[kictanet] CHAKULA Issue No. 19: Innovating access – a special focus on CPRafrica

[Chakula]

CHAKULA Issue No. 19, July 2010:

Innovating access – a special focus on CPRafrica


CONTENTS

1. The need for competitive research for policy influence – e- 
interview with Alison Gillwald

2. Balancing convergence: using Constitutional rights as a framework  
for policy decisions – e-interview with Indra de Lanerolle

3. Levelling the playing field through benchmarking – e-interview with  
Christoph Stork

4. ‘Disruptive competition’: the case of One Network in East Africa –  
e-interview with Muriuki Mureithi

5. Innovation through competition: the budget telecom network model -  
e-interview with Rohan Samarajiva

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What is CPRafrica?

Communication Policy Research (Africa) – or CPRafrica – is a new forum  
that seeks to strengthen the contribution of African academics and  
researchers in the global debates around information and  
communications technologies (ICTs). CPRafrica’s inaugural conference,  
entitled “Looking back at a decade of communications reform: Looking  
forward to 2020”, was held in Cape Town, South Africa, from 18-21  
April. It was attended by 50 participants from 25 countries, with some  
23 papers presented.

The forum intends to encourage intellectual endeavour and research in  
the area of ICT policy and regulation in Africa and allow African  
academics and researchers to engage and profile their research. The  
conference provided an opportunity for senior, junior and mid-career  
scholars to meet face-to-face and exchange ideas, network, and  
included a two-day session of tutorials for young scholars. Thirteen  
young scholars participated in these tutorials.

This issue of Chakula focuses on four papers from the conference. It  
also highlights a paper that was presented at an Organisation for  
European Economic Co-operation (OECD) and InfoDev conference in Paris,  
10-11 September 2009, and references a 2008 policy paper on mobile  
banking (M-banking) prepared by Research ICT Africa (RIA). In  
different ways all of these papers deal with the issue of innovation  
in ICT access in Africa through policy and business model innovation.

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The need for competitive research for policy influence
e-interview with Alison Gillwald

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“[H]igh quality, rigorous research…is required to compete and  
complement with each other for policy influence… In mature economies  
researchers from multiple universities would be debating and refining  
the positions governments should be taking on everything from  
regulating next generation networks to demand stimulation for  
broadband.”
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Alison Gillwald is Executive Director of RIA. She is also Adjunct  
Professor at the UCT Graduate School of Business, Management of  
Infrastructure Reform and Regulation, and a member of CPRafrica’s  
organisation and selection committee.

CHAKULA: You have just held the CPRafrica conference in Cape Town.  
What are you hoping to achieve through the conference?

ALISON GILLWALD [AG]: There is almost no scholarly research being  
undertaken in the field of ICT policy and regulation on the continent.  
A Google scholar search on the subjects throws up around five scholars  
on the continent who are published in peer reviewed or accredited  
journals. It is this kind of high quality, rigorous research that is  
required to compete and complement with each other for policy  
influence. In mature economies researchers from multiple universities  
would be debating and refining the positions governments should be  
taking on everything from regulating next generation networks to  
demand stimulation for broadband. Although there are pockets of  
applied research being undertaken there is no tradition of critical  
intellectual engagement in this area on the continent. The purpose of  
CPRafrica is to provide a forum for nurturing and showcasing research  
in the area of ICT policy and regulation on the continent and  
enhancing its quality through rigorous academic review and debate. The  
conference is complemented by a young scholars programme to expose  
young scholars who may be excluded from such peer-review, paper- 
acceptance-only style conferences without such a category. Some of  
these are part of  the IDRC- [International Development Research  
Centre] funded PhD programme to encourage doctoral research in ICT  
policy and regulation. The idea here is to build a cadre of policy  
intellectuals on the continent able to critically engage government on  
the basis of relevant research and contribute meaningfully to research  
and policy excellence. This will further enhance Africa’s standing in  
international research and governance fora, in which its participation  
has historically been suboptimal.

