Namibia’s regulatory position is like stepping back ten years if you’re more used to the competitive rough and tumble in Africa’s more developed markets. The historic incumbent Telecom Namibia still has some monopoly privileges and the new incumbent, Government-owned mobile operator MTC is in danger of behaving in much the same way. Sadly the country has closed its regulator with a view to opening a new one. However, this has meant all things regulatory have gone into a holding pattern. Russell Southwood looks at the key market barriers that are holding things back.
Historic incumbent Telecom Namibia has an infrastructure monopoly and although the power utility NamPower has fibre assets, it has only recently tendered them: MTC (which may build a link to South Africa), Telecom Namibia and some ISPs are all interested in the capacity.
Telecom Namibia invested in what was then Africa’s only real international cable, SAT3 but didn’t invest enough to get a landing station. This is something it has regretted ever since because for many years South Africa’s incumbent Telkom South Africa would over-charge it for transit to the SAT3 landing station in South Africa.
But now if you want to get fibre access to South Africa to Telkom South Africa’s SAT3 landing station, you have no choice but to use Telecom Namibia. According to one of its customers:”The route this side of the border is 45% more expensive than what Telkom South Africa offers (in a competitive environment) on a distance basis on the other side of the border.” Telecom Namibia also has a deal with Neotel (in which it is a shareholder) for Seacom bandwidth, further limiting alternative competitive offers.
The new WACS cable will arrive in Q2, 2011 but there are understandable concerns in the market that Telecom Namibia will be the monopoly owner of the only international landing station with no other independent competitive route to South Africa being available. If MTC opened up a route, it would simply be a second Government company offering an alternative and one run by a management that is probably the least price competitive on the continent. In other African countries joint public-private partnerships are being set up to ensure equitable access to the landing station and fair, cost-oriented pricing but there is not even a discussion about this in Namibia.
Pricing has not been set and Telecom Namibia’s formal response to its customers is “it’s too early to say”. But well-informed industry sources say US$ 1,686 per mbps has been discussed. Currently customers are paying US$2,248, about three-quarters of the current satellite equivalent. Both prices seem very high when compared to the kind of wholesale prices available across the border in the more competitive South Africa.
Inevitably this has a knock-one effect to retail pricing strategy for the Internet. One aggrieved customer told us:“At a retail level, we’re paying US$15-20 per mbps. It’s immoral and they should be sent to hell for it”.
Telecom Namibia is owned by NPTH, a state holding company that also holds the Post Office, the new mobile incumbent MTC and a properties division for all three companies. The CEO of Telecom Namibia is the Chair of MPTH. Whilst most acknowledge that there has yet been no practical example of a conflict of interest, it is undoubtedly as one person told us “a fundamentally incestuous” way of running the different companies. There are no currently plans to privatise Telecom Namibia. It has international shareholdings in Multitel in Angola and Neotel in South Africa but looks likely it might pull out of the former.
Both policy and regulation in the sector seem to be in a holding pattern for as one industry insider told us: “The biggest problem is the Namibia Communications Commission (NCC), which is supposed to be changed to the Communications Regulatory Authority of Namibia (CRAN). There’s very few staff left from NCC and not enough are qualified.” There were only 7 staff when NCC ceased to operated. There has been no sign yet of the Gazetted announcement promised in early October to give life to the body.
A good example of the impact of the regulatory holding pattern is number portability. NCC wanted number portability (which might open up competition in the mobile market) but whether this goes ahead, it will now wait for CRAN to “get its feet under the desk”. The new Chair of CRAN is Lazarus Jacobs, a businessman, co-owner of the Windhoek Observer and a pioneering stand-up comedian (No jokes, please.)
In terms of the mobile market, there are three players: Telecom Namibia (with its Switch product); Leo and MTC. Switch (a CDMA 2000 product) was an attempt by Telecom Namibia to act as a spoiler to Leo’s entrance into the market. There was subsequently an argument as to whether the service should be limited to the towns only and in the end there was a trade-off in which it got permission to have national coverage in exchange for there being more than one international gateway. It says it currently has 200,000 subscribers. However, Switch is likely to be closed down and Telecom Namibia will go into GSM.
This makes Leo, which was launched 3.5 years ago, the main challenger. It was set up by local investors including NamPower and Old Mutual with a Norwegian management contractor. Eventually 100% of its shares were bought by what was then Orascom’s Telecel subsidiary. By all accounts, it has the cheapest network to call on but has not made much of dent on MTC, which had many years as sole operator in which to entrench itself. Leo started to offer 3G in Windhoek a couple of months ago and has recently launched Blackberry handsets.
