Nigeria: Imposing Universal Service Obligation On A Telecom Operator In A Developing Country: Challenges

Last Updated: 25 February 2014

Article by Judedavid Ogochukwu Mbamalu Esq*

INTRODUCTION

"A critical element of most national telecom policy objectives is advancing universal service. International Telecommunications Union (ITU) definition considers universal service provision as purely for the purpose of making available telecommunication services of specified quality, and in light of the specific national conditions, at an affordable price to that minority of potential users who do not have the service and for whom not having access to the service would constitute a social or economic disadvantage. Key issues that regulators and policy makers face with regard to universal service provision are mechanisms for funding, estimation of funding mechanism for deployment and involvement of private sector and monitoring targets" 1.

"Specific national conditions", play a critical role in determining what is universal service, in the telecommunication sector. In the European Union the obligations to provide universal service in relation to voice telephony refer to the provision of a service by means of fixed connection which equally permits the use of facsimile machines and modems, along with a range of related services------------an operator assistance, emergency services information services, telephone directory, telephone booths.

Basic services, provision of which inheres in the policy behind universal service obligation, are country-specific, predicated inter alia, on the country's economic conditions, network externalities, telecommunication penetrations and political hang-ups.

"The rationale for imposing universal service obligation is political, social and economic. It is desirable on political grounds that citizens in a democracy have access to communication facilities which they require to exercise their political rights, and it is desirable on social grounds that all individuals should have access to communication facilities to avoid a gulf emerging between information-rich and information-poor groups" 2.

In a less developed country (LDC) or developing country, a general trend is the focus on achieving a universal access (to voice telephony), 3 rather than universal service 4. This focus makes universal service a prognostic goal rather than an obligation.

With this trend, it is obvious that imposing a universal service obligation on a telecom operator, much less the traditional incumbent operator, is fraught with peculiarities, aberrant enough, to distort the classical approach as would obtain in developed countries like the USA, Canada and the UK.

This paper focuses on the challenges, in imposing universal service obligation on a telecom operator in a developing country, using Nigeria as a cursor.

UNIVERSAL SERVICE IN NIGERIA:

"Only a few years ago the words "modern telecommunication regulation" had no real meaning within Nigeria, as the level of telecommunications development was at an all time low). Correspondingly, the term universal service or access was only meaningful to a few who could afford it and wait for endless periods. The cost was also nothing to write home about, as the cost of acquiring a mobile phone from the then only mobile phone operator was around $1,500. The situation was so bad that you had about 800,000 fixed lines servicing a population of around 120 million people" 5.

Nigerian Communications Act (NCA) 20036, primarily aims at providing a regulatory framework for the Nigerian Communication Industry. Specifically, S. 1 thereof stated the relevant objective as follows:

S.1(c)- "promote the provision of modern, universal, efficient reliable, affordable and easily accessible communications service and the widest range thereof throughout Nigeria.

S.1(d)- encourage local and foreign investment in the Nigerian Communications Industry and the introduction of innovative services and practices in the industry in accordance with international best practices and trends.

S.1(e)- ensure fair competition in all sectors of the Nigerian Communications Industry and also encourage participation of Nigerians in the ownership, control and management of communications companies and organizations.

S.1(h)- ensure that the needs of the disabled and elderly persons are taken into consideration in the provision of communication services".

Prior to the liberalization regime of the telecom market in Nigeria, the incumbent operator was the Nigerian Telecommunications Limited (NITEL). Nitel's monopolistic status ought to have shaped the legislative framework with regard to the provision for universal service obligation. Alas, Nitel's infrastructure and services, were anything but "modern, universal, efficient, reliable, affordable or easily accessible" 7.

This state of affair, makes it completely preposterous if not pernicious, to pursue liberalization and competition strand of telecom market, through imposing on NITEL, as a traditional incumbent operator a universal service obligation.

The universal service provision in Nigeria is contained in PART IV of the NCA 2003.

S. 112(1) provides – "subject to subsection 2 of this section, the commission shall consider, design and determine a system which shall promote the widespread availably and usage of network services and applications services throughout Nigeria by encouraging the installation of network facilities and the provision for network services and applications services to institutions and in unserved, underserved areas or for underserved groups within the community".

S. 120 of the NCA 2003 empowers the commission (the regulatory body) to make regulations relating to the universal service provision and the establishment and operation of the USP Fund. To date no such regulation has been made by the commission 8.