CHAKULA: Reviewing some of the papers presented at the conference, it  
strikes me that there are a couple of threads that are emerging. Two  
in particular stand out: the notion of “innovation” in the  
telecommunications space, and the challenges around convergence and  
policy when two distinct sectors with different ways of doing things  
are brought into conflict with each other. I also went back to  
Research ICT Africa’s 2008 M-banking policy paper, which raises  
similar themes, and I would like to use that as a starting point.  
First, on the issue of ‘innovation’. In the M-banking paper, the  
following assertion is made: “Policy-makers and regulators need to  
ensure that evolving systems serve the broader objectives of economic  
growth and development as well as protect consumer interests, while  
creating an environment that encourages and rewards innovation”. In  
what ways can policy inhibit or encourage innovation in the  
telecommunication’s sector?

AG: Indeed, providing certainty to investors and operators while  
retaining the levels of flexibility to enable innovation in a fast- 
changing environment is one of the most difficult balancing acts that  
policy-makers and regulators have to perform. I think the linkages and  
catalysts between technology, market and regulatory innovation are  
becoming clearer all the time.  New technologies and service offerings  
have prized open markets and the entry into less policy and regulatory  
constrained markets has made taking certain technologies to market  
more viable. This has triggered further possibilities across  
historically distinct platforms, not only between broadcasting and  
telecommunications, but between fixed and mobile services and even  
entirely separate sectors such as telecommunications and banking. The  
challenges to the expansion of such services are really regulatory now  
rather than technological – and that is not to say that one does not  
want or need public interest regulation either in the  
telecommunications or banking sector, but it has to be done in new,  
innovative ways that enable to extension of these services to those  
who currently don't enjoy them. Once these various forces are  
unleashed they are able to intersect and create new opportunities and  
innovative ways of doing things that have not been done before.

CHAKULA: Innovation here seems necessarily to be tied to market gain –  
the objective is to increase or capture market share.  In both your M- 
banking paper, and the case study of the mobile operator One Network  
in Kenya, preconditions exists that facilitate innovation. With M- 
banking there are low-income earners who are ‘unbanked’ and who could  
benefit from some kind of low-cost transactional instrument, and with  
One Network, there is a significant level of cross-border traffic that  
makes a seamless network attractive.
AG: It is true that innovation is often driven by market forces and  
pursuit of profits, and, traditionally, with new technologies have  
focused on high-end markets. But much of the ICT innovation we are  
witnessing in developing markets is focused on what has been referred  
to as the ‘gold at the bottom of the pyramid’ – very profitable turn- 
over of high volumes of sometimes minuscule margins on products that,  
by breaking them up or making them available at cost, the masses at  
the bottom of the economic and social pyramid can enjoy things like  
pre-paid phone vouchers, or transferable airtime vouchers. And many of  
these products have been commercialised innovative practices by the  
poor in order to access and affordably use communications services –  
such as missed calls, multiple sim card usage that allows for same net  
rates, or 'plastic roaming'.

CHAKULA: If we consider Indra de Lanerolle’s fascinating case study on  
the South African convergence scenario, we see two sectors (broadcast  
and telecommunications) in conflict with each other because policy  
decisions are made according to different frameworks: simply put,  
economic versus public interest. In fact, Indra does seem to suggest  
that these are in competition with each other, and resolves this in an  
interesting way. It feels hard to believe that ‘consumer interest’ is  
the same as ‘public interest’?
AG: I think with the shift from public utilities to competitive  
markets many of the public interest objectives of delivery and service  
are met through serving the consumer interest. Nevertheless there is  
public interest regulation that is required to improve wider and  
collective consumer welfare – to provide access to 'uneconomic areas'  
for example – though with new more cost-effective, rapidly deployable  
wireless services, this concept in markets that enable competitive  
entry is regularly not proving to be the case. But as long as we have  
the large number of poor that we do, we will need some level of social  
regulation – even though a lot of the current pent-up demand could be  
met with greater market efficiency (more competitive markets offering  
better prices). And then there are the more traditional content  
regulation issues either to restrict certain 'harmful' content or  
activities or to enable it, such as local content regulation. That too  
may be found to be highly profitable, but may need either protection  
or encouragement.

CHAKULA: Indra’s paper, like your M-banking policy paper, shows that  
regulating convergence is tricky because of the ‘convergence’ of two  
or even more sectors; whether broadcast/telecommunications or  
telecommunications/banking etc. What are some of the key challenges  
that policy-makers can expect to face in Africa?

