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'African regulators regulating moving target'

'African regulators regulating moving target'

2015 ended with MTN Nigeria and the Nigerian Communications Commission (NCC) very much in the public eye as a result of the US$3.9bn fine imposed by the regulator on the mobile operator for allegedly violating a SIM card deactivation directive.

The issue has been covered extensively by media as the parties continue to square off. The NCC had issued an ultimatum for payment by end-December 2015 after the amount of the fine was revised – and by mid-December MTN Nigeria had announced its intention to take the matter before the Federal High Court in Lagos.

There have been several significant developments related to the ongoing saga, including the resignation of Sifiso Dabengwa in November, and the affirmation that it will be up to Nigeria's president Muhammadu Buhari to decide upon the mobile operator's fate.

However, the issue has also highlighted the efficiency of regulation in specific markets across Africa, and the degree of compliance to which both local and foreign operators must adhere.

ITWeb Africa spoke with Oluwole Babatope, a research analyst on telecoms and media at IDC West Africa, as well as Lucienne Abrahams, Director at the LINK (Learning, Information, Networking and Knowledge) Centre at the University of the Witwatersrand, to solicit their opinions.

Chris Tredger: Are companies becoming less compliant with regulation, or are regulators exploiting the situation to make more money?

Lucienne Abrahams: The reality is probably yes to both questions. The strategic logic for firms would be to minimise those aspects of compliance which they may regard as adding to the cost of business without contributing to increased profits. It is certain that specific costs can be attributed to regulatory compliance of all kinds. As regulation increases in an ever more complex sector, the cost of regulatory compliance increases.

While it is indeed possible that regulators may engage in rent-seeking behaviour, it is also possible that regulators may seek to send a message to firms to the effect that the cost of non-compliance will be greater than the cost of compliance, or even significantly greater, or possibly even ludicrously greater.

If the industry and regulators are unable to establish a fair playing field, consumers may be the ultimate loser, as capital available for re-investment may be limited and negatively affect future infrastructure and services investment and the pace of technological advancement in the sector.

Of course the major question in the case of the MTN decision by the Nigerian Communications Commission is how the money from this fine will be utilised.

Oluwole Babatope: I believe regulators responsibilities are to ensure a level playing field and that all operators are abiding by their license obligations as well as operating within the set out regulations. When any operator fails to meet the set out regulations or fails to abide by license obligations, it's the regulatory duty of the regulator to step in and apply sanctions that are commensurate with the violations.

Regulators also have responsibility to ensure that the quality of services that are offered within the market satisfy the requirements and avoid undue exploitation of consumers. When an operator consistently fails to meet the QoS standards, regulators are forced to address the situation through sanction i.e. through fines, banning of sale of SIMs etc.

This is imperative as the regulator needs to send a message to the defaulting operator or operators that standards need to be upheld.

Chris Tredger: Is ICT and telecommunications too heavily regulated in Africa?

Lucienne Abrahams: No, I would argue that the ICT and telecoms sectors are not effectively regulated in most or all regions on the continent.

Regulation has been slow to mature and has, typically, not kept pace with advances in technology, particularly with respect to "regulating for the digital economy", noting the need for faster decision-making on a wide range of regulatory issues, including regulation to advance digital broadcast migration, availability of spectrum for mobile broadband and for ultra-high-speed-broadband (Gigabit Internet), mobile money transfer, advancing e-health and e-education through regulatory pricing strategies and other means, and emerging issues in consumer protection and e-waste.

In the past five years, a host of new issues have emerged in the broad ICT sector that requires regulatory attention, even if not specific regulatory decision-making.

Regulators on the African continent will need to prepare many, many discussion papers as a means of researching, thinking through and consulting with key players on the topical issues and as a precursor to taking good decisions that foster the strength of economic regulation and social regulation.

