Telecommunications industry - A crack in Uganda's liberalized telecommunications industry was exposed last week. At the centre of the defect was the Uganda Communications Commission (UCC) -the regulator of the industry. The UCC issued conflicting official statements about its position on its proposed retail tariff guidelines for voice calls offered by telecommunication operators in Uganda. The Commission disowned a decision it had taken to fix prices for the telecommunication industry raising suspicion about the regulator's intentions. But on Tuesday, Mr David Ogong, the director, competition and corporate affairs said; "UCC had not issued a directive to telecommunication operators in form of retail tariff guidelines as reported in the press." "The commission is concluding the process of consultation with industry players and other stakeholders," he told journalists in Kampala at the UCC House. Mr Ogong said the Commission wants to place a price floor on calls made within a network to benefit consumers and the industry players in the long term.

According to the new tariff guidelines, the commission has proposed to introduce a price ceiling of 70 per cent (Shs91.7) of the prevailing interconnect rate (Shs131) per call made within a network. An interconnect rate is the price an operator charges another to enable external subscribers to call those on its network. This means that a call within the network like Warid and Orange which currently costs Shs60 or Shs1 per second, will cost a minimum of Shs108 per minute including Value Added Tax rated at 18 per cent of the service charge.

The proposed price floor is meant to apply to only promotional tariffs which are designed to last three months before they are renewed by the operator and approved by the regulator. Standard rates charged by the operators would be spared this rule because they are not considered to be uncompetitive. Standard rates across most networks cost Shs180 per minute or Shs3 per second.

By applying the above rule, the Commission intends to end anti-competitive and price predatory practices in the industry by telecommunication companies charging call rates that do not reflect the cost at which they deliver their services. He named no company.

But Mr Fred Otunnu, the communications and consumer affairs manager at UCC, told Business Power that all companies which give discounts of up to 90 per cent are targets of the new rule. Operators such as Warid, Orange and Uganda Telecom allow a customer to spend between Shs1, 000 and Shs1, 500 on airtime purchases to earn free hours of calls within the network. Airtel and MTN Uganda offer discounts on calls of up to 90 per cent of their actual cost on permanent tariffs.

The UCC argues that such cheap calls have resulted into significant loss of government revenue, incomes to the telecommunication companies as well as distributors or airtime in Uganda. Mr Ogong added that the offering services below the cost value has also led to the deterioration in the quality of telecommunication services on some networks. He attributed this to the increase in mobile phone customers on the networks over and above what they are designed to handle. He was however silent on the benefits of the cheap calls including; a reduction in inflation and making communication services more affordable. Major quality issues he cited in the industry include; dropped and blocked calls, high call waiting times, connection delays and unsent messages. "The deterioration in service quality costs the consumer in various ways including failure to transact business, ultimately resulting into higher costs," Mr Ogong explained.

Earlier this year, UCC released the Quality of Service report revealing how consumers rated their service providers during the last quarter of 2010. The reported rated Warid Telecom as the mobile operator with the highest number of dropped and blocked calls in the industry, followed by Airtel Uganda.

A blocked call is when a call attempt is not successful due to network failure while a dropped call is one that is terminated by the network before it is ended by either parties participating in the call. Orange Uganda and Uganda Telecom were reported to have registered the least number of dropped and blocked calls in Uganda.

The UCC requires mobile operators in the country to meet set communication standards for the industry or have their licenses revoked.

While the quality issues UCC raises are pertinent and consistent with numerous consumer complaints by consumers, some operators were not pleased with UCC's decision to intervene in the affairs of the industry. Mr Madhur Taneja, chief executive officer of Warid Telecom said the company is against regulated or minimal retail tariffs. "We believe market forces would be the best way of deciding the call tariffs and call pricing," he said. Similar sentiments were held by Airtel Uganda.

