The Telecom War of 2010
The Ghanaian telecommunications pricing landscape has changed forever, or has it? Some say voice call tariffs are likely to go lower sooner than later. But, today the number 8 has become the most adored number by most Ghanaians.
Coming off what was characterized as an extremely successful “3030” promotion which saw Vodafone increasing its subscriber base and market share significantly, the network sought to maintain the momentum in subscriber uptake with an even more aggressive pricing offer.
The 8Gp per minute promotional tariff was introduced by Vodafone about two weeks ago amidst fanfare and excitement. Almost immediately, Zain (now part of the Bharti Airtel Group) came out with their version of the 8Gp per minute tariff seeking to better Vodafone’s offer. And, so it went. The number 8 became an important number and the mascot of the industry.
So, let us look at the significance of this number in a few ways to see if we can follow the train of thought in the decision process leading up to its selection. Here are a few of the symbolisms and trivia represented by and associated with the number 8 as revealed on the internet:
The number 8 governs the life of man: at the 8th month, a baby’s teeth begin to appear; he loses them at 8 years; he reaches puberty at 8 +8; and he becomes impotent at 8x8;
In mathematics, a number is divisible by 8 when its last three digits are 8;
The number 8 is used 73 times in the Bible and four times in the Koran;
8 is the first cubic number and thus represents the earth, not in surface but in volume;
8 is the number of perfection, the infinity. In mathematics, the symbol of infinity is represented by a side-lying 8;
8 is the number figuring the immutable eternity or the self-destruction. It represents the final point on the manifestation; and finally,
The writer was born in the 8th month.
Being the analytical person that I am, I tried to dissect these symbolisms to see if I could make some association with the current state of happiness most Ghanaian wallets are experiencing. But, honestly, most of them were beyond my comprehension.
Let us see…”the immutable eternity”; “the final point on the manifestation”….what is that? It sounds like some cosmic trip to me. Something I heard in the Hippie era of the sixties and early seventies that I never understood.
Let’s look at another one…”the number of perfection, the infinity”…Hmmm! Some consensus is breaking through. How about “the first cubic number representing the earth in volume”?
Okay! I think we just encountered the magic word...”volume”. The number 8 represents volume; more volume in new subscribers; more volume in market share; and maybe even more volume in Average Revenue Per User (ARPU) if we assume that the number 8 with entice consumers to talk more.
The telecommunication industry in Ghana has come a long way quite quickly. As recently as 1996, the tele-density of Ghana was 0.26% meaning that there were 2.6 telephone lines for every 1,000 people. Tele-density has increased from 0.26% in 1996 to almost 60% today or approximately 16 million subscriber lines. This is a result of deregulation in the industry engineered by the National Communications Authority (NCA).
With a population of approximately 24 million and 16 million subscriber lines, one would tend to conclude that there are only 8 million people, including children, who do not have phones. However, the actual number of adults who do not have phones may be much higher than this number. This is apparent when you observe the number of people who carry more than one handset or who have purchased and used more than one simcard at a time. Hence, the continued interest in telecommunications investments by new entrants, and the fight for subscribers, both existing and new.
Up until now, the Telecom industry has led the economy, and the catalytic power of deregulation continues to reshape the entire telecom industry resulting in increased growth in the sector and the country’s GDP. Price pressures on lower model handsets has been the driving factor for the most recent growth that has seen the industry climbing a bit higher up the subscriber tree as the lower hanging fruits are exhausted.
But, what is happening today is unprecedented. Consumers never thought this day would ever come. The day when networks would risk sacrificing their profitability to, either climb up in market position or maintain leadership. But, that day is here! And, these are going to be the most challenging times for the industry going forward.
