Doc. No EACO/RA22/15-6g
THE 21ST EAST AFRICAN
COMMUNICATIONS ORGANIZATIONS
CONGRESS
22ND TO 26TH JUNE 2015 AT
SHERATON HOTEL, KAMPALA,
UGANDA.
PREPARED BY:
WG08: COMMUNICATIONS SERVICE
PRICING &
INDUSTRY ANALYSIS
2013 -2015
Table of Contents
EXECUTIVE SUMMARY ............................................................................................................ 4
INTRODUCTION .............................................................................................................. 5
1.0
2.0 THEMATIC /KEY RESULT AREAS ........................................................................ 5
2.1 Pricing, Market Studies and Analysis ............................................................. 5
2.1.1
Regional Broadband Pricing Framework ................................ 5
2.1.2
EACO DATA COLLECTION AND REPORTING FRAMEWORK ..... 8
2.1.3
Regional Competition Framework ........................................... 9
2.1.4
Impact of Over the Top Technologies (OTT) ........................... 9
2.1.5 Impact of Teletraffic Monitoring / Management Systems on Pricing
and Competition in EAC ..................................................................... 10
2.1.6 To develop Spectrum Pricing Framework (Telecom and
Broadcasting) ....................................................................................... 11
2.1.7
Harmonized Signal Distribution Pricing Framework ............. 11
2.1.8
To develop costing and pricing models for basic postal services
12
2.1.9 Progressive opening up of exclusivity areas of postal services
(physical, electronic, financial) operation for private sector participation
13
2.2
Reporting ...................................................................................................................... 14
2.2.1
Industry Reporting and Data-frame....................................... 14
2.3 Coordination of Regional and International Collaborations Error!
Bookmark not defined.
3.0
OTHER ISSUES ............................................................................................................. 15
4.0
CONCLUSIONS ............................................................................................................. 15
5.0
REQUEST TO ASSEMBLY OF REGULATORS ........................................... 16
2
LIST OF ANNEXES
ANNEX I: BROADBAND PRICING FRAMEWORK
ANNEX II: EACO DATA COLLECTION AND REPORTING FRAMEWORK
ANNEXIII: FRAMEWORK FOR ESTIMATING THE DIGITAL TERRESTRIAL TELEVISION
TRANSMISSION FEES PER CONTENT CHANNEL PER SITE PER MONTH
ANNEX IV: IMPACT OF TELETRAFFIC MONITORING / MANAGEMENT SYSTEMS ON
PRICING AND COMPETITION IN EAC A CASE OF TANZANIA
3
EXECUTIVE SUMMARY
Harmonization of communication services within EAC region requires
addressing the key issues relating to communication services pricing,
infrastructures, communications resources allocations and various
coordination efforts on issues affecting the region as a whole. During the last
two years (2013/14 to 2014/15) the WG 8 has been working to address its
assigned tasks as per the Terms of Reference.
In line with the ToRs items, several studies were conducted and led to the
establishment of the guiding frameworks, principles and best practices, of
which its adoption will result into harmonized communications sector within
the region. In order to address regional connectivity and roaming pricing, the
WG 8 developed Regional broadband pricing framework, Regional roaming
pricing framework, Regional spectrum pricing framework, Harmonized signal
distribution pricing framework, costing and pricing principle for basic postal
services and a concept paper on how the universal service funds can take
over the universal postal obligations, as an effort to opening up exclusivity
areas of postal services (physical, electronic, financial) operation for private
sector participation. Principles for regional harmonized competition
framework, the report on the study of the impact of Tele-traffic monitoring in
the region and EACO data collection and reporting framework with their
recommendations were prepared.
With regards to the thematic area of reporting, the WG 8 developed a
framework for collection, analysis and reporting/dissemination of regional Key
Performance Indicators and statistics on the communication sector in East
Africa. It involves having in place an EAC communications data collection
and reporting framework and establish a Databank. The data to be
collected include those related to quality of service, coverage, traffic,
revenue, investments and employment
The WG8 addressed regional and international coordination issues by follow
up the work of relevant communication sector organization through EACO.
These include ITU study groups and GSMA.
4
1.0
INTRODUCTION
The EACO WG 8 which is focusing on Communication services pricing and
industry analysis met at EACO headquarters in Kigali Rwanda from 6th – 8th to
address issues aimed at harmonizing EAC communication services pricing
and industry analysis. The eleven (11) ToR items were grouped into three key
thematic areas of (i) pricing, market studies and analysis (ii) reporting and (iii)
coordination. Various studies were conducted on these key result areas and
hereby presented with their findings and recommendations.
