Predators of Ghana’s telecom industry - Part I

Samuel Nii Narku Dowuona

Telecom operators in Ghana have be battered, sometimes justifiably so, for several reasons; poor quality network, poor customer service, exorbitant premium rates per text message in consumer loyalty rewards promotions, complex call tariff plans, painting people’s houses and shops poorly and either paying them peanuts or nothing at all, and for making wild claims about call and data charges and speeds, which do not reflect the actual experience of customers among other things.
When telecom operators opposed a system meant to monitor inbound international calls to check SIM box fraud and safeguard government’s tax revenues therefrom, they were criticised by some public spirited journalists in the interest of the public; again, telecom operators have been taken on for going into symbiotic relationships with certain media organisations and persons to the detriment of the interest of the greater majority and of the spirit of democracy.
But very little is usually said about the immense contribution of the telecom industry to the economy in the light of the somewhat predatory conditions they face in their operations. For fear of victimization, the operators usually shy away from talking about their frustrations. One operator even threatened to sue a journalist because that journalist attributed criticism of unfavourable conditions to an executive of that operator; and one operator also fired a staff because he voiced out the frustrations of that operator to a journalist.
The telecom operators are usually looked upon as predators preying on their customers’ ignorance about technical side of things in the industry. But it is about time we stopped and looked closely at the real impact of the industry on the economy and some of the rather unfriendly conditions under which they have, and continue to deliver that impact.
The Ghana Statistical Service (GSS) reported in 2010 that the telecom industry has been a key driver of economic growth, directly accounting for 7% of investments in Ghana, 10% of government income, and 2% of GDP (Gross Domestic Product).
To put that into perspective, the GSS submitted that the service sector, including banking, telecoms and others, constituted the biggest driver of economic growth, and the telecom sector alone, is a key facilitator of the performance of others within the service sector itself, plus it has boosted growth and productivity of workers in all other sectors of the economy.
In direct terms, the telecom sector is facilitating communication probably among more than half of Ghana’s estimated 24 million plus population. The latest National Communication Authority (NCA) Report on subscriber numbers indicate as at the close July, there were 19,527,675 mobile subscriptions in the country and 278,221 fixed line subscriptions, which represents 80.3% telephony penetration.
Data penetration is 7%, comprising 5% Internet penetration and 2% SMS (text messaging); and data also accounts for 7% operator revenues (Source: Macquarie First South, January 2011 - Data for Africa). But data is growing steadily as players in the industry continue to extend access across country mainly through corporate social responsibility investments into ICT. This means such services are mostly free for the rural dwellers.
Whereas fixed broadband internet usage is relatively low, internet access on mobile phones is growing very fast as smartphones and tablets use increase in country. The operators have landed at least three submarine fibre optic cables in Ghana; Glo One, Main One, and WACS (West African Communication Systems) in addition to the already existing but relatively small SAT-3. These came at very high capital expenditure (CAPEX) to the operators, and that means data and voice capacity and speeds are going to be phenomenal and services are likely to be cheaper.
Sophie Curtis, in an article titled Technology in Ghana: A Blessing or A Curse, acknowledged that “the country’s exceptional mobile infrastructure has undoubtedly helped the country to progress leaps and bounds in recent years, making it an attractive target for international investment, adding that ICT could be extremely empowering for people in rural communities – particularly women.
Sophie also noted that “of all the African countries, Ghana is undoubtedly one of the most technologically advanced. Its mobile infrastructure puts much of the developed world to shame, and networking company Alcatel Lucent has even hinted that the company is working with mobile operators in Ghana to launch LTE (Long-Term Evolution), which is the most modern mobile technology.
Alcatel Lucent is not the only ICT giant which has been attracted by developments in Ghana’s telecom sector in recent times –Ericsson, HP, and Huawei are also here providing network equipment and service to the telecom operators. In fact, Ericsson recently established its fourth Regional Support Centre in Ghana to serve the rest of Africa. Country Director of Ericsson, Alan Triggs admitted at the launch that one of the key attractions was the phenomenal development in the telecom sector in Ghana. For starters Ericsson employed 20 young Ghanaian ICT and Network Engineers.
Speaking of jobs, the telecom sector is also proving at least 6,000 direct jobs and 1.5 million indirect jobs. (Source: Impact of Mobile Telephony on Ghana’s Economy, Victor Tekpeh, October 7, 2011, www.myjoyonline.com). Tekpeh noted that since 1992 the telecom industry has invested a cumulative amount of $6 billion in Ghana, and in 2010 alone, they invested $300 million in upgrading and proving infrastructure for 3G. Market leader MTN recently invested a whopping $280 million to establish three data and switch centres in country. Vodafone has invested some $500 million on network improvement in just two years.
The sector also supports other sectors of the economy by providing data storage and internet services for almost all public and private institutions. There is no doubt services are delivered faster, and workers work more efficiently both in the service and the production sectors due to effective telecommunication.