AG: The key challenge for African regulators is that they are still  
trying to deal with legacy regulation around first and second- 
generation infrastructure and access. At the same time, if they do not  
want the agenda to be set for them in international fora, they need to  
deal with next-generation issues, not only of converged IP [internet  
protocol] networks and services and the next-generation regulation  
issues of network and service-neutral regimes, but of cross-cutting  
issues of electronic commerce frameworks, intellectual copyright  
rights, security and privacy issues, and so on. And you have to do it  
all or be left behind...

CHAKULA: One frustration is that when one reads a good paper that  
seems to offer a solution to a problem, one is also met with the  
feeling that those with decision-making powers are probably not going  
to read that paper, or seriously consider its arguments. Do you feel  
the same? If so, how do you think CPRafrica picks up on this  
challenge? Is it just a case of repeating issues until policy-makers  
take them on board?

AG: No. CPRafrica is one of several strategic strands towards having  
evidence-based ICT policy on the continent. This is about organic and  
indigenous knowledge creation and contribution, at the national level,  
at the level of regional association and continentally, and also about  
global engagement and influence. For too long have the solutions come  
from the developed world. Of course, there are lessons to be learnt  
and we don't need to reinvent the wheel, but we also have different  
challenges and Africa has demonstrated remarkably innovative responses  
to these when they are informed by sound policy, effective regulation  
or thorough and appropriate business plans. The indicator research  
done by RIA and its analysis in order to assess policy and regulatory  
outcomes is fed into several initiatives, globally and locally. RIA  
provides the only comprehensive public domain demand-side data on ICT  
access and usage on the continent. This is used in national, regional  
and continental meetings on ICTs, and in the database and reports of  
multilateral agencies such as the OECD and the International  
Telecommunication Union (ITU), to better inform their understanding of  
developments in Africa. It is true that sometime decision-makers do  
not like to hear of the widespread policy and institutional failure on  
the continent, but many do – especially those that are rapidly  
improving and beginning to see the rewards of their reforms. This  
research is also used to develop training curricula that address the  
needs of policy and regulators in a developing country context. So,  
for example, as part of the global research and training collaborative  
LIRNE.net we conduct a professional development course on alternative  
regulatory strategies at the UCT Graduate School of Business  
Infrastructure Reform and Regulation Programme to build institutional  
capacity on the continent. So CPRafrica is just one arm of a multi- 
pronged strategy of research and education, institutional capacity  
building and technical assistance and dissemination and advocacy,  
through our website database, policy papers and workshop and public  
presentations.

CHAKULA: What is the way forward for the conference? Will there be more?

AG: Yes, in order to build and sustain this much-needed capacity we  
will have to find a way for CPRafrica to become an annual institution.

Related links:

M-Banking the Unbanked: RIA Policy Paper No. 4:
http://www.researchictafrica.net/new/images/uploads/RIA_Mobile-banking.pdf

CPRafrica conference details: http://www.researchictafrica.net/index.php/news/38-cprafrica-looking-back-at-a-decade-of-communications-reform-looking-forward-to-2020
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Balancing convergence: using Constitutional rights as a framework for  
policy decisions
e-interview with Indra de Lanerolle

Paper link: Please e-mail the author at indra at delanerolle.net

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“[N]o country I know of has completed the project of aligning all  
regulation and law to [the possibilities of convergence]. But some  
countries and regions are moving far more swiftly than others. Among  
those that are moving more swiftly would be the EU countries. Among  
those that are moving slowly are many African countries.”
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Indra de Lanerolle is an adjunct Lecturer at the University of  
Witwatersrand Journalism and Media Programme. An award-winning film  
and television producer, he is a regular speaker and commentator on  
the impact of the information society on organisations, media, social  
development and the economy.