MTC is the largest mobile player and is 66% owned by the Government through NPTH and 34% by Portugal Telecom, which provides strategic management and key personnel. It is offering iPhones (which it did before South Africa) and iPads but does not have a Blackberry offer. It has 85% of voice business and probably 60% of all markets by value, enough for it to be considered as having significant market power. There is an agreement between CRAN and the Competition Commission on addressing issues of this kind either jointly or by CRAN alone but action will depend on CRAN getting its teeth into the barriers that affect the market.
None of the mobile operators operate m-money services like M-Pesa but Mobipay was recently launched. The Bank of Namibia gave Mobicash Payment Solutions authorisation to operate a mobile payment system where clients pay for goods, as well as transfer money, using money that is virtually stored on their cellphones.
The absence of number portability makes it hard for the challenger to peel off new subscribers from the incumbent mobile operator:”People don’t shift their number easily,” was the refrain from all sides. Leo does dual SIM card Samsung handsets (in which unusually, both SIMS are active and you don’t have to switch manually) in an effort to overcome this problem.
In terms of the Internet, there are probably around 120,000 subscribers and MTC has
3G subscribers in the low tens of thousands. By all accounts, it is a relatively slow-moving and conservative market. There are no signs of triple play offers and no e-commerce worth speaking of.
Telecom Namibia’s iWay subsidiary is the largest market player with 60% of the market and it launched ADSL two years ago. The key players are: MTN Business or corporate customers (formerly Verizon/UUNet); ITN (locally owned) and Africa Online (Telkom South Africa) which is completing its merger with MWeb.
Telecom Namibia supplies ADSL wholesale to ISPs but it took one ISP 15 months to get a reseller agreement and obviously it needs to forced to offer wholesale and retail in an equitable way to all players in the market. ITN and Africa Online offer Wi-MAX services.
Although small in population terms, Namibia has a buoyant economy and a great deal more potential than is currently being realised. Perhaps the arrival of CRAN will help take off the artificially imposed brakes but don’t hold your breath.
Showing posts with label telecom. Show all posts
Showing posts with label telecom. Show all posts
Monday, 25 October 2010
Sunday, 12 April 2009
Monopolies in Namibia
Monopolies - the good, the bad the …..
What are Monopolies?
Most people discuss monopolies and blame it for high allowing certain companies to get away with higher prices or unsatisfactory service levels. The argument here is that if competition is allowed, this would automatically mean lower prices or better service.
In the following text I look at the various types of monopolies, how they came to exist, and most importantly is competition always a good thing?
There are various types of monopoly. Let us look at the most common types in Namibia.
- Selling monopolies - a company is the only supplier of a product and the customers must accept the prices it fixes
- Producing monopolies - a company controls the manufacture or source of supply
- Trading monopolies - a company controls the marketing channel between the source and the customers
Furthermore, most monopolies are either national (countrywide) or local in geography.
There are three main ways in which a monopoly gets its power, either through the government (a political monopoly); through economic control by a company of a natural resource; or through commercial monopoly agreements between competitors.
A political monopoly comes about through a special government grant that forbids others to engage in this business activity. In countries ruled by monarchs this was often in the form of crown patents giving exclusive rights to carry out a certain business for example the collection of taxes. A second kind is the granted by a patent for an invention and copyright on books or music. In this form, the government encourages invention, research and writing by giving the full control of the "intellectual property" to the inventor or writer. It is recognized by all of us that such a monopoly is earned! Also the patent or copyright is limited in time, 14 years for patents and copyright for the lifetime of the writer. Another typical political monopoly is those for the supply of electricity, water or telecommunications. This last kind is often granted to state companies and encourages them to invest in areas that are helpful to the country and that normal capitalist (profit making) companies might not invest in. This is why it is important to have a Universal Service Fund when such monopoly rights are removed!
Economic monopolies come about when scarce natural resources come under the control of a company (or companies) who agree on the price. In most cases such economic monopolies could have been prevented had it been foreseen.
Trading monopolies come about when a company has ownership of subsidiaries that compete in the retail market in competition with companies that purchase its services wholesale. They are thus able to "share costs".
Government Policy on Monopolies
How does the man on the street react to monopolies or competition? Most of us agree that competition is a good thing in business as it brings about lower prices. Yet the same people would agree with me, the Zimbabweans are unfairly bringing down the wages or salaries we earn. This is where, dependent upon where we stand in relation to the practice or industry, our standpoints are developed.
The question is then, when is it acceptable to have a monopoly. The answer must be: When it can be regulated by Government.