On the impact of a price floor for the industry, Mr Taneja said: "If these directives come into force, call charges will double. It will become expensive for customers to be in touch with their loved ones. It will be expensive to do business for small and medium entrepreneurs. This will result in people making fewer calls."

"Even though telecom operators would like to drop tariffs, they will not be able to do so. It would help telecom companies at the cost of Ugandans." UCC plans to counter the projected increase in prices by lowering the delicate interconnect rate further, according to Mr Ogong.

Mr Jackson Oboth an accomplice of Mr Taneja questioned the motive of UCC in a detailed letter to this newspaper on Tuesday. "While the new finance minister is trying to come up with pro-people initiatives, UCC seems to be taking the opposite direction... In whose interest is UCC working?" Mr Oboth asked.

"Looking at the history of telecommunications in Uganda, one expects UCC to come up with initiatives that make access to telephone communication more affordable."

The regulator argues that its main objective is to promote fair, efficient, and sustainable market conduct for long term consumer well-being in terms of choice, affordability and value for money. "We want to ensure orderly development of the market. Ensure sustainability and predictability of the market. We don't want it disrupted because of uncompetitive behaviour," Mr Otunnu, told Business Power on Friday.

MTN Uganda which put up stiff resistance against setting a uniform interconnect tariff (Shs131) for the industry last year did not have any problem with UCC's directive. In response to questions raised by this newspaper, Mr Anthony Katamba, the general manager legal and corporate services at MTN Uganda noted that MTN had not detected any immediate impact on any aspect of its operations. "If we find any aspect of the directive untenable we will take it up with regulator as required by our license and the laws of Uganda," he said.

Last year, MTN dragged UCC to court when it moved to set interconnection rates for the telecommunication sector. "Should there be any negative development we will address it with the Regulator as we have always done in similar circumstances in the past," he explained. Sources within the industry said MTN was afraid of losing its market share to more efficient operators and easy networks to maintain. Yet, it has invested close to $1 billion (Shs2.4 trillion) in Uganda since it entered the economy.

At last week's press briefing Mr Ogong argued that the introduction of a price floor would discourage well established players in the market from countering the anti-competitive aggression of small players by adopting similar tendencies which would hurt the industry. He noted that if one well established operator is let to exercise anti-competitive practices, it would push others out of business and leave Uganda with a monopoly. Several consumers who wrote letters expressing their dissatisfaction with the regulator's new guidelines also questioned why the regulator had resorted to price fixing in the industry. But in response to the query, Mr Otunnu said UCC had not gone overboard but was rather acting within the constitution of Uganda. "We are only implementing the provisions of the law in terms of excess tariffs and anti-competitive behaviour. We are not jumping out of the blue. We are jumping out of our regulatory requirements," he said.

Under section 4 (f) of the Uganda Communications Act, the Commission is obliged to amongst others, establish a tariff system to protect consumers from excessive increases and avoid unfair competition. The law is however inconsistent with Uganda's liberalization and deregulation economic policies which President Museveni has aggressively championed since 1996. The regulation of deregulated and liberalized industries has over time seemed to be selectively applied in the economy to achieve certain objectives.

Breaking down the issues at stake

Under section 4 (f) of the Uganda Communications Act, the Commission is obliged to amongst others, establish a tariff system to protect consumers from excessive increases and avoid unfair competition. The law is however inconsistent with Uganda's liberalization and deregulation economic policies.

Earlier this year, UCC released the Quality of Service report revealing how consumers rated their service providers during the last quarter of 2010. The reported rated Warid Telecom as the mobile operator with the highest number of dropped and blocked calls in the industry, followed by Airtel Uganda.

A blocked call is when a call attempt is not successful due to network failure while a dropped call is one that is terminated by the network before it is ended by either parties participating in the call. Orange Uganda and Uganda Telecom were reported to have registered the least number of dropped and blocked calls in Uganda.

The UCC requires mobile operators in the country to meet set communication standards for the industry or have their licenses revoked.

Walter Wafula

The Monitor/22/06/2011