CHAKULA: The South African government has committed to promoting  
convergence in the broadcasting and telecommunications sectors. So  
much is clear from the 2005 Electronic Communications Act, and the  
merging of the telecommunications and broadcasting regulators in 2000.  
But you point out that there is a fundamental difference in approach  
between how the two sectors are seen at a policy level, which is  
standing in the way of ‘pure’ convergence of the sectors. In your  
paper, you argue that the telecommunications sector policy process has  
largely been justified on economic grounds, while broadcasting policy  
has been governed by political and social considerations. I am  
paraphrasing here, but can you say more about this distinction?
INDRA DE LANEROLLE [IL]: Most 'utility' regulation (applying to  
electricity, trains, telephones, for example) was originally justified  
on economic grounds – usually that these industries were monopolies  
and that as such, without regulation there would not be sufficient  
competitive pressures to keep prices as low as they could be. Many  
economists went further and argued that these utilities were 'natural  
monopolies' so that the most efficient services would be provided by a  
single regulated provider rather than allowing many (less or  
unregulated) competing providers. Broadcasting regulation was  
sometimes justified on similar grounds but in my view these economic  
arguments were and are very weak when applied to broadcasting. The  
stronger argument (and the better explanation in historical terms of  
why broadcasting regulation has continued to the extent that it has)  
is that it is motivated and justified on social and political grounds.  
These justifications include: a desire or need to preserve national  
cultures and languages (in the face of globalising forces in mass  
media, especially television); a desire or need to provide specific  
genres of programming (e.g. educational programming, children's  
programming); and, less high-mindedly, a political desire on the part  
of governments to control information and news. The distinction in  
these justifications or motivations is important for convergence.  
Convergence increasingly challenges economic justifications for  
regulation in telecommunications as monopolies fall away.  But the  
social and political justifications for broadcasting regulation do not  
necessarily fall away in synchrony.

CHAKULA: You review various tests to see how well policy convergence  
has faired. First, there is the assessment of policy alignment – or  
the alignment of policy processes; then there is the test of  
technological neutrality; and finally, the ‘level playing field’ test.  
South Africa has not faired well in any of these – can you elaborate?

[IL]: The first test I suggest (from Alison Gillwald) is whether  
policies in telecommunications and broadcasting are being developed  
together. In the face of convergence it is important that they are. As  
I show, in fact these policies are being developed autonomously. The  
second test is that of technological neutrality. Here I argue that  
while the Electronic Communications Act acknowledges convergence and  
attempts to develop 'technologically neutral' licensing criteria, it  
in fact maintains two separate regimes – one for telecommunications  
and the other for broadcasting. In applying content regulation, for  
example, it treats the two as entirely separate. So overall, South  
Africa remains far away from achieving the goal of technologically  
neutral regulation. The third test – of a level playing field for  
competition follows closely from the lack of technological neutrality.  
One example of the lack of a level playing field can be seen in the  
treatment of voice – where VoIP [voice-over-internet protocol] and  
packet-switch telephony, for example, are treated entirely differently  
in law and regulation.

CHAKULA: Does ‘pure’ convergence exist anywhere – or is convergence in  
reality always a push and pull of many factors, economic, political  
social etc.?

[IL]: As I argue in my paper the best definition of convergence sees  
it as a set of technological possibilities. On this definition, the  
question could and maybe should be put rather differently. We might  
ask whether any country is fully adapting their regulatory frameworks  
to this set of possibilities. The answer would then be that no country  
I know of has completed the project of aligning all regulation and law  
to these possibilities. But some countries and regions are moving far  
more swiftly than others. Among those that are moving more swiftly  
would be the EU countries. Among those that are moving slowly are many  
African countries.

CHAKULA: You offer what appears to be a powerful guiding principle to  
make policy decisions based on a fluid and changing environment – one  
based on public interest, rather than sectoral interest. This involves  
using Section 16 of the South African Constitution to guide policy  
decisions, which states that “Everyone has the right to freedom of  
expression, which includes …freedom to receive or impart information  
or ideas…”. Can you say more about how this would work?

[IL]: We could say that the Freedom of Expression clause represents a  
test for measuring the benefits and dis-benefits of changing  
regulation and policy to promote convergence.  Lets take the issue of  
the (limited) number of broadcast licences – especially television  
broadcast licences.  As broadband take-up increases there is likely to  
come a point where there is the possibility of Video on Demand as  
broadcast video services become economically viable via the internet.  
This is a classic case of convergence. So if convergence is to be  
promoted we might want to see a couple of things: firstly, we would  
certainly want these new services to be allowed and, indeed,  
encouraged; secondly we might want these services to be treated in a  
similar way to 'traditional' broadcasting. Unless we wanted to  
artificially restrict the number of new internet-based services, the  
only way to achieve neutrality would be to significantly lighten the  
regulation of broadcasters, or at least greatly increase the number of  
new licences issued for 'traditional' broadcast television services.  
Given the social and political justifications for broadcast regulation  
though, this would probably be greatly resisted. To give one example  
as to why this would be the case we could see that increasing  
competition in 'traditional' television broadcasting would have a  
significant economic impact on the public broadcaster and thus  
diminish its ability to fulfill its public broadcasting mandate. My  
suggestion is that we could use the Constitution as a basis of  
balancing these issues. We would be able to compare, for example, the  
potential loss of people's rights to receive information (because, say  
SABC might reduce its news services) with the potential gain of  
people's rights to receive and impart information via the internet.  
This would require judgements, but these judgements could be based on  
research of real benefits.

