At a time they should already have a clear idea of what is in store for them, Nigeria’s pioneer GSM operators are unsure of what await them as the regulator’s verdict is not quick in coming. By SAMSON AKINTARO
The last 14 years of GSM in Nigeria, no doubt, have been quite interesting and eventful. For one, Nigerians have had to forget the pains and agonies of queuing up at NITEL pay phones to make calls; over 100 million Nigerians can now make phone calls within the confines of their rooms and offices. Secondly, despite the uncertainty and pessimism that greeted the GSM licence auction, the daring and lucky firms that participated and won the licences are today thanking their stars for not missing the golden opportunity.
But as the years roll by, it may have run too fast, especially, when the first two GSM licensees, MTN and Airtel (issued licence as Econet) realise that their 15 years licences expire in less than 12 months’ time. How time flies!
On 9th February, 2001, in what was described as one of the most successful and transparent auction, MTN and Econet (now Airtel) and the mobile arm of now defunct NITEL, Mtel, were awarded the first set of Digital Mobile Licence (DML). The licences are to be operational for 15 years after which they can apply for renewal or cease operation if they decide not to renew. Interestingly, that 15 years licence expires on 8th February, 2016, which is now about 11 months away. Globacom, which got its licence a year later, September 1 2002 to be precise, would also be looking forward to seek renewal before its expiration date of 31st August 2017. However, for Etisalat, which got its licence in 2007, year 2022 is still far ahead for its renewal.
According to the licence conditions issued by the regulator, the licences took effect from the first day of award and will last for 15 years, after which they can be renewed for another period of five years or be revoked if the licensees fail to renew. “This Licence shall take effect from the Date of Award and shall have a tenure of Fifteen Years thereafter, in the first instance, but subject to Condition 21 of Schedule 1 to this Licence, shall be subject to revocation thereafter upon the giving of Twelve Months’ notice in writing by the Commission to the Licensee of such revocation” the regulator states in its terms of licence.
The licence terms further indicate that any licensee willing to renew its licence must apply to the Commission 12 months before the date of expiry and thereafter make payment for the renewal six months to the expiration date. “Subject to paragraph 4 hereof, this Licence shall be automatically renewed upon the expiry of the tenure hereof and remain valid for a further period of Five Years unless the Licensee has given written notice to the Commission, at least Twelve Months before the expiry date hereof, of its intention not to renew the Licence. The automatic renewal of the Licence in the manner provided in paragraph 3 hereof shall be subject to the payment, within six months before the expiry date of the Licence, of such Licence fees as the Commission shall specify and the fulfilment of all the terms, conditions and provisions of the Licence, Act, WTA and Regulations.”
Interestingly, the affected telcos, MTN and Airtel, whose licences expire in February next year have applied to the Nigerian Communications Commission for renewal. Sources from two service providers confirmed to IT & Telecom Digest that formal application for renewal has been sent to the regulator as stipulated by the licence conditions. However, they are yet to get any feedback from the Commission.
By virtue of the provisions of the Communications Act, the NCC has the power to decline any licensees’ renewal of application if such licensee is found to have breached any part of terms and conditions of the licence. The regulator is also duty-bound to communicate such refusal to the affected licensee six months before the expiry date. Will the NCC decline MTN or Airtel licence renewal? If their applications are eventually approved, how much will they be paying to renew the licence? Answers to these are expected to unfold within the next five months, when the operators will be having six months left to the expiration of their licences.
Cost of Renewal: The Big Issue
That the two operators are willing to renew their licences to continue operating in the country is never in doubt—of course, it can never be, even if they had not applied for licence renewal by this time because no operator, not even the top ones, will be willing to quit a vibrant market like Nigeria, where a new market for data services is booming. However, the operators’ major concern now may be the cost of the new licence and that is currently the regulator’s headache as well.