2.0
THEMATIC /KEY RESULT AREAS
2.1
Pricing, Market Studies and Analysis
The WG 08 undertook studies land analysis on communications market aimed
at addressing Regional concerns and other factors which impede smooth
flow of communication within the region in the area of telecommunication,
broadcasting and postal services. Areas focused are those related to
connectivity, mobile roaming, services pricing, competition, emerging
technologies, market exclusivity and telecommunications traffic monitoring.
The update of studies and analysis conducted on the areas are provided
herein below:
2.1.1
Regional Broadband Pricing Framework
The Study
Broadband services and applications are becoming a way of life and a
social economic lifestyle of today and the future. Broadband technologies
and services open doors to social economic development and growth for
developing countries. EAC and EACO in particular, and in partnership with
developing partners are engaging the region in capacity building and
technological awareness in all the member countries.
Achievements of the above initiatives will accelerate the development
processes of these countries and further minimize the development gap and
digital divide respectively. Consequently, harmonization of broadband
services pricing is important for seamless communication and integration
among EAC member states. Pricing of broadband services will by no means
be the key determinant of broadband services uptake and utilization.
Findings
Studies conducted by ITU in this area shows that affordability and accessibility
of broadband services are largely determined by the prices that are charged
for those services. The regulation of prices can thus be a very tempting
prospect for policymakers and regulators who want to increase the adoption
and use of broadband services at the earliest time.
5
Broadband pricing framework shall consider rellevant markets in the
broadband ecosystem, these markets can be categorised into broadband
services and broadband access markets. Wholesale price intervetion at
these markets is the most effective way of addressing prices anomalities and
ensure competition at retail market. Applying those legacy regulatory
practices in broadband markets, even where it is possible to do so, can
distort price signals and investment incentives1.
Key elements to be considered in the framework include:
(i)
Regulatory prices based on economic cost-to allow/facilitate
construction of additional broadband infrastructure as needed
(ii)
Setting appropriate Weighted Average Cost of Capital (WACC) to
recover cost of investment and adequate rate of return
(iii)
Stakeholders consultation and involvement
(iv)
Costing methodology and approach
(v)
Broadband services demand forecasting
(vi)
Assets valuation approach
(vii) Type of services offered and their infrastructure proportion utilization
(viii) Routing factors
In consideration of the above, the following are the key principles and items
need to be considered in broadband pricing framework.
1
PRINCI
PLE
Principle
1
CATEGOR
Y
General
best
practice
EXPLANATION
Principle
2
General
best
practice
Principle
3
Wholesale
Broadband
prices
Regulatory intervention in the setting of retail prices
for broadband access and applications should be
avoided in favour of the facilitation of retail
competition by the regulation of wholesale markets for
access to broadband facilities and services.
Regulatory price-setting methodologies for wholesale
access to broadband facilities should take into account
:
 Policy objectives, if they exist, that might favour
the development of intra-modal competition for
fixed broadband services and intra- and intermodal competition for broadband services as a
whole; and
Retail and wholesale prices are best determined by
market forces provided that those markets are
effectively competitive.
ITU Regulating Broadband Prices – Broadband series
6

Principle
4
Wholesale
Broadband
prices
Principle
5
Retail
Broadband
prices
Retail
Broadband
prices
Principle
6
Principle
7
Retail
Broadband
prices
Whether the supplier of wholesale facilities
access is a pure wholesale operator or a
vertically integrated operator with wholesale
and retail operations.
Regulatory price-setting methodologies for wholesale
access to broadband
applications (including bitstream access) should take
into account the following factors:
 The difficulties in establishing reliable and useful
costs for such services, either through cost
modelling or benchmarking;
 The difficulties in establishing suitable discount
factors or estimates of avoidable costs when
applying techniques based on avoidable retail
costs to determine wholesale price levels; and
 Whether the outcome should be subject to
sunset provisions and be permitted only to
ensure the early traction of new competitive
entrants in the retail broadband market.
Retail price regulation should be avoided but where it
is justified it should be limited to entry-level service
pricing and access
The only broadband application service price that
regulation should be concerned within a broadband
environment is voice and that should be for a limited
period of migration to broadband platforms on a
transitional basis. The basis for ensuring the availability
of low cost options for voice service is for social
cohesion and service continuity to meet the
expectations of end users whose needs may not be
addressed through broadband application service
competition. The need for regulation in this area
should be reviewed regularly.