CHAKULA: It seems to me that as things stand you have enormous  
competing interests that stagnate the convergence policy process. On  
the one hand, the interests of telecom operators (including the  
state), and on the other, the interests of broadcasters (the state and  
private enterprises). How do you think a decision-making framework  
where the public/consumer would have the dominant interest would go  
down with these powerful stakeholders? What was the reaction to your  
paper from those gathered at CPRafrica?
[IL]: Most of the participants at CPRafrica were researchers and  
academics rather than the 'powerful stakeholders' that you describe.  
I'm not an objective witness but the paper appeared to be well  
received! Of course in all issues concerning regulation, there are  
always significant economic interests involved and there is always the  
danger of 'regulatory capture'.  Whether such 'public interest'  
arguments as the one I advance in the paper are pursued is largely a  
matter of political will – in government and in the independent  
regulator. When some of the ideas included here were presented on  
behalf of the Freedom of Expression Institute (FXI) and Association  
for Progressive Communications (APC) amongst others to the South  
African regulator ICASA, it appeared there was significant interest. I  
have also argued elsewhere that there is little chance of 'public  
interest' arguments holding sway in the development of policy and  
regulation if there is no interest shown by the public! The Save our  
SABC (SOS) coalition that has brought together a range of  
organisations in South Africa, including the major union federation,  
to campaign on public interest questions on broadcasting is a helpful  
start.

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Levelling the playing field through benchmarking
e-interview with Christoph Stork

Paper link: www.researchictafrica.net (or e-mail the author at: christoph.stork at googlemail.com 
)

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“Operators are not accountable to the public beyond the audited  
financial statements that do not include detailed cost data. That  
could be changed given that telecom operators have the privilege of  
operating in a sector with restricted market entry.”
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Christoph Stork is a Senior Researcher at Research ICT Africa (RIA),  
and also a consultant to LIRNEasia’s Teleuse at BOP3 project.  His  
responsibilities at RIA include designing and conducting quantitative  
and qualitative research and interacting with policy-makers and  
regulators.

CHAKULA: You were commissioned by the Namibian Communications  
Commission (NCC) to conduct a benchmarking study in Namibia in 2009,  
following a dispute about interconnection charges. You have used the  
case of Namibia to illustrate and argue for setting interconnection  
benchmarks. As you argue, benchmarking is possibly a more efficient  
way of determining a fair termination rate (based on an efficient  
operator). For the layperson, some of this terminology is tricky. The  
standard way of determining termination rates is to look at the  
“forward-looking long-run incremental cost” (LRIC). The problem with  
termination rates – or the cost one provider charges another to carry  
its calls – is that operators have been burying inflated profits at  
this link in the communications chain; they have been charging  
competitors more than they needed to, with the knock-on effect to the  
consumer. Can you explain what LRIC is exactly? And then how does  
benchmarking model differ from this?

CHRISTOPH STORK [CS]: LIRC is a way of calculating the cost of  
termination. There are many different approaches to it.  In short, it  
is a method to calculate the cost of terminating a call based on  
current technologies and only including costs that arise from  
terminating a call. Dominant operators often argue that access  
infrastructure such as base stations need to be part of termination  
costs. However, base stations are being built to provide services to  
their own subscribers. The incremental cost of termination is the cost  
difference between an operator that does not offer termination  
services and one that does. Implementing LRIC is challenging,  
expensive, time-consuming, and the required information is often not  
available in developing countries. The benchmarking methodology  
benchmarks termination rates, termination costs and regulatory best  
practice.