Back in 2001, MTN and Airtel paid US $285 million each to obtain the Digital Mobile Licence. As at that period, naira was around N100 to US$1. Today, the fact that the Nigerian Naira is now exchanging above N200 to a dollar makes the valuation of licence renewal cost more complicated for the regulator as well as the concerned operators.
But a telecom expert who spoke to IT & Telecom Digest in confidence said this should not have been a problem if the regulator had been pro-active enough to have worked out the modalities and arrive at a renewal fee alongside the operators before now. He noted that in most countries renewal of first generation of mobile licenses are always taken as a hot topic for policy discussion long before the expiration date.
For instance, the French regulator, Autorite de Regulation des Telecommunications (ART), launched a public consultation in July 2003 to initiate the renewal process for two GSM licences scheduled to expire in 2006. Same way, the Telecommunication Authority of Hong-Kong initiated a similar process for renewal of existing licences for second generation mobile services.
And in Pakistan, Pakistan Telecom Authority (PTA) in 2005 reviewed best practices for setting licence fees for mobile licence renewal and revalidation even before its first set of mobile licences were due for renewal. In July 2007, the PTA renewed Mobilinks’ spectrum licence for a further 15 years. The renewal fee paid by the operator was based on the outcome price of a previous 2G auction for new licences held in April 2004. In January 2011, the Bangladesh Telecommunication Regulatory Commission (BTRC) started the consultation process for licence renewal of four mobile operators (Banglalink, Citycell, Grameenphone and Robi) for which licences were due to expire in November 2011. The process ended in August 2012 when licences were extended for 15 years and renewal fees were based on the respective market shares of each operator.
According to a report by Global Information and Communication Technologies Department of World Bank, “determining a new licence fees in the process of licence renewal is likely to trigger tension between the licensing authority and the license holder. However, licence renewal does not necessarily mean an increase in license fees.”
The report co-authored by Boutheina Guermazi and Isabel Neto, cited Hong Kong as an example, where the government adopted a reduction of the licence fee to reflect the decrease in the cost of administering mobile stations. This was considered as a direct result of the development of competition, the growth in mobile subscribers, and the use of prepaid SIM cards.
“In France, in the context of GSM licence renewal, the issue of determining the licence fees involved delicate decision-making. The first figure that was publicised was a 5 per cent progressive levy on annual turnover. The fee was considered too high with potential negative impact on the operators’ ability to improve service and coverage. The figure was then abandoned in favour of a fee that consists of two components: a fixed annual fee of EUR 25 million and a 1 per cent annual levy on GSM service revenues of license holders; this new figure was welcomed by operators as being less onerous than the initial proposal. Commentators particularly appreciated that the additional 1 per cent levy is the same as the fees for the use of spectrum for 3G networks which both operators are expected to launch in the coming months” the report narrated.
The report noted that methods for calculating licence fees are often complex, citing an example of India where there was a dispute about the modification of the licence fee. “Licence fees and their calculation apply to license attribution but at the time of renewal a myriad of complex issues are likely to arise, such as: the level of the renewal fee, the implications of changes in the method of calculation, and the level of new recurring fees. A major concern when renewing a licence in determining the renewal fee and the new recurring fees is that the fees do not result in negative impacts on sector development. High licence fees (whether at license attribution or license renewal) might impact the financial stability of the operators and reduce the possibility of further investment. Indeed, licence renewal fees can be strategically important to investors.”
According to the World Bank report, in Nepal, as an incentive for operators to enter the rural market, the government provides guarantees that the license renewal fees will not exceed 4 Per cent of the operator’s annual gross revenues. “In addition, high licence fees would result in a substantial tax on consumers to the extent that the fees are passed on to them. Higher than reasonable licensing fees levied on operators may, in practice, translate into rent-extracting behaviour, or constitute a barrier to competition.”
