Recently presented to industry stakeholders by the Nigerian communications Commission is the study on cost-based pricing for International Termination Rate, ITR. With the conclusion of the study, which was conducted by Messrs Payday Advance and Support Services Limited, NCC has taken another step further towards correcting the trade imbalance between Nigerian telecom operators and their foreign counterparts.
What is ITR (international Tremination Rate)
ITR is the rate paid to local operators by international operators to terminate calls in Nigeria as contrasted with Mobile Termination Rate, MTR, which is the rate local operators pay to another local operator to terminate calls within the country. While ITR is expected to be higher than MTR, most international operators are said to have been the Nigerian operators at the local rate, while the Nigerian operators pay higher rates to terminate calls in other countries. This is said to have created a wide trade imbalance as the Nigerian operators pay more, while they receive less.
Danbatta… said through the new itr pricing, the commission would be able to balance the competing objectives of economic efficiency, allowing operators the latitude to generate reasonable revenue.
Why new ITR?
The NCC in its usual consultative approach to regulator had last year organised a virtual engagement forum with industry stakeholders to intimate them of the ongoing cost-based study and the need to cooperate with Messrs Payday Advance and Support Services Limited, the consultants engaged to carry out the study.
Addressing the stakeholders in Abuja, the Executive Vice Chairman, EVC, of NCC, Prof. Umar Danbatta, said the study had become imperative following the various implementation constraints arising from contending industry and market dynamics in previous efforts at finding an optimum price for the termination of international voice services in the country.
Danbatta, who was represented at the forum by the Executive Commissioner, Stakeholder Management, NCC, Adeleke Adewolu, said through the new ITR pricing, the commission would be able to balance the competing objectives of economic efficiency, allowing operators the latitude to generate reasonable revenue.
A study on the ITR regime in Nigeria’s telecom sector, which was conducted in 2018 by PricewaterhouseCoopers, PwC, had established that the Nigerian operators were being underpaid, thus recommending that the NCC comes up to adopt a cost-based approach, among other options.
“In 2013, NCC issued a determination stating that MTR rates are the same, ‘irrespective of where the call originated’ but this might have had an incorrect interpretation by international operators. This is related to the price paid by one operator in Nigeria to another operator for terminating a call in their network. It was not intended to apply to international operators.
“We understand operators abroad construed the 2013 Determination to mean that the ITR should equal the MTR ignoring the international cost portion – i.e. the residual. This seems to have been accepted by operators in Nigeria, apparently due to fears of losing traffic to other operators who had also an international gateway,” PwC stated in its study report.
According to PwC, this had four effects, which include that ITRs were agreed at MTR level, i.e. at a lower level and without a positive ‘residual’ to cover the costs of the international leg; ITRs continued to decline from there, in line with the MTR glide path; ITRs were set in Naira, which had a further downward effect in dollar terms at the time of currency devaluation; and Nigerian operators paid the international operators in dollars to deliver international calls which created an imbalance of payments as the ITR in Naira declined
“The rate at which foreign operators paid to terminate a call in Nigeria decreased in 2011/12, and then was set equal to the MTR in March 2013. As a result, Nigerian operators were faced with an imbalance of payments with international operators. Due to the Naira depreciating, this further exacerbated the problem of Nigerian operators receiving less money from terminating international calls,” it added.
The cost-based study
Announcing the conclusion of the cost-based study at a forum last week, the new pricing being worked out would ensure healthy competition on traffic handling for voice services between local and international operators in Nigeria. The forum, NCC said, was convened not just to formally present the findings from the study but to also solicit further perspectives, insights, and other input on the findings towards a mutually realistic termination rate for international voice traffic in Nigeria.
Speaking at the forum, the Executive Vice Chairman of NCC, Prof. Umar Garba Danbatta, said the cost-based study became imperative, following previous efforts at finding an optimum price for the termination of international voice services that will be beneficial to all relevant industry stakeholders. Danbatta said that the “overriding need for regulatory options and intervention in relation to the international termination rate in the voice market segment is predicated on some intractable challenges, most common with economies with severe macroeconomic volatility such as ours.”
Going down memory lane with respect to MTR determination in Nigeria’s telecom industry, the EVC said, in 2013, the Commission issued a Determination stating that mobile Termination Rates (MTR) are the same irrespective of where the call originated. He, however, stated that this was misconstrued by operators at that time to mean that ITR should be the same rate as the MTR, consequently ignoring the international cost portion.
“Arising from these is the persistent fact that Nigeria’s ITR is below that of most countries with which it makes and receives the most calls, making Nigerian operators perpetual net payers. The obvious implication of this is seen in the attendant undue pressure on the nation’s foreign reserves, which continue to get depleted by associated net transfers to foreign operators on account of this lopsidedness,” Danbatta explained.
Danbatta further stated that regulating the ITR was imperative for developing countries such as Nigeria, with volatile currencies to prevent or mitigate the imbalance of payments with international operators. He also said the Commission was faced with the challenge of arriving at a rate that would balance the competing objectives of economic efficiency while, at the same time, allowing operators the latitude to generate reasonable revenues.
He informed the forum, however, that “where ITR is not regulated, it tends to converge to the MTR and for a market like Nigeria with major supply-side challenges, the socio-economic implications, and attendant backlash can only be imagined.”
In her comments, the Director, Policy, Competition and Economic Analysis, NCC, Yetunde Akinloye, corroborated the EVC, noting that the study was intended to complement and consolidate the initial work done by the Commission which had also culminated in the MTR Determination published in June 2018.
According to her, the ITR previously determined was based on actual benchmarking with countries of similar characteristics to Nigeria, but the findings from that study were faced by major national macroeconomic management challenges, ultimately pointing to the need for an ITR that is cost-based, consistent with the MTR.