CHALLENGES TO IMPOSING UNIVERSAL SERVICE OBLIGATION

We now turn to the challenges which the commission would face whilst, considering, designing and determining a system which shall promote universal services obligation. In its considerations, the commission would basically confront three main features in the Nigerian, telecom sector, which put together, may obviate the necessity, now, of imposing universal service obligation, on an operator. These three basic features are:-

(i) Liberalization of Telecommunication Market

(ii) Impact of Mobile Telephony on Universal Access/Universal Service

(iii) Government's Socio-economic bend.

LIBERALIZATION OF TELECOMMUNICATION MARKET

Before 2001, Nitel monopolized the telecom market in Nigeria. Weak infrastructure base, huge inefficiency- induced demand for services, spectrum planning and allocation problems and limitation in enabling laws and regulations, unreliable power supply, concentration of lines in Urban areas, all played a part in the liberalization of the telecom market.

After year 2001, Nigeria now has more than 26 fixed network operators, 2 gateway operators and 4 global systems of Mobile (GSM) Communication Companies. "The operators came in to serve a telephone-starved populace" 9.

It then follows that the policy thrust in the telecom sector for now is encouraging competition, devoid of dilution which imposing a universal service obligation, seem to be.

The Federal Government in 2000 released a policy thrust to fully liberalise the industry. The policy blue print clearly targeted incentivising potential investors to play in the telecom industry. Some of the incentives are:

(a) Removing restriction in the level of foreign equity participation.

(b) Reduction in the level of import duties on telecom equipment from 25 per cent to 5 per cent for the first two years.

(c) Simplification of processes for importation of telecommunications equipment and development of related software.

(d) Granting of pioneer status to qualified investors

(e) Fiscal incentives to encourage local manufacturers 10.

This brand of liberalization in telecom market, seem to find favour with the International Telecommunication Union (ITU) with respect to African Countries 11.

What is evident in Nigeria's telecommunication sector is that its perception of universal service as a concept, toes the line of the ITU. The ITU in spite of the global appeal treats universal service as national, allowing each state the flexibility and right to define universal service, and the manner of its funding. Article 1(d) of the ITU constitution thinly referred to the concept of universal service as, "to promote the extension of the benefits of the new telecommunication technologies to all the worlds inhabitants".

The liberalization of telecom market and especially the advent of GSM Mobile Network in Nigeria, under-pinned universal access and relegated the imperativeness of imposing universal service obligation. It would appear that imposing universal service obligation would radically be inconsistent with the objectives, of the regulatory body as stated in S.1 of the NCA 2003.

It is thought that if there be undulating playing field which should engender, imposing universal service obligation, Nitel, which used to be the monopolist, would not be the operator to bear that obligation. Measured now with other entrants in this liberalized situation, Nitel would be dominantly oppressed; the new entrants are all at par and so the preferred approach, remains to foster market-driven, competitive environment to achieve universal access.

IMPACT OF MOBILE TELEPHONY ON UNIVERSAL ACCESS/UNIVERSAL SERVICE

"Africa is the region where the need to bridge the digital divide is most urgent and wireless technology provides a feasible means to achieve this. Mobile technology has made an impact more widely into new areas than any other, and we must continue to examine how we can utilize this technology to help narrow the African digital divide.

Mobile subscriber numbers in Africa have increased by over 1000 per cent between 1998 and 2003 to reach 51.8 million. Mobile user numbers have long passed those of fixed line, which stood at 25.1 million at the end of 2003. Mobile telephony has been critical in boosting access to telecommunications in Africa and has helped substantially lift numbers of telecommunications users. Mobile penetration had reached 6.2 per cent at the end of 2003, in contrast to three-per cent for fixed line. The rise of mobile usage has been driven by a combination of factors, demand, sector reform, the licensing of new competition and the emergence of major strategic investors, such as MTN, Vodacom, Orascom and Celtel" 12.

What is evident in Nigeria today is that mobile technology (GSM) has become a welcome substitute for traditional basic fixed services. This traditional basic fixed service was a cardinal reason for the concept of imposing universal service obligation on an operator. The advent of mobile technology in Nigeria rapidly tackled the problem of access to formerly unnerved population groups like rural users.

The perceived lack of interest by the commission to impose universal service obligation stem from the significant contribution of mobile technology and mobile operators to universal access/universal service.

All the trappings essential to institute universal service obligation, appear to be supplied by mobile technology and mobile operators without the necessity of the commission imposing such obligations, with it's concomitant corollary of funding mechanism which may engage the government in the rather avoided cross-subsidization.

Mobile access is more affordable. The start-up cost is on the average less than the cost of obtaining a fixed-line connection. The seemingly comparatively expensive mobile call tariffs are cushioned by pre-paid feature of mobile telephony. Low-income customers, who are the reason for imposing universal service obligation, are empowered to control their expenditure, by switching to just receiving calls, or through other innovative low-cost usage such as "beeping" (13) and short messaging system (SMS).