“An important challenge that faces developing countries in the mobile licence renewal exercise is how to allow financial flexibility for license holders to honour the other conditions inscribed in their licenses, to introduce innovative services, and to foster competition.” The report however cautioned countries going into licence renewal process to resist the temptation of hiking the fees, noting that, “heavy license fee burdens reduce possibilities of making further investment.” The report also suggested initiation of renewal process well in advance of expiry as well as performance of periodic forward review of market and needs. To achieve seamless renewal, it urged regulators to adopt public consultation process.
While the Nigerian Communications Commission may have commenced its own process, having received application for renewal from the affected telcos, the fact that there had not been any public consultation or stakeholder engagement over the renewal process before this time may cause some hassles in the next few months. For now, the operators are still awaiting the regulator’s feedback on their applications and one critical factor they will be looking forward to is the cost of the renewal.
MTN, Airtel Licence Renewal: A Test Case for NCC
After the successful auctions of 2001 that produced the first set of GSM operators in the country, the Nigerian Communications Commission has received accolades from within and without the country for the transparent and hitch-free manner it handled the process. Subsequent spectrum auctions have also been greeted with same feelings. However, the real strength of the regulator will be put to test with the licence renewal issue at hand.
Experiences from other African countries who have crossed this path before indicate that mobile licence renewals have not gone without rancour, especially between the regulators and the licensees. In Kenya for instance, until its eventual approval in June 2014, the process of renewing Safaricom, Kenya’s largest mobile operator’s licence was stalemated for months as the Communications Authority of Kenya (CAK) and the mobile operator slugged it out over compliance issues. The CAK had tied the renewal of Safaricom’s licence, which was due before June 2014, to paying Sh2.3 billion ($27million) and achieving the minimum quality standards — which drew protests from the Nairobi bourse listed telecom operator.
The regulator had labelled Safaricom a non-compliant operator in the year to June with a performance score of 50 per cent against the minimum target of 80 per cent on eight indicators. But Bob Collymore, the CEO of Safaricom had replied the regulator in a statement saying “our view is that punitive measures will not assist the industry to achieve better QoS (Quality of Service) measures as they will divert resources from operators which could have been applied to improving coverage and network quality,”. Safaricom had in the past argued that the licence fee is high, which divert resources from telcos eroding the industry’s capacity to offer quality service.
All mobile operators in Kenya, except for Essar Telecom, operating as yuMobile, paid $55 million (Sh4.8 billion) for their GSM licences for 15 years. Essar Telecom paid a reduced $27 million (Sh2.4 billion). And for the purpose of renewal, Safaricom was asked to pay same price paid by the latest entrant.
The CAK had noted that the licence renewal fee of $27 million was based on the bid price offered for the third GSM mobile licence by the latest entrant to the mobile telecoms market in Kenya -Econet Wireless Kenya Ltd (now Essar Telecom Kenya Ltd). The CAK Director General, Francis Wangusi acknowledged that Safaricom has contributed to the economy of Kenya. But Wangusi was nevertheless critical of the telco. ”We have considered the fact that whereas Safaricom has met most of its licence obligations, its continued failure to meet the set Quality of Service standards remains a concern that needs to be addressed,” he said. Wangusi added that the country’s three other mobile operators also have to pay the same amount for the renewal of their licences for additional ten year periods.
Eventually, having paid the said amount, CAK granted approved licence renewal for Safaricom in June last year, even without resolving the service quality issue, which it initially hanged the renewal on.
The case was however different in Malawi, where Airtel Malawi where Malawi Communications Regulatory Authority (MACRA) granted the operator renewal in December 2013 but had to negotiate a new set of terms and conditions that took into consideration technology changes in the industry. Airtel Malawi was also compelled to undertake measure to meet minimum quality of service standards as well as other conditions necessary to address challenges experienced during its ended licence.