Regulators should avoid regulating the terms and
conditions, including prices, of higher speed broadband
access and application services. If regulation is
necessary, it is best applied as ex post competition
regulation directed at anti-competitive behaviour.
A detailed pricing framework is attached herewith as Annex I.
ANNEX I_
BROADBAND PRICING FRAMEWORK-Twine draft 20150616[4].doc
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Recommendations
The WG8 recommends that before setting broadband prices there is a need
first to explore the implementation of ex-ante regulations to address
regulatory problem facing the sector. A detailed analysis on the following
need to be conducted and taken as input in setting broadband prices (i)
analysis of broadband services and markets, (ii) broadband supply chain, (iii)
broadband infrastructure (iv) cost categorization and cost standards, (iv)
WACC determination and (v) principles for wholesale and retail price
regulations. Having a pricing framework which contain the above key
principles and elements will guide the region in addressing broadband
pricing and ensure affordability and accessibility and at the same time
ensure continuity of investment in broadband.
2.1.2
Regional Roaming Pricing Framework
The Study
For quite some time there has been no policy and regulatory framework
governing roaming in the EAC region. Instead, mobile operators have been
implementing different roaming tariff schemes through bilateral agreements.
Therefore, with the above situation, EAC member states need to develop
and implement roaming policy and regulatory frameworks in view to enable
consumers and business to benefit from competitive pricing and choice of
services. Roaming being by nature a cross boarder service, there is a need to
establish and implement a clear harmonized policy and regulatory
framework on the same.
Findings
WG 08 has been instrumental in developing a set of ToRs for the EACO study
on EAC regional roaming. Following the directives of the EAC Transport,
Communications and Meteorological (EAC-TCM) Council of Ministers, EACO
has been working with EAC secretariat in developing ToRs for the EAC One
Network Area (ONA). ONA is being implemented in two phases under EAC
secretariat, out of which the first phase -a short term solution (lower of
roaming charges) started being implemented by Kenya, Uganda and
Rwanda) from 1st January 2015, while Tanzania and Burundi are clearing with
the legal systems. Phase two involve the study to establishment of One
Network Area within the region.
Recommendations
The WG8 recommends to the EACOM to take up this matter with EAC and
find out the development reached as the deadline for engaging a
consultant is overdue.
8
2.1.3
Harmonized Regional Competition Framework
The Study
The nine principles for harmonized competition framework were presented to
the 21st EACO assembly and were adopted. The draft framework is being
developed on the basis of these nine principles with a deadline of end of
March 2015, the completed framework will be submitted to the 21st EACO
congress during June 2015 meeting in Kampala Uganda.
2.1.4
Impact of Over the Top Technologies (OTT)
The Study
Impact of the Emerging Over the Top Technology (OTT) services and
promotional products developments in networks and technology, have
enable internet protocol to handle both data and voice packets with better
service levels, IP telephony is a reality in the East African region. Several
applications (WhatsApp, Viber, Facebook, twitter etc) have been developed
that provide Voice and SMS services bypassing exiting regulatory restrictions.
With improved broadband penetration there is real threat to the traditional
voice and SMS based services. Mobile operators spend huge amount of
money in acquiring licenses and spectrum while OTT service providers have
no such requirements. That gives the OTT players an upper hand to offer free
services and drive MNOs out of the traditional voice and SMS markets.
Findings
In analyzing the impact of OTT on revenue in telecommunication market, the
following key concerns are noted:
•
Reduced revenue from voice services and lowers APRU leading to
lower operating profit margins for the operators.
•
Increased break even period for the license and spectrum charges
paid by the operator.
•
Reduced profitability experienced by operators will lead to slower
deployment of technology, network rollout and reduced investment in
the ICT industry.
•
Lower revenues from Voice and SMS services may force the operator
to increase the tariffs to counter decreased voice revenues and to
maintain the ARPU levels.
•
End users making use of OTT content services will have a major impact
on their spending on voice and SMS services provided by the mobile
operator.
•
OTTs will further complicate security monitoring. Most OTT subscribers
are not registered and usage cannot be mapped to a specific
customer/user. With terrorism in the EAC region regulators and
9
governments will be exposed to serious challenges which cannot not
be addressed by traditional subscriber registration.
Recommendations:
•
•
OTTs and Telecom operators should engage and establish
commercially viable partnerships.