CHAKULA: In your experience in Namibia are operators open to cost- 
based termination rates to level the competitive playing field? Or do  
they want to milk the termination of calls for as much money as they  
can get? For instance, you point out that operators have typically  
been quite fickle, arguing against cost-based termination when they  
have a market advantage, but arguing for it when they are a market  
entrant…

[CS]: Operators that are net receivers of termination payments will  
always try to maintain the status quo, anywhere in the world. New  
entrants and small operators are often the net payers and are keen to  
get to cost-based termination rates quickly. In Namibia, South Africa  
and most other countries, cost-based termination rates are required by  
law or licences or both. In Namibia, reducing termination rates  
increased competition and led to lower prices for consumers and an  
expansion of the market. The result for the incumbent operator MTC has  
been: more subscribers, more traffic and higher EBITDA [Earnings  
Before Interest, Taxes, Depreciation and Amortisation] margins.

CHAKULA: What is the link between cost-based termination rates and IP- 
based Next Generation Networks (NGNs)? You say that leveling the  
playing field when it comes to termination rates will help with the  
transition to NGNs?

[CS]: NGNs are technological and service neutral. Billing will no  
longer be based on minutes but on MBs [Megabytes]. Cost-based  
termination rates help implement service neutrality and are a stepping  
stone towards NGNs. NGNs might however require a different billing  
system altogether that would not require termination rates. In a NGN  
environment receiving and sending data would be billable. In Africa  
and Europe, the receiver of a call does not have to pay.

CHAKULA: You point out that one of the challenges is getting good  
data. What are the difficulties around getting this data from  
operators (or regulators, for that matter) in Africa, and elsewhere?

[CS]: Most countries in Africa have not conducted detailed cost  
studies yet. Those that did use information from operators that are  
considered confidential. ICASA [the South African regulator] collects  
very detailed information from operators and would probably be sued by  
them if it were to pass it on to third parties. Operators are not  
accountable to the public beyond the audited financial statements that  
do not include detailed cost data. That could be changed given that  
telecom operators have the privilege of operating in a sector with  
restricted market entry. Regulators could prescribe cost reporting for  
annual statements that need to be made public.

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‘Disruptive competition’: the case of One Network in East Africa
e-interview with Muriuki Mureithi

Paper link: www.researchictafrica.net (or e-mail the author at: mureithi at summitstrategies.co.ke 
)

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“One advantage Africa has is the policy and the regulatory framework  
are not yet cast in stone; in some cases it is not there and with few  
administrative nods  some  uncooked products can launch in the market.”
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Muriuki Mureithi is an independent ICT consultant based in Nairobi  
Kenya with a passion to help exploit the benefits of ICTs for Africa  
with a career now spanning 27 years. His interest is policy,  
regulatory , strategy evolution and competitive issues on ICTs in  
Africa with special focus on the rural and disadvantaged communities  
and strategies to empower the communities using ICTs. He is currently  
completing his PhD.

CHAKULA: Your paper, which you co-wrote with Alison Gillwald, offers a  
case study of how Zain’s One Network disrupted the mobile market  
monopolies in East Africa (and beyond). They did this by removing  
roaming charges and letting their customers access a seamless and  
comparatively cheap service across its networks in Kenya, Tanzania,  
and Uganda. This then forced the other operators to offer similar  
services. What do you mean by 'disruptive' competition – you also go  
on to suggest that One was not entirely disruptive, because it failed  
to keep its competitive advantage?

Muriuki Mureithi [MM]:  Disruptive competition in our context and  
conventional language is a game changer. Operators had perfected the  
game of increasing numbers and profits by charging for all services,  
all trudging alone on a strategy path set by the leader. Risk  
reduction was a key factor. The Zain One network was a game changer  
and the big operators had to look back and go back to the drawing  
board. Unfortunately for Zain, the big boys came back with ‘hammer and  
tongs’. Their solution covered more networks (Safaricom, MTN Uganda,  
MTN Rwanda, Vodacom Tanzania and UTL [Uganda Telecom Limited]), more  
countries in East Africa (Rwanda, not covered by Zain) and more  
customers (the competition are market leaders in all the markets apart  
from UTL). Zain briefly increased numbers in all the markets but soon  
fizzled under the pressure of the bigger operators. Its gamble that  
the other operators could not work together failed. It had never been  
tested before and the risk it took did not pay off. The customers  
were, however, the beneficiaries in the long run.