The licensing of new entrants coupled with recent acquisitions in the industry has seen the logic behind the balancing act between pricing and return on investment thrown out of the window. New entrants with abundant idle capacity have decided to offer that excess capacity to consumers at a cost, perhaps, nominally above their cost of operation, in an effort to woo subscribers from incumbent networks. This strategy, while initially disruptive for the industry, has been proven to be short-lived if incumbents decide to price-match. If that were to happen and these promotional prices became entrenched, networks would have to accelerate the development of revenue streams from other areas such as Data, SMS, Money Transfer and other VAS (Value Added Services) in order to supplement their voice revenues.
With the cost of interconnection (the amount the terminating network pays the originating network) currently at 5Gp, there may not be any room left for smaller networks, that generate most of their voice revenue from terminating on incumbent networks, to cut prices further as they risk losing all their revenue on paying interconnect charges. In the current scenario, a network originating a call at 8Gp a minute and terminating that call on another network would pay the terminating network 5Gp and keep 3Gp. Thus a smaller network whose subscribers are calling subscribers on a larger network would actually be pushing revenue to the larger network. Whilst this has always been so, it is important to note that under the old pricing regime of 14Gp or 15Gp per minute, this phenomenon was not so significant as the originating network got to keep more of the revenue generated from its efforts. The next fight therefore is likely to be fought at the NCA; to weigh in on the NCA for a reduction in the interconnect charge. This is likely to bring pressure on the regulatory body as it seeks to protect the interest of consumers and their right to the lowest prices as a balance against making sure that the industry operates in a sane environment that can foster continued growth in a manner that will eventually enable the country to participate in the emerging global information community. With this current high OPEX (Operational Expenditure) environment of high fuel costs, high power costs, etc. coupled with an unfavorable tax regime for the industry (15%VAT, 25% Income Tax and 6% Talk Tax), it is difficult to see where industry players will have resources for reinvestment to sustain the growth in the sector, maintain the quality of service that the industry as a whole has strived to achieve over the years, maintain its leadership in Ghana’s GDP growth and churn out enough tax revenue for Government to embark on and stay on the right course of its budgeted agenda.
And, as if all of this is not enough, the effect of number portability on the pricing regime is yet to be factored in. Number portability will allow subscribers to easily port their existing full 10-digit phone number from one network to another. Subscribers will no longer be tethered to a particular network because of an attachment to their 10-digit number string. While nobody can accurately assess who the winners and losers are likely to be, it will certainly create another turf for further economic conflict amongst the players.
Data, including internet services, is starting to see some consumer-favorable price disruption as well. With the landing of the Main One cable to Nungua and the entry of Glo’s much touted undersea cable, consumers will begin to see benefits from lower internet prices resulting from the imminent scramble for consumers’ attention between the operators of the SAT-3 cable headed by Vodafone and the new cable service providers.
So, for the consumer, these are great times. Or are they? Are we headed back to the era of poor telecom service due to traffic congestion as more people talk more because of lower prices? Are we ready to blame ourselves when Government is unable to meet its obligations to NYEP (National Youth Employment Program) participants because of a drop in Talk Tax revenues? Are we willing to live within a new regime of lackluster contribution from an industry that once drove the economy of the nation?
It is important now, more than ever, for the Ministries of Communication and Environment, Science & Technology as well as the Environmental Protection Agency (EPA) to reassess their processes and make sure that operators are given the necessary cooperation to enable them have access to the extra capacity necessary for service improvement. It will no longer be acceptable for regulatory ministries to play the “fail and pay” game where impediments are thrown in the way of operators only to see them fail so we can collect fines from them. It is in the interest of all concerned. Low tariffs along with the highest quality of service is what the consumer wants; This will lead to higher usage possibly increasing operators’ ARPU; Culminating in higher returns for operators, more tax revenue for Government and increased CAPEX (Capital Expenditure).
Perhaps the opportunities being created as a result of the disruption in the industry will more than make up for the anticipated shortfall. When one door closes, as they say, another one opens.
Source: Kwesi Amoafo- Yeboah, Chariman Of Teligent Wireless
(Please send comments to k_yeboah@teligentwireless.com)
(Published in The Economy Times – September 27, 2010)