Governments should put in place measures to address security
challenges that will result from use of OTTs and registration of OTTs
subscribers through unique IP addresses
2.1.5
Impact of Teletraffic Monitoring / Management Systems
on Pricing and Competition in EAC
The study
An evaluation of the impact of Telecommunication Traffic Monitoring Systems
(TTMS) on pricing and competition has considered international traffic,
pricing before and after the installation of this system in the EAC region for
countries which has installed the system.
Each EAC with TTMS was assigned to provide the analysis of the impact of
TTMS.
Other details required were those which will answer the questions as to what
is TTMS?, does it increase prices and its impact competition. The data were
collected and analyzed accordingly.
Findings
The WG 08 noted that Burundi, Rwanda and Tanzania have installed the
Telecommunication Traffic Monitoring system (TTMS).
The findings indicated some potential benefits to all member states who have
installed the system which includes among others;
 The capability of measuring quality of service (QoS),
 Ability in establishing telecommunication traffic volume for both local
and international,
 Ability in determining revenue & billing information,
For a case of Tanzania TTMS have addition functions to accommodate
the following;
 tracking and detecting bypass/fraud telecom traffic,
 Hosting the Central Equipment Identification Register
 Monitoring the Mobile Money transactions.
For Tanzania, the system has improved the regulator’s ability to
independently monitor telecommunication traffic provided by telecom
operators and their compliance to prescribed standards.
10
Generally the setting up uniform price for incoming international
telecommunication traffic has shifted the competition profile from price
competition existed before TTMS to focusing on the reliability of the provided
link. The report on the impact of TTMS a case of Tanzania is attached as
Annex II.
EACO Data collection
and reporting framework.docx
Recommendations
The WG 08 recommends EAC countries which are yet to implement TTMS to
benchmark with countries which already implemented TTMS to ensure that all
the benefits of this system are harnessed.
2.1.6
To develop Spectrum Pricing Framework (Telecom and
Broadcasting)
The Study
The objective of the Working Group in this regard was to harmonize regional
spectrum pricing frameworks.
The WG 08 considered the importance of Spectrum pricing harmonization in
the East Africa region being to ensure existence of uniform spectrum pricing
principles within the region to facilitate efficient allocation and utilization of
spectrum resource in the region.
WG08 developed a concept paper on harmonized spectrum pricing
framework. Also questionnaires were prepared to collect data and
information from member states on spectrum management policies and
principles of allocation.
Recommendations
Given the above scenario the WG 08 recommends that an in-depth study be
carried out to establish the status of spectrum pricing methodologies used in
the region and recommend the best framework for the region.
2.1.7
Harmonized Signal Distribution Pricing Framework
The Study
Migration process from analogue to digital TV broadcasting requires a clear
signal distribution pricing framework. The framework for determining the tariffs
payable by content services providers to multiplex operators (signal
distributors), as a fee for transmitting digital signals. The framework was
presented and adopted by the Assembly of regulators during EACO
Assemblies meeting in Arusha in June 2014. The 2 harmonized signal
distribution pricing framework is attached as ANNEX III
11
ANNEX III
ANNEX
HARMONIZED
Draft concept paper
III_FRAMEWORK FOR ESTIMATION COMPETITION
OF THE DIGITAL
FRAMEWORK
TERRESTRIAL
Draft2
TELEVISION
20150621.docx
for TRANSMISSION
the study of Harmonized
FEES withspectrum
Dr Twinepricing
Comments
framework.docx
20150616[4].docx
Findings:
The WG 08 noted that Tanzania and Kenya are implementing the framework
and Uganda is in the process of implementing the framework.
Recommendations
The WG 08 recommends the adoption of harmonized signal distribution
pricing framework. Member states that are yet to develop their signal
distribution pricing framework are advised to benchmark with others in
developing the same.
2.1.8
To develop costing and pricing models for basic postal
services
The Study
The objectives of the Working Group in this regard were to:

Establish the existing costing and pricing methods for basic postal
services within the region

Conduct a comparative analysis, establish best practice and
identify case studies; and

Harmonize costing and pricing methods.
The WG 08 considered the following aspects towards development of the
harmonized costing and pricing models for basic postal services which
includes (i) consideration of demand forecasting, (ii) relevant capital and
operating expenditures (iii) inflation and (iv) subsidies provided by designated
Universal Communication Access Fund in respective countries.
Findings
The WG08 noted that the prices of basic postal services are not regulated in
some EAC countries while others do.