CHAKULA: The point you are making in your paper is that given the  
right regulatory environment, market forces can quite quickly result  
in lower prices and better access options for the consumer. The  
regulatory ‘kick’ here was the granting of an international gateway  
license to One in all three countries.  What were some of the other  
enablers that allowed One to be so successful? For instance, you  
mention historical factors, and the cross-border movement of people  
that pre-dated its market offering...

[MM]: One is an innovation without doubt. However this is founded on  
some features or drivers that pre-existed, and Zain took advantage of  
the institutional memory of some of the out-of-the-box initiatives  
that it had exploited successfully. The first case is direct cross  
border connectivity between Brazzavile and Kinshasa by Celtel, instead  
of through Belgium. Celtel, later bought by Zain, had operations in  
both countries. Tariffs fell by 80% overnight, and this was to be  
extended to all border towns between the two countries with similar  
dramatic effect. It is noteworthy that the private sector could see an  
opportunity, but that opportunity could only be realised when the  
regulatory environment changed.  That gave Celtel a head start as an  
innovator in both countries.  In East Africa, the conditions were  
there: highly integrated communities travelling across the porous  
borders, formal and informal trade, and a legacy backbone linking the  
three countries. Zain also had licences in all the three countries,  
but no gateway in Kenya. Their performance was failing in all the  
three markets, and was a catalyst. So it was time to do something.  
When the international gateway was liberalised in Kenya, it was time  
to jump and they did. With similar branding and ease of use across the  
borders, the product was a scare to the bigger operators. They had to  
act – and they did by launching competing products. An interview with  
Safaricom indicated that the traffic is not a major consideration, but  
the marketing advantage that Celtel stood to gain as an innovator is.

CHAKULA: One of the main points of your case study is to offer a  
comparison to the European Union where they have attempted to force  
operators to lower their international roaming charges, with great  
resistance, it seems?

[MM]: European consumers were keenly aware of the high cost with no  
justification for roaming charges.  The tariff setting was and still  
is very opaque and the consumer had no choice. The European Commission  
(EC) carried out studies confirming the same. Unfortunately, despite  
the overwhelming evidence, operators refused to play ball opting to  
continue reaping off the consumer. The EC came back and set the  
tariffs to bring the tariffs down over a three-year period and  
committed to review another downward reduction if it still found it  
warranted. What is surprising is that the competition did not trigger  
such dramatic options as it did in Africa. Perhaps the positioning of  
the operators is fixed and each is comfortable with their space. What  
Celtel (now Zain) showed is that operators have a wide range of  
options to compete, and it takes tough going to think out of the box  
and take a daring option. They did and changed the game forever. All  
Zain countries in Africa and Middle East are on the One network. It is  
growing: one operator in Egypt joined the network this year though  
they are not a Zain operator, and Cell C in South Africa was joining  
the One network in time for the World Cup. Not to be left behind, MTN  
has been implementing a similar package.  What was even more  
innovative is that very different operators Safaricom (Kenya) MTN  
(Uganda and Rwanda), UTL (Uganda) and Vodacom (Tanzania) worked  
together and eliminated roaming.  Today, an East African travels  
without roaming, apart from Burundi.  Regulators have some work to do  
where the operators do not see a competitive advantage. In the case of  
Burundi this is forgotten.

CHAKULA: You suggest that it is not always fruitful to look to  
developed countries for regulatory and requirements in order to  
stimulate market growth – in fact One offers a useful case that other  
regions could follow?

[MM]: The legacy networks and conformist approach sometimes is a  
disadvantage.  The raw battle for the customer is bruising and those  
who pass the post spell doom to those behind. In Kenya, one operator  
has an 80% market share. Its profit before tax in 2009 is equal to the  
revenues of the other three competitors, and they have mounting  
losses. The future is tough. Of the top 15 major cellular markets in  
Africa 10 markets have a dominant operator with over 80% market share.  
With those market dynamics, Africa provides a cooking pot for out-of- 
the-box solutions, because the option is dire.  At present One  
network, the runaway M-PESA [M-PESA is a Safaricom service allowing  
you to transfer money using a mobile phone] were born in Africa and  
are being exported to the rest of the world. I believe more will  
come.  One advantage Africa has is the policy and the regulatory  
framework are not yet cast in stone; in some cases it is not there and  
with few administrative nods  some  uncooked products can launch in  
the market. This may not happen in developed countries.

