjoining a 10MHz guard band with the adjacent 2.4 GHz band, which Bitflux won in February 2014 for Twenty-Three Million Two Hundred and Fifty-One Thousand US dollars. This signified a potential for competition and broadband penetration at the wholesale level, which would provide ISP’s and other retail telecommunication Service Providers with the requisite bandwidth to service their subscribers

With the failure to get the licensing of the 2.6GHz spectrum, in August 2014 (suspended December 2014) and again in February 2015 (suspended March 2015) to ensure sustainability, growth and development of the data service market segment in line with the Broadband plan, the NCC approved the withdrawal of data floor price on October 13, 2015.

Despite efforts to license the 2.6GHz spectrum in 2016, investors were not comfortable with the bias of previous auctions, having characteristics of being lopsided, and designed to favour only big operators who had the financial capability, to the detriment of small operators with weaker financial base.

The conditions set for new entrants into the market was also highlighted to be extremely high with the reserved price for a lot in the auction being 16 million dollars,especially with the fall of the Naira and difficulty in obtaining foreign currency.

With the need to recalculate and determine the cost-based pricing for retail broadband and data services in Nigeria to effectively calculate broadband prices while restricting the big market operators who have invested in new infrastructure (4G) from seizing the lion share of the market, the free fall competitive cap has to be regulated through price controls.

NCC read the market wrong. They believed the market share (In broadband/data) was dispersed enough to engage in competitive prices, while at the same time providing an equal level of quality of service. NCC kept a value on the broadband spectrum with most notably the auctions and the removal of the price floor plans. Data services providers and the market refused to respond to the value thereby creating an unbalanced market and thus setting back progress made with the sale of the licensing of the remaining 30MHz of the 2.3GHz spectrum.

In order to provide a level playing field for all operators in the industry, the NCC protected small operators and new entrants to acquire market share and operate profitably, small operators and new entrants are exempted from the price floor for data services. A small operator is one that has less than 7.5 per cent market share and a new entrant is an operator that has operated less than three years in the market.

Edit; With the NCC suspending the plan to hike data services.

With the Nigeria Communication Commission suspending the price cap again,due to customer cry out on the economic hardship. They forget, the strength of any economic incentive regulation is that it lends predictability to the marketplace. The core appeal of price cap regulation is that it provides an incentive for carriers to achieve higher efficiencies and thus higher profits by exceeding predefined efficiency goals. This latest action further undermines this appeal to the market, growth in the market on this path, will most likely slow alongside broadband penetration.

The Commission needs to be on the right track in considering regulatory alternatives that would have given greater flexibility in pricing services to satisfy customers, while still keeping the market competitive.

Although the price cap voyage made substantial progress before its untimely removal, the Commission would be well-served to return to its initial course in order to reach the destination of competition as soon as possible. Until the obstacles to market forces disappear, consumers will not experience the true benefit of a competitive system.