Commercially speaking mobile operations is more viable, due to its network economics, operation and other factors. "Within total capacity limits, every traditional marginal customer imposes the bottom-line, since mobile investment per user is a function of economies of scale. The base-station is a single bulk investment and costs per user decreases continually as more mobile users share the service. In contrast, fixed-line investment can only capture the revenue of a single user unless it is a public payphone" 14.

Nigeria is grossly underserved with fixed network, thus leaving the mobile operators, with pioneer status in many areas, without competition from fixed service.

All the telephone-starved customers are captured by the mobile operators and the customers now have preference for mobile service.

Mobile telephony in Nigeria is like an oasis in the middle of the desert. Unlike the classical oasis, the mobile telephony has made the telephone desert in Nigeria to bloom, becoming afforested.

The commission as an agent of government escapes from cross subsidizing, preferring the leap-frogged universal access, borne out by technological advances, to universal access/service, created not by market indices but by regulatory interventions.

"Nigeria recorded nearly 100 per cent growth rate where the four mobile operators-MTN Nigeria, Vee Networks, Glo-Mobile and Nigerian Mobile Telecommunications Limited (Mtel) – added nearly five million new subscribers by year-end 2004.

By the calculations of the GSM Africa forum which held recently in Cape Town South Africa, Nigeria is the preferred destination for new investments in telecommunication" 15.

SOCIO- ECONOMIC BEND OF THE GOVERNMENT

"Traditionally, the universal service is provided by the traditional operator holding the monopoly. But when certain-------- Telecommunications markets have been opened up to competition, the enterprise holding the monopoly sometimes retains only the obligation to provide the universal service. The question of financing the service then arises. Basically two solutions are possible; the first consists of leaving the main operator to finance it as long as it remains dominant; the second consists of evaluating the extra cost generated by the constraints of the universal service and to finance them by the state or by all the participants in the sector according to a principle similar to that of charges levied for access to the telecommunications network (the interconnection charges)" 16.

The first option stated above for financing universal service is not available in Nigeria. Nitel is not dominant. Financing the service through either the state or sector-participants will radically put in a lurch, the government's economic agenda: generating revenue through liberalization of the telecom market and foreign investments therein.

Social-cohesion, a fundamental aspect of universal service in the communications sector seemed to have been gratuitously out sourced by the government to mobile operators and allied entrepreneurs, thus negativing the essence of funding the service.

The absence of public phone booths in Nigeria is filled by booming "teleboutiques" (payphones) markets dotting every corner and run by private sole proprietors.

Prepaid service eliminates costly customer administration for the mobile operator, reducing operating costs which ultimately benefits the customer. This essential feature of mobile telephony unwittingly funds universal service, meeting for the government the social obligation inherent in imposing universal service obligation. In essence the calling party pay (CPP) policy of mobile services engenders universal service as the disadvantaged users ability to just receive calls or "beep" or send SMS, fulfill the social cohesion sought for through imposing and possibly funding universal service obligation. Imposing universal service obligation on any operator in Nigeria would challenge one of the key government's target in liberalizing the telecommunications market – revenue generation.

Income generated from this sector is used to fund other sectors. There is high import duty on telecommunications equipment.

The World Trade Organization's (WTO) Information Technology Agreement (ITA) implemented in 1997, phased out import duties on virtually all communications and IT equipment by the year 2005 in 69 countries including the European Union. A comparative survey in other African countries published in December 2001 by WTO show tariff rates as follows 17

  • Ghana = 10 per cent import duty + 7.5 sales tax
  • South Africa = 0 per cent import duty/Sales Tax
  • Ethiopia = 0 per cent import duty/Sales tax
  • Zambia = 20 per cent import duty + 0 per cent sales tax
  • Zimbawe = 0 per cent import duty/sales tax.

Government interest in foreign investment in the telecom sector with an eye on accruable revenue through sundry duties is complemented by the high cost of doing telecommunication business in Nigeria----------lack of social infrastructure, poor security high domestic interest rates and shortage of long-term capital amongst others 18. A balancing act then is for telecommunication services here to be cost oriented, absorbing the high import duty and the cost of inclement investment climate, and emptying them out in the form of high tariff payable by phone users. Surely this state of affair unarguably makes imposing universal service obligation not feasible for now.

Thus public policy which ideally drives imposing universal service obligation is stifled by the twin weed of profit-oriented operators interested in recouping their, understandably huge investments and willing government, with supportive policy, geared heavily towards attracting foreign investors to boost the economy than succouring lowincome, disadvantaged but needful telephone users.