Greater clarity is required on those areas where industry self-regulation, or a combination of regulation and self-regulation, would be more appropriate and would advance sector development, for example in the case of equipment authorisation. In particular, the intensification of the digital era has seen convergence become a reality in the past decade, setting up new requirements for concurrent jurisdiction between sector regulators.

An example of this is the regulation of mobile money transfer, which requires the attention of both the banking sector regulator and the electronic communications sector regulator in all countries.

Oluwole Babatope: In most African countries the regulatory framework is weak and regulators are not well funded and do not have the capacity to enforce regulatory requirements within their countries which, in some cases, have had an effect on the quality of the service offered to consumers of ICT services.

Compared to more developed countries, the ICT & Telecoms regulatory environments in Africa are weak leaving loop holes for operators alike to sometimes operate with no adequate oversight.

Operators have well-resourced regulatory depts. and can afford services of top attorneys to engage with regulators which have affected the capacity for these regulators to effectively drive compliancy within these countries.

Chris Tredger: Are industry regulators purposefully making life difficult for foreign operators or foreign-owned businesses?

Lucienne Abrahams: I'll skip the detail on this one. Suffice it to say that industry regulators are generally hard on all operators, not just on foreign-owned business. Greater maturity is required in the regulatory environment, where regulators stand firm but are fair, and where firms take a more strategic business route than the old game of regulatory capture, which, when it fails, can result in significant losses.

Oluwole Babatope: We don't believe so. The majority of the leading operators in Africa are foreign i.e. MTN, Airtel, Orange, Vodafone, Etisalat etc. also looking at the broader picture, all of these companies are key avenues for foreign direct investments (FDI) needed for economic growth and development across the continent.

The arrival of all these companies in Africa's telecoms space has resulted in significant growth in gross domestic product (GDP). Looking at Nigeria for example, the telecoms sector at the moment contributes about 8% to GDP but before market liberalisation and arrival of foreign businesses, the industry was contributing less than 1%.

Therefore, I don't believe regulators are purposefully making life difficult for foreign operators because it is even against economic policies of most African nations - which are to create an environment that makes foreign investment attractive.

Chris Tredger: If there is evidence of non-compliance, do you feel regulators are reacting in the right way/ taking the right approach?

Lucienne Abrahams: No comment here. I would have to read the NCC decision and a few other decisions before I could comment. However, in general, I would argue that regulators should be tough on non-compliance, but not selectively tough. There should be a clear understanding in the market that regulatory decisions are consistently aimed at market development, sector development and consumer welfare.

Oluwole Babatope: If there is evidence of non-compliance it is imperative that regulators work in synergy with operators to understand the challenges responsible for non-compliance.

Some regions in Africa are more challenging to meet certain expectations because of the unique operating challenges in those environments. For instance, challenges across the continent that may directly or indirectly affect quality of telecoms services include, erratic supply of electricity, limited road infrastructure, security, tax policy of telecom equipment, multiple taxation by different levels of government, ease of getting right of way (ROW) etc.

It is important that regulators, as much as possible, create an enabling environment for operators to do business by continuously driving the creation and implementation of policies that will support ease of telecoms operations. On the other hand operators also need to take initiative by internally looking at how certain challenges can be resolved.

Chris Tredger: In instances where there is a clear breach of the rules, do you feel that operators are taking enough of the responsibility – what more can be done to enforce regulations/ laws?

Lucienne Abrahams: Regulatory compliance and enforcement are difficult issues and always involve trade-offs. But this question is so broad, we can drive a bus through it. Where the rules are reasonable, operators should be sanctioned for non-compliance and the sanction should be publicly seen to be fair and should be based on explicitly provided written reasons, demonstrating sound judgement. Where the rules are out of date with advances in the sector, the rules would need to be reviewed and adapted to the new environment.

Oluwole Babatope: Like I just mentioned, it is imperative for regulators to understand the underlying challenges that are affecting operator's capacity to comply with regulatory obligations. Issues of security and vandalism to telecoms infrastructure are still rife within the continent making it costly to maintain availability of telecoms services.