CHAKULA: In your recommendations, you talk about actions to expand the  
“innovation space”. What are some of the key actions?

[MM]: The operators have control of most of the resources they need   
in search of the customer. The policy and regulatory space is out of  
their control – this is space that governments can  expand as  
illustrated by Zain’s One. MPESA would not have succeeded if the  
government did not do the same in the banking regulatory space.  
Governments need to regularly review the regulatory space with active  
engagement of a multi-stakeholder process.

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Innovation through competition: the budget telecom network model
e-interview with Rohan Samarajiva

Paper link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1564529

----------------------------------------------------------------------------
“The status quo must be unbearable.”
----------------------------------------------------------------------------

Rohan Samarajiva is the Chair and CEO of Lirnasia. His paper, “How the  
developing world may participate in the global Internet Economy:  
Innovation driven by competition” was presented at a workshop  
organised by the OECD and InfoDev in Paris, 10-11 September 2009.

CHAKULA: In your paper, you talk about the Budget Telecom Network  
Model (BTNM), which is brought about by competition allowing operators  
to reduce the transaction costs of low-end clients. This, as you point  
out, is different to the standard Average Revenue Per User (ARPU)  
model. How does it make the ARPU model redundant?

Rohan Samarajiva [RS]: ARPU is a short-hand that outside observers use  
to see if the firm is doing well, whether its prospects are good,  
etc.  It is, like any indicator, imperfect.  You get it by taking  
total revenue (preferably without extras like roaming) and dividing by  
number of subscribers.  Of course no one really knows what a  
subscriber is any more, with even poor people holding up to five SIMs,  
foreigners having SIMs, no agreement on what an active SIM is and so  
on.  You can get better results by looking at revenue per minute.   
Take total revenue (less roaming and other stuff) and divide by  
Average Minutes of Usage per User per Month (MOU).  This is a better  
indicator.  But investment analysts are still not used to this and it  
would require disclosing MOUs to calculate.

CHAKULA: Can ARPU be used as a business model?

[RS]: Operators do not actually do much with the ARPU. It is not a  
business model as such, just an indicator.  But getting more from each  
subscriber (if this is known) is not a bad idea.  Just that it does  
not predict whether the company will make money or not.   The best  
indicator for that is EBITDA [Earnings Before Interest, Taxes,  
Depreciation and Amortization] margin.  Sri Lanka in 2007 had an  
operator with LKR311 (approximately USD3 at the time) ARPU making  
close to 50% EBITDA margin.  In the end, the success of a business  
model lies in whether it generates profit.

CHAKULA: What is your understanding of ‘innovation’ in the  
telecommunications space? You talk of “business innovation”, rather  
than, say, technological innovation?

[RS]: Tech innovation is important, but it is not the only thing.   
Pure tech innovation is done by manufacturers of network equipment and  
handsets.  That is good.  Business process innovations (e.g. lowering  
the costs of base stations through software) are done by operators.   
These include technical aspects, but are not limited to them.   
Shifting from one business model to another (discovering the latter)  
is also innovation, but it may or may not not have a tech aspect at all.

CHAKULA: What are the preconditions for innovation, do you think?

[RS]: The status quo must be unbearable.  The BTNM innovation occurred  
when competition got so intense that there was no way to gain market  
share or even survive without doing something new.

CHAKULA: Does BTNM have implications for increased access to broadband  
internet for the majority of people on a continent like Africa?

[RS]: Yes. The latter part of the paper is entirely on the extension  
of BTNM to broadband. Some headlines are that operators must have  
enough money from voice that can be invested in the 3G plus networks.   
Once the overlay network is built out the operators have to offer low  
prices.  Prepaid sachet pricing is best, where one buys packages of  
connectivity in minutes or in capacity.  Here, because of lower  
transaction costs and prices there should be an influx of new  
customers.  This is already on offer in Asia.   Africa has to lower  
prices. Access will be over mobile networks, using dongles or built in  
modems, for laptops and other devices, including phones. ADSL will be  
a niche product.  Wireless access is the future.

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CHAKULA is a newsletter produced by the Association for Progressive  
Communications (APC). It aims to mobilise African civil society around  
ICT policy for sustainable development and social justice issues.

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