Talk of money transferred and received on phone to pay for good and services; students being able to check their exams results online and know their school placements through text messages; the ability to check bank accounts on phone made possible by services like Sika Text (a collaboration between MTN and SSB Bank); MTN Mobile Money, Airtel’s Zap, Tigo Cash and others have become household names. Mobile Insurance from MTN and Tigo are also fast catching on, to mention but a few of the value added services (VAS) from telecom operators.
It is not a secret that telecom operators have popularized corporate social responsibility (CSR) in this country. Until the telecom operators came, Ghanaians were short-changed when it comes to CSR. In fact, the other major CSR contributor is the mining sector, but the difference is that mining operations usually deprive whole communities of their livelihood so then CSR becomes necessary and compensatory. But telecom operations rather improve people’s lifestyles and conditions, and yet the telecom operators are at the forefront of CSR in this country.
REVENUE DECLINE
In spite of all the advancements in mobile technology and the impact of the sector on the economy, the cost of mobile communication in Ghana is one of the lowest in the world right now. The lowest is Bangladesh, and Ghana is the 15th lowest in the world and 5th in Africa, slight higher than costs in Ethiopia, Sudan, Egypt and Kenya in that order. (Source: Nokia “Affordable Mobile Communication, TCO Study, 2011).
Stiff competition is even pushing call and data tariffs further down to levels that do not seem sustainable, given the huge core taxes imposed on industry players, plus numerous side levies, penalties and charges on their operations, infrastructural installations and several other payments related to their efforts to reach more deprived communities with their services and create opportunities that would empower people economically. What an irony – someone would ask.
Victor Tekpeh noted in his article that between 2007 and 2010, average revenue per user (ARPU) has declined by a whopping 34.5% from GHC14.7 to GHC9.5, which means for some operators, the figure is even much lower. Indeed the recent half year reports from all the operators indicated the telecom price war in Ghana is dealing a hard blow to all the operators in terms of revenue. Every one of them either recorded a decline in the rate of revenue increase compared to previous years, or recorded negative growth.
Here is how one industry analyst painted the picture with respect to revenue sharing and taxation under interconnectivity – For 8Gp per minute of off-net call for instance, “first, you subtract the 15% VAT/National Health Insurance Level (NHIL) from the 8Gp; that leaves 6.96Gp.Then you subtract 6% communications service tax (CST) from what's left, leaving 6.56Gp. Then you pay the receiving network the ‘whopping’ 5Gp interconnect plus 6% CST and 15% VAT/NHIL on that, leaving 0.468Gp. Subtract 1% for GIFEC contribution and 1% for NCA Regulatory fee, a 10% commission to your top-up distributors, and the network is left with 0.342Gp per minute for off-network calls at 8Gp gross. Try paying rent, utilities, and staff on that.”
India is one huge telecom emerging market where subscribers have grown from less than a million in 1998 to 752 million in 2010. It is also one of the countries where telecom price war is so stiff operators started charging less than a cent per call just to remain competitive and survive. Meanwhile, there are multiple taxes, levies, penalties and charges on telecom operators in that country, just like in Ghana. A recent report by Price Waterhouse Coopers in that country indicated that while mobile subscribers are growing drastically, ARPU and, for that matter, operator revenues are rather fast declining, just like in Ghana. Price Waterhouse Coopers also found that as a result of the decline in revenue, operators have also cut down on investments in India drastically.
Obviously, telecom revenue is on the decline in Ghana, and yet the operators are required to keep reinvesting and expanding, meanwhile that are also saddled with numerous taxes, levies, penalties, fees and anything that can be given a name just to get money from telecom operators.
As a country we claim to approach privatization from a position of creating an enabling environment for private capital to come in and contribute to national development, and yet with regards to the telecom industry, the conditions are enabling probably at the entry point, but quite predatory once the operator gets in. The chemistry between government/regulators and the telecom operators seem to be like the ‘they and us syndrome’ – to wit “they (telecom operators) are making money from us (Ghanaians) so we (government/regulators) need to squeeze them, (operators) for more money”.
The way things are going it would not be surprising to see some operators merge for survival; and gradually the industry would grind to a quasi-monopoly, which we have sought to kill from the start by liberalizing the market and bringing in six operators. Six operators for a population of 24 million may be too many, but a quasi-monopoly is definitely not an option either.
Some industry analysts have predicted that eventually there would be only three mobile telecom operators in Ghana. If so, who those three would be, is not yet clear, but at least MTN already seem to be a runaway market leader and looks formidable to survive every shock. Vodafone has also been making a strong showing since it came in country, and has shown signs of riding the tides well. In fact Vodafone Ghana was the only operators that recorded a relatively huge growth in half-year revenue this year. But the rest are already showing signs of gradual demise, and there is a sixth, operator, Glo coming soon, just like the second part of this article is coming soon.

Samuel Nii Narku Dowuona/Ghana