Monday, March 24, 2008

Uganda - abuse of dominance

Are Country's Telecoms Muzzling New Entrants?

With Uganda's four telecom operators engaged in a bare knuckles fight for supremacy, interconnection, a salient feature in the cost of service continues to keep the costs of communication high in Uganda.

In true capitalist tendency, uganda telecom, MTN and Celtel are aloof about the cost of interconnectivity, a situation the new players are quietly crying foul about.

Interconnection refers to the commercial arrangements under which service providers connect their equipment, networks and services to each other in order to allow their customers to access services and networks of other services providers.

In Uganda's case, it refers to the agreement that is in place between the major providers uganda telecom, MTN, Celtel and Warid that allows the four players to connect their equipment to each other to enable every mobile phone user to make a call/send sms successfully across any one of these networks.

Since the entry of Warid Telecom on the Uganda telecommunications landscape, the interconnectivity issue has occupied talk among ICT enthusiasts, cell phone users, sector watchers and experts on the sector.

Clients are wondering whether the incumbent telecoms are using their dominant positions in the way they are pricing inter-connectivity rates.

It is widely believed that the incumbent players are confronting competition by unfairly pricing inter-connectivity.

During the debate that led to the opening up of the telecoms sector, the incumbents questioned the move saying bringing new competition into the sector was "premature".

Like any liberalised sector of Uganda's economy, the telecommunications regulator, Uganda Communications Commission (UCC) has left the players to determine the amount of inter-connection fees they charge each other, but that is how far they go.

With a combined subscriber base of about 4.5 million users, observers are wondering whether those numbers are not being used as a tool to stifle competition.

Observers of the sector say interconnection rates are high yet the situation is not helped by the fact that UCC has no control over what MTN, Celtel and uganda telecom charge each other or will charge new players.

In the eyes of one of the new players, what is charged as inter-connection fees should be fixed by UCC and not left to the whims of the dominant players, who already have on their books the 4.5 million subscribers.

"Interconnection rates are very high; my feeling is that they should be fixed. By determining that rate, UCC would be coming in to regulate it otherwise if you leave it to others to use it to their advantage, the sector gets shackled," he says.

A top executive for one of the new telecoms told East African Business Week that there is little they can do at the moment but it seems the three incumbents are "quasi-monopolies standing in the way of free and fair competition".

"Even if a new player comes in with a state-of-the-art service, it makes it very hard to break into the market," say the new players. Those in favour of a fixed rate argue that mobile penetration will remain low because the sector gets 'shackled' as a result.

"Interconnection is within UCC's grip and it is useless to leave it to players," observes another official. "It could lead to collusion."

In mobile telephony, interconnection aims to provide the consumers/users with the widest possible choices of quality service at the most competitive prices and gives policy makers and regulators opportunities to foster and enhance universal service/access initiatives.

It also requires network operators and service providers to perform their competitive/complementary activities in an orderly manner and with due regard to public interest.

As it is now, there are those who believe the existing interconnection policy stifles competition, kills innovation, reduces penetration and customers/users get cheated as a result.

"There should be a ceiling to the cost of interconnection," Mr. Joseph Walusimbi, Warid Telecom's head of marketing said.

According to a study that was carried out by the Common Market for Eastern and Southern Africa (COMESA), one of the challenges of interconnection is the presence of operators that are monopolistic or dominant.

One observer has gone ahead to accuse Uganda's regulator UCC of promoting monopolistic tendencies claiming it has abdicated some of its functions.

But both the industry regulator and the ICT ministry are reluctant to get involved in interconnection and infrastructure sharing agreements preferring that the various companies handle it at a purely business level.

"The issue is purely and largely a business decision," the ICT minister, Dr. Ham Mulira told East African Business Week.

Although UCC does not get involved in the interconnection agreements between the different telecom companies, the agreements and their tariff structure reached upon by the telecoms are deposited with UCC.

Mr. Patrick Mwesigwa, the director technology and licensing at UCC told East African Business Week recently that the regulator could only come in as a last resort if and when there are complications in reaching an interconnection agreement.

Usually the costs of interconnect account for nearly half of a phone call.

So why are phone calls within any particular network charged almost the same as those to others across networks?

MTN's Chief Operations Officer, Mr. Erik van Veen says that while the charges for calls within the network should be cheaper, the mathematics of the game does not allow accross the board.

In essence, the telecom operators work it out in a way that they lose a bit from charging the same tariff for calls across networks and make up for it on calls within the network.

For example, calls within the MTN network, cost about Ush320 ($0.18) and an average of Ush400 ($0.23) across network. If MTN wished, it could afford to charge Ush144 for calls within its network minus interconnection charges and Ush480 ($0.28) for calls across to other networks after factoring in interconnection charges.

The Ush480 ($0.28) to call across the network would be a disincentive for callers to talk, thus affecting company margins.

"We lose a bit here and gain a bit there," van Veen said.

Although the interconnection rates are commercially agreed bilaterally, they are considered confidential.

The game is so complicated that even new comers Warid Telecom at best is charging Ush299 ($0.17) for calls within and outside its network at peak time.

Of the total cost of a call going off one network to another, between Ush160 to Ush180 is charged as interconnection fees.

So when a call is made off one network to another, the Ush180 is factored into the total cost for the call.

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