In Zimbabwe, the mobile operators had to cope with hike in licence renewal fees which the government announced in 2013. Mobile phone operators’ licence renewal fee was increased by 37 per cent to US$137 million while the tenure for the same licence was extended from 15 years to 20-year tenure. Transport, Communications and Infrastructural Development Minister Nicholas Goche said the increase was an adjustment since the mobile operator’s licence fees were set “some” 15 years ago. The licence fees hike cames as mobile phone operators sought to renew the licences ahead of the expiry of their 15-year tenure. Econet Wireless, Zimbabwe’s leading operator, whose licence expired on July 9 2013, had its application for renewal approved by the Postal and Telecommunications Regulatory Authority of Zimbabwe having paid the hiked fee.
Just last month, fixed and mobile operator Mauritanian Telecommunications Company (Mauritel), which is 41.2 per cent indirectly owned by Maroc Telecom of Morocco, renewed its mobile licence in the African country for a further ten years. The Moroccan group paid USD100 million to extend its licence, according to CEO Mr Ahizoune, who said that Maroc is keen to retain its operations across Africa and of course Mauritania where it now claims a 57% market share.
Some of the above scenarios may play out in the Nigerian telecom industry in some months to come. While there is an existing terms and conditions for licensees in the country, will the regulator be considering reviewing those terms looking at technological changes over the past years? Poor service quality, no doubt, is still a major issue, in which all the current four GSM operators are guilty, will the NCC review its terms regarding service quality as pre-condition for licence renewal? These and many more questions are waiting to be answered by the regulator.
…… Expired Licences Operating Illegally
In what appears like dereliction of duty on the part of the agency saddled with the responsibility of playing the watch dog role and generating income for the government through licensing and renewal of such licences, many operators in the industry with operating licences in different categories are having a field day; actively operating with expired licences as far back as three years ago.
IT & Telecom Digest’s findings reveal that across various segments of the industry, many licences have expired and the holders continue to operate without seeking renewal. This is contrary to the licence terms and conditions which states that “a Licence shall expire and all operating authorisations under it terminate: (i) Upon the expiration of the Licence term, unless renewed in accordance with the provisions of this Licence, or (ii) By mutual agreement between the Commission and the Licensee provided that the Commission shall have full discretion to determine whether the Licence fees paid or any portion thereof shall be refunded.”
It goes on to state that “the automatic renewal of the Licence in the manner provided in Condition 19.2 shall be subject to the payment, within six months before the expiry date of the Licence, of such Licence fees as the Commission shall specify and the fulfilment of all the terms, conditions and provisions of the Licence, Act, WTA and Regulations.”
Unfortunately, according to NCC records, many of the licensees are carrying on their businesses with expired licence. For instance, among Private Network Link (PNL) Fixed Telephony Licensees, Disc Communications Ltd got its licence on 1st October, 2002, and continues to operate with same licence which has expired since 30th September 2012. In the case of Galaxy Information Technology & Telecommunications Ltd, the regulator’s record shows that its licence obtained on 1st September 2004 has expired since 31st August 2014 and the company has yet to renew.
Among Interconnect Exchange operators, Medallion Communications Limited; Exchange Telecom Limited; Telexchange Services Limited; Integrated Wireless Technologies Nig. Limited; Interconnect Clearing House Limited; and Niconnx Communications Limited all have their licences expired 31st July 2014, continue to operate without renewal. Those licensed for internet services appear to be the worst culprit as all the 11 companies listed are operating with licences which have expired since June 2012. Under Automated Vehicle Tracking Service, Catrac Ltd and Matrixvtrack Nig Ltd are both operating with expired licences since 30th October 2014 and 30th April 2014 respectively.
All these companies continue to operate under the purview of a regulator who is supposed to be monitoring their activities and of course, who ought to have done the needful according to the law for the failure of the operators to renew their licences. And it does seem that aside the usual clamour for good service quality from the telecom operators and occasional clamp down on importers of unapproved phones, the regulator has shut its eyes to this crucial aspect of its regulatory function, which incidentally is supposed to generate some revenues to the government’s coffers.
An NCC source who did not want to be named said some of those with expired licences had written to the commission and were in the process of renewing their already expired licences. He said however the commission “would soon begin a crackdown” on such licensees.