Government's policy bend, perhaps explains the austere mention of the issue of universal service in the licences of licensed operators 19.

What will pass for universal services obligation in the licenses, is the reference in the mobile licences awarded by the commission, to the need for the operators to within 36 months have a minimum of 5% of their total subscribers connected in each of the geo-political zones of Nigeria. The obligation to provide emergency telephone call numbers was mentioned in the fixed and mobile phone licenses. Such emergency telephone call numbers do not work.

Nigeria's universal service agenda, if it ever takes root, will invariably turn and twist on the mechanisms, which would be grossly sensitive to the competitive fundamentals on which telecom service providers operate.

CONCLUSION

In the European Union and the United States Telecommunication Market has graduated to efforts to converge Telecommunications, Media and Information Technology Sectors. 20 This contrasts sharply with the targets of Rascom Satellite Project in Africa (launched in 2001). This project aims to "slash the average distance of an African to the nearest phone from 50 to 5 kilometers".

Nigeria, like most African countries, has exploited the technological advances, recorded in the telecommunication sector to focus as a country, on its economic existentialism. The reality then is that access to telephony (in it's modern day EU definition) is not ranked as essential service. It is a want not a need.

Just this April 2005, Nitel, introduced the calling –line identification service in Abuja the Federal Capital Territory. It was to run free until sometime in May 2005 when it would become fee-based and supplied on request.

The hope for universal service obligation and its implementation, in Nigeria, depends on social and political considerations, which are not constant. At this time of network extension and mass market take up, "the objective of universal service obligations is ............. primarily economic, to stimulate the economy. Once the network is completed, the goal of universal service will shift to being primarily a social one. ............... In the latter stage, the emphasis is likely to be upon targeting of subsidies to ensure that the telephone is affordable to all and adapted to those with special needs (for example, the disabled)" 21.

Footnotes

* LLb (hons) (Nig) BL, Mciarb (UK) PGD (Maritime Law) LLM (Maritime and Commercial Law) LLM (Computer & Communications Law) London. Managing Partner Jumbo Chambers. E-mail: jmbamalu@yahoo.co.uk .

1. Rekha Jain & Pinaki Das: Universal Service Obligations: Probing the Assumption: Indian Institute of Management, Ahmedabed India. e-mail: Rekha@iinagd.ernet.in

2. Ibid

3. Public telephony within a reasonably accessible distance

4. A telephone per home.

5. Adeniji Kazeem: The concept of Universal Service in modern Telecommunications Regulation MPJFIL Vol. 7 Nos. 3-4 (2003) @ 630.

6. The Regulatory body- Nigerian Communication Commission (NCC) was established in 1992.

7. NITEL still has analogue fixed connections in various geo-political zones in Nigeria. It does not have functional public phone booth.

8. There is however Telecommunication Networks Interconnection Regulation 2003, which provides guidelines, standards and procedures governing any interconnection agreement between telecom operators in the telecom industry in Nigeria.

9. Statement credited to Mr. Ernest Ndukwe, the NCC Chief Executive Officer. Note that the total teledensity for Nigeria as at 1999 was 0.38 with an average waiting time of 4.2 yeas to acquire a telephone line. See www.bellanet.org.

10. The Guardian, Tuesday, 11/05/04, Vol. 20 No. 9, 302 @ page 47 available at http://www.ngrguardiannews.com

11. Footnotes from ITU Telecom Africa 2004 conference @ Cairo Egypt opened 3/05/04. At the conference, Mr. Utsumi, ITU boss told African countries to move beyond competition unto issues such as improving interconnection licensing additional players and issuing mobile telephony to contribute to universal access objectives.

12. The Guardian, Tuesday January 11th 2005, Vol. 21, No. 9,547 @ page 43, available @ http://www.ngrguardiannews.com

13. The equivalent in the developed world is the "Call me" scheme of the Universal Service Provision in thos states.

14. Abdelfattah Abugyyas; Feasibility of Mobile Communication for Universal Access and Universal Service, available @ http://www.ituarabic.org.

15. See footnote 12

16. International Labour Organization (ILO) note on the proceedings – sectoral activities (available @) www.ilo.org/public/english/dialogue/sector/techmeet/tmpts98

17. The Guardian, Tuesday, July 27, 2004. Vol. 21, No. 9,379 @ page 57 available @ http://www.ngrguardiannews.com

18. Epileptic, sometimes zero power supply makes it imperative for every telecom operator to be equipped with alternative source of power supply. Each cell site/mast is constantly powered by generators, and manned by security guards.

19. http://www.ncc.gov.ng/telecommunicationpolicy.htm

20. For the EU, see http://europa.eu.int/information-society.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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