Normally competition provides effective regulation. However, when a monopoly has too high prices, a competitor might build its own infrastructure, for example its own electricity or telephone lines next to the existing infrastructure. So we have to accept a policy of "monopoly-accepted" as a necessary feature for the public regulation of rates. We accept in Namibia that these industries are those that need expensive, permanent and use public areas (roads, electricity lines, telephone lines, etc.).
Conclusion
Thus it is in the interest of country to have monopolies in respect of the development and maintenance of the infrastructure. However, competition must be allowed in the provision of services that use it. Thus, to prevent the third type of monopoly, namely a trading monopoly, we cannot allow these state monopolies from selling directly to the public.
To use but one example, Telecom should become two separate companies. One, the owner of the physical infrastructure should continue to be the partner of government to ensure the roll-out of access to all Namibians (including receiving government funding where necessary). The second company must be a commercial company using the infrastructure at the same prices as its competitors and being able to sell directly to the commercial and individual customer.
For further reading see: "Modern Economic Problems" - Frank Albert Fetter, Professor of Economics, Princeton University, 1916
What are Monopolies?
Most people discuss monopolies and blame it for high allowing certain companies to get away with higher prices or unsatisfactory service levels. The argument here is that if competition is allowed, this would automatically mean lower prices or better service.
In the following text I look at the various types of monopolies, how they came to exist, and most importantly is competition always a good thing?
There are various types of monopoly. Let us look at the most common types in Namibia.
- Selling monopolies - a company is the only supplier of a product and the customers must accept the prices it fixes
- Producing monopolies - a company controls the manufacture or source of supply
- Trading monopolies - a company controls the marketing channel between the source and the customers
Furthermore, most monopolies are either national (countrywide) or local in geography.
There are three main ways in which a monopoly gets its power, either through the government (a political monopoly); through economic control by a company of a natural resource; or through commercial monopoly agreements between competitors.
A political monopoly comes about through a special government grant that forbids others to engage in this business activity. In countries ruled by monarchs this was often in the form of crown patents giving exclusive rights to carry out a certain business for example the collection of taxes. A second kind is the granted by a patent for an invention and copyright on books or music. In this form, the government encourages invention, research and writing by giving the full control of the "intellectual property" to the inventor or writer. It is recognized by all of us that such a monopoly is earned! Also the patent or copyright is limited in time, 14 years for patents and copyright for the lifetime of the writer. Another typical political monopoly is those for the supply of electricity, water or telecommunications. This last kind is often granted to state companies and encourages them to invest in areas that are helpful to the country and that normal capitalist (profit making) companies might not invest in. This is why it is important to have a Universal Service Fund when such monopoly rights are removed!
Economic monopolies come about when scarce natural resources come under the control of a company (or companies) who agree on the price. In most cases such economic monopolies could have been prevented had it been foreseen.
Trading monopolies come about when a company has ownership of subsidiaries that compete in the retail market in competition with companies that purchase its services wholesale. They are thus able to "share costs".
Government Policy on Monopolies
How does the man on the street react to monopolies or competition? Most of us agree that competition is a good thing in business as it brings about lower prices. Yet the same people would agree with me, the Zimbabweans are unfairly bringing down the wages or salaries we earn. This is where, dependent upon where we stand in relation to the practice or industry, our standpoints are developed.
The question is then, when is it acceptable to have a monopoly. The answer must be: When it can be regulated by Government.
Normally competition provides effective regulation. However, when a monopoly has too high prices, a competitor might build its own infrastructure, for example its own electricity or telephone lines next to the existing infrastructure. So we have to accept a policy of "monopoly-accepted" as a necessary feature for the public regulation of rates. We accept in Namibia that these industries are those that need expensive, permanent and use public areas (roads, electricity lines, telephone lines, etc.).
Conclusion
Thus it is in the interest of country to have monopolies in respect of the development and maintenance of the infrastructure. However, competition must be allowed in the provision of services that use it. Thus, to prevent the third type of monopoly, namely a trading monopoly, we cannot allow these state monopolies from selling directly to the public.
To use but one example, Telecom should become two separate companies. One, the owner of the physical infrastructure should continue to be the partner of government to ensure the roll-out of access to all Namibians (including receiving government funding where necessary). The second company must be a commercial company using the infrastructure at the same prices as its competitors and being able to sell directly to the commercial and individual customer.
For further reading see: "Modern Economic Problems" - Frank Albert Fetter, Professor of Economics, Princeton University, 1916
Subscribe to:
Posts (Atom)