EACO recognizes that the development of Costing and pricing models for
basic postal services will also necessitate the harmonization of the various
Policies, Legal and Regulatory frameworks in the EAC Region. The experience
12
shows that in EAC, during review of prices for basic postal services the
following are considered.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Relevant capital Expenditures (CAPEX)- which among others
include vehicles and office building
Relevant operating expenditures- which among others include
Fuel cost, and other related expenses
Other non-basic postal services utilizing the same infrastructure
Employees’ salaries, wages and other benefits
Inflation
Demand forecasting
Profitability/return on investment
Recommendations
The WG 08 recommends that an in-depth study be carried out to establish
the status of regulation of the pricing of basic postal services and
recommend the best methodology for the region.
2.1.9
Progressive opening up of exclusivity areas of postal
services (physical, electronic, financial) operation for
private sector participation
The Study
The objectives of the Working Group in this regard were to:
a)
Develop a framework for the gradual elimination of exclusivity in the
provision of postal services.
Findings
The WG8 noted that the exclusivity in the provision of basic postal services
was given to Public Postal Operators as an incentive to meet their Universal
services obligations. The group also noted that some EAC Member States
have introduced the Universal Communication Services Access Fund to
which all postal services providers are contributing. The enforcement of this
exclusivity in Postal Service Provision has been challenging.
The concept paper on how the universal service funds can take over the
universal postal obligation that were the rationale for assigning exclusivity of
certain services to Public Postal Operators in the region is been prepared in
the meantime.
13
2.2
Reporting
2.2.1
Industry Reporting and Data-frame
The Study
The second thematic area captured the assigned ToRs items related to
reporting in EAC region. It involved developing a framework for collection,
analysis and reporting/dissemination of regional Key Performance
Indicators and statistics on the communication sector in East Africa. It
involves having in place an EAC communications data collection and
reporting framework and establish a Databank.
The WG 08 noted the importance of establishing a Centralized databank
of key ICT indicators in EAC region, given the fact there is no harmonized
way of data collection and reporting of ICT indicators among EAC
member states. In addition, there is a need to have a reliable source of
data for the ICT related statistics in EAC.
It is in this regard that WG 08 drafted the data collection and reporting
framework for EAC member states to be adopted by the Congress. The
framework was mainly based on the ITU World telecommunications
Indicators manual, pay TV and Postal and courier related indicators was
benchmarked on the TCRA data frame.
Findings
(i)
Data Framework Development
The framework comprises seven main types of indicators per sub sector
including: Subscriptions, Coverage, QoS, and Traffic, Revenue,
Investments and employment.
Under each item, the framework specifies and defines the indicator, as
well as its computation method. A detailed data-frame is attached
herewith as Annex IV
The indicators could be collected either on quarterly or on annual basis
depending on the type of the indicator in question.
(ii)
Databank
The EACO secretariat has already hired a consultant to build the
databank and once the framework is approved the databank shall be
populated by the approved indicators. However, WG 08 suggests that
possibility to build an online reporting system with automatic generated
reports should be looked at so as to ease both the data collection and
reporting process.
14
Recommendations
Subject to approval of the framework by the Congress, WG8 recommends
the following:
(i)
The EACO Secretariat to own and manage the databank
(ii)
EACO Secretariat to design both short and long online
questionnaires
(iii)
EACO Contact persons be nominated by each member state
regulatory authority to facilitate the filling of the quarterly and
annual questionnaires
(iv)
EACO Secretariat to be responsible for quarterly and annual
publication of key ICT indicators in EAC region.
(v)
EACO member states to standardize their data collection
frameworks in line with the EACO framework
3.0
OTHER ISSUES
Following the northern Corridor initiative on finding solution to high
roaming rates, the EAC Partner States have adopted the efforts and
from 31st December 2014, northern corridor operators have adopted a
term solution of US Cents 10 for IOT charges for calls originating and
terminating within the EAC region while waiting for a long term solution
on the basis of the Study being carried out for the region by EAC
Secretariat in collaboration with EACO. The result of the study will lead
to the establishment of the One-Network-Area (ONA) in the East
African Partner States.
4.0
CONCLUSIONS
Costing and Pricing of Communication Services constitute the essential
ingredients in both developing and regulating the sector in a level playing
field with the application of global best practices. EACO objectives of
ensuring quality of services that are affordable in the region compels studies
that covers all sectors of ICTs in view to enable all stakeholders continue
getting the value of their money as well as affordable access to information
for socio-economic growth.
15
5.0
REQUEST TO ASSEMBLY OF REGULATORS
5.1
To NOTE the REPORT of the Working Group 8 : Communications
Service Pricing and Industry Analysis
5.2
To APPROVE/ADOPT the Recommendations submitted in the
Report
16