Price floor plan and the rational for its introduction by NCC

Just before the Nigerian Communications Commission (NCC) introduced price floor for data segment of telecommunications operators and directed all mobile data providers to commence with new price floor plan which  would have increased data tariffs, Nigerian subscribers expressed their outrage and disappointment on traditional and social media, causing the Senate to wade in and NCC to suspend plans.

However, after the suspension on December 1, 2016, telecommunications operators spoke out saying they were fully aware of the plan and were duly consulted by the regulator prior to finalisation of the data tariff floor.

In a statement made available to BusinessDay , Gbenga Adebayo, Chairman, Association of Licensed Telecommunications Operators of Nigeria (ALTON) said that “the NCC intervened to set the data tariff floor in exercise of its statutory responsibility to promote healthy competition by periodically reviewing voice and data tariffs in the industry and ensure the sustainability of the Nigerian telecommunications industry. It is noteworthy to mention that the NCC commenced extensive consultation with the industry prior to the finalisation of the data tariff floor.”

“We are aware that the NCC introduced the minimum price for data services to help ensure cost recovery and drive the continued investment in the telecommunications sector necessary for the provision of world-class data services for the overall benefit of the Nigerian subscriber and the Nigerian economy,” Adebayo said.

Not until then was it apparent that a lot of Nigerians did not actually understand what the price floor was all about and why it was necessary for the regulator to introduce such a plan. From reactions on Twitter and Facebook, many people thought it was just a plan to raise prices ridiculously and earn more revenue for NCC. Price floor is one of the regulatory safeguards normally put in place by the telecommunications regulator to check anticompetitive practices particularly by the dominant operators. It is therefore a minimum price on a good, commodity, service etc, as stipulated by government or the regulator.

Without a price floor, the dominant operators can engage in predatory pricing to squeeze other operators which could create industry monopoly.

According to Tony Ojobo, Director, Public Affairs, NCC, the introduction of price floor for data services in the country was to address market distortions, unhealthy price wars and value erosion that could threaten the concern of the service providers.

“Consequently, there is a gradual paradigm shift from voice telephony services to data and digital services. In line with the global trend to drive the vision of Internet of Things (IoT), the network service providers in the country embarked on aggressive promotional campaigns. As a result, all market players follow each other in introducing daily packages and engage in serious price war. Some operators were actually pricing below cost and this will affect the ability to continue in operational existence if the issues were not addressed urgently,” Ojobo said.

He said it became clear that NCC needed to act quickly to ensure the integrity of the network and availability of service to Nigerians, hence it introduced price floor for data, in order to address the situation.

NCC had on November 1, 2016, wrote the mobile network operators (MNOs) on the determination of an interim price floor for data services after a stakeholder’s consultative meeting of October 19, 2016. As at November 1, 2016, the industry average for data tariff floor for dominant operators including, MTN Nigeria Communications Limited, EMTS Limited (Etisalat) and Airtel Nigeria Limited was N0.53k/MB, but the interim price floor as introduced by NCC, which was to commence with effect from December 1, 2016, seeks to increase the industry average for data tariff from 53k/MB to 90k/MB.

Statistics of the old rate showed that Etisalat offered (N0.94k/MB), Airtel (N0.52k/MB), MTN (N0.45k/MB) and Globacom (N0.21k/MB). It was based on these rates that NCC initially came up with an average data tariff of 53k/MB for dominant operators.

But the smaller operators/new entrants like Smile Communications, Spectranet, and ntel, charged different rates. Smile Communications charged N0.84k/MB, Spectranet charged N0.58k/MB and ntel charged N0.72k/MB.

Considering the initial rate of 45k/MB, which MTN charged and the new rate of N90k/MB as contained in the interim floor price for data services, which was supposed to take effect from December 1, 2016, MTN, went ahead to inform its over 61 million subscribers that it would increase data tariff with effect from December 1, 2016, as approved by the NCC. The information to MTN subscribers which was sent via Short Message Service (SMS) otherwise known as text message, raised a lot of dust among subscribers across networks, who started calling on NCC and the operators to rescind the decision of data tariff hike.

Following the complaints from subscribers, NCC decided to suspend any further action in that direction.

Recall that in 2014, NCC first introduced floor price for data services in the telecoms market, but cancelled it in 2015. In 2014, a benchmark study was conducted and a price floor of N3.11/MB was set for data services for the big operators, because the data market segment became very aggressive in price competition in 2014, thus posing risks of prices falling below costs, which could negatively impact sustainability in the industry.

In October 2015, NCC took a decision to lift the price floor for data services, having perceived that it would stifle pervasive broadband deployment, adoption and usage, in the country.

This decision according to Ojobo, also took into cognisance, the complaints by service providers to waive the price floor for data service to enable roll-out of infrastructure and growth of the data market segment. He however said that NCC clearly stated that it would restore the price floor if any distortion is witnessed within the market segment.
In October 2016, NCC, re-introduced price floor for data services, in line with its mandate of promoting fair competition in the telecom industry.

Giving reasons for the re-introduction, of an interim price floor for data services, Ojobo said NCC later discovered that some service providers were actually pricing their services below cost, a situation that could spell doom for the industry.
He said 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.
Ojobo said the dominant operators took undue advantage of the removal of floor price to erode value in the market, hence its intervention, to safeguard investment and ensure growth, development and sustainability of the telecoms industry.
But before the re-introduction of an interim price floor for data services, NCC sent letters to service providers requesting for their comments and inputs regarding the rate to be fixed as interim floor price for data services pending the finalisation of the study on the determination of cost based pricing for retail broadband and data services in Nigeria.

Ferdi Moolman, CEO, MTN Nigeria said “despite the macro-economic challenges in Nigeria, telecom tariffs have declined significantly (over 67 percent between 2007 and 2016) and data prices are amongst the lowest on the continent.”

“With this in mind, MTN looks forward to the cost study as confirmed by the NCC, and remains committed to working with the regulator and industry to ensure fair value and fair competition in the Nigerian market,” Moolman added.

 

Jumoke Akiyode