However, where it established that the breach of rules are a deliberate act of negligence on the part of the operator, then the regulator needs to act appropriately in form of sanctions to deter such behaviour from operators in that environment.

Chris Tredger: Are regulators consistent in their enforcement of the rules, in following up on infringement and in terms of communication to operators?

Lucienne Abrahams: There are a number of ways of looking at this question - (i) a particular regulator may be consistent in making decisions that reduce competition or that do little or nothing to advance competition in the sector - acting within the rules - this is likely to frustrate both firms and consumers - so consistency is really only required when it is required, and not when it is not required (ii) a particular regulator may be inconsistent in enforcing the rules and may favour incumbents over new entrants, also undesirable (iii) a major challenge across the African continent is the aim for regulatory harmonisation, which may be a better way of thinking about consistency - as a striving to utilise regulatory instruments to achieve specific goals such as digital broadcast migration, or consumer protection in cross-border mobile money transfers.

One view is that enforcement is important irrespective of what the rules are. An alternative view is that it may be difficult if not impossible to have consistency in enforcing rules in such an incredibly rapidly changing sector, where the rules may fail because of technological or service or market advances, because of supply and demand, and not because of lack of consistency.

I know that this is a rather less straight forward argument than the reader might prefer, but in reality, African regulators are regulating a moving target. In this context, speed and scope of regulatory decision-making is possibly more important than consistency, because speedy decision-making on very complex regulatory matters may reduce the kind of non-compliance that is driven by the failure of the rules.

Oluwole Babatope: The maturity of the regulatory environment across Africa differs from country to country and consistency in enforcing the rules follows the same pattern. In more mature environments, such as South Africa – there is more consistency compared to other less mature environments. Suffice to say, regulators in Africa have been rather weak to effectively enforce the regulatory frameworks within their own environments leaving operators to operate without enough oversight.

Chris Tredger: If regulation is perceived to be unfair, or unfairly administered or a negative obstacle by operators/companies, there is a danger that some may pull out of a region altogether. Do you think this is something that authorities take into consideration?

Lucienne Abrahams: This is a very difficult question to answer without having asked the regulators or the operators. The risk of course is that the fine or sanction may be so high as to deter future investment or even lead to failure of the firm. If regulators lack an understanding of the financial position of a particular firm or other factors that influence investment, this could increase the risk of firm failure.

Oluwole Babatope: In the last two decades majority of African economies have experienced growth through foreign direct investment in to various sectors of the economy especially telecoms and IT.

I believe most governments are keen to maintain the growth momentum, therefore these governments - through the telecoms regulator - are working to create an enabling environment for legitimate foreign business to thrive rather than pursuing an exit strategy for foreign businesses.

The level of investment we have seen in Africa does not suggest in any way that the regulatory environment is an impediment to investment in the region.

Chris Tredger: Much has been reported about the scale of the fine imposed on MTN Nigeria. Do you give any credence to speculation that the fine relates to the alleged use of the network by those behind a breach of security involving a top official, and there was an agenda to make an example of the company?

Lucienne Abrahams: It would be unwise to speculate, in matters of regulatory commentary, so I won't. Making an example of a firm does not adequately explain the size of the fine. It is also not clear why MTN chose not to comply. But the die has been cast. The real question now is how will this affect (a) MTN's future in Nigeria and (b) MTN's financial position.

Oluwole Babatope: We are unable to speculate rather than engage with the material facts of the issue at hand. There has been no refuting of the fact that MTN NG failed to comply with the regulatory requirement to disconnect unregistered SIMs from their network at the stipulated deadline.

Registration of SIMs is a requirement in most African countries including Nigeria. The appropriateness of the fine is something that other competent bodies could comment on. As IDC, we believe that MTN NG and NCC are competent enough to resolve the current situation amicably to the satisfaction of all parties involved.

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