Telcos scramble for more revenue

– Part I

By Samuel Nii Narku Dowuona/ADOMBUSINESS

Following the increase in taxes and utility bills, and the attendant rise in cost of operations for businesses across the country, the telecom operators in Ghana seem to be scrambling for every little money they could find from every corner to meet their rising costs.
The telcos have been complaining about increasing cost of operations for years, as a result of increasing taxes, numerous charges by various state permitting bodies, and huge increases in power tariffs among others things.
Government recently increased the Value Added Tax from 15% to 17.5%, and also legalized a second component of the Communication Service Tax (CST), which the telcos have done well to absorb on behalf of their customers for years.
Prior to that, government had slapped a 5% Stabilization Levy on selected sectors of the economy, including the telcos. There is also a 20% import tax on SIM card because it is ‘erroneously’ captured in the law as a storage device. And all those are added on to the regular Corporate Tax that the telcos pay to government.
Meanwhile, industry regulator, National Communications Authority (NCA) recently introduced an annual rent on new blocks of numbers issued to telcos. This is to ensure judicious management of phone numbers. But the rent payable to the NCA would have been money in the pockets of the telcos.
There is also the Universal Access Fund into which telcos pay one per cent each of their revenues every year, plus another one per cent payable to the NCA every year.
All this is happening at a time when, allegedly, only one telco, MTN is making profit after tax, while the rest are barely breaking even. It is however important to note that apart from MTN, none of the telcos publish their annual financial records, so it is difficult to confirm if their revenue is really dwindling.
Moreover, recently some of the cost elements such as the local government charges and cost related to relocation of infrastructure and fixing damaged infrastructure [mainly due to road construction] have been streamlined in favor of the telcos, through the intervention of the Telecoms Chamber.
But Chief Executive of Telecoms Chamber, Kwaku Sakyi-Addo told Adom News in the face of rising cost and ‘dwindling revenues’ the telcos have no choice than to increase tariffs in order to survive the rising cost of operations.
The telcos had always said voice tariffs would keep dropping till it comes to zero over time, but just about two weeks ago, at least four out of the six telcos announced increases in their voice (both local and international), SMS and data tariffs.

Voice Tariffs
Market leader MTN has increased default on-net call rate from 10Gp to 10.5Gp per minute, but default off-net rate remain unchanged. Meanwhile, on-net SMS tariff is up from 4Gp to 4.5Gp, while off-net rate is up from 5Gp to 5.5Gp. And data rate is also up from 9.5Gp to 10Gp per megabyte.
Second place Vodafone, which already had the highest default call rates of 14.44Gp per minute, has also increased it to 15Gp for both on-net and off-net, and has increased the promotional call rate from 8.4Gp to 8.9Gp.
Third place Tigo has also increased on-net tariff from a very low 3Gp to still very low 3.6Gp, while off-net is gone up from 10.2Gp to 10.8Gp. But the company did not announce SMS and data rates.
Airtel’s default call rate is up from 8.4Gp to 9.2Gp for both on-net and off-net but it has not announced any increases in SMS and data rates.
Both Glo Ghana and Expresso told ADOMBUSINESS they have not increased any of their tariffs so far.

VAS Revenues
Meanwhile, all the five GSM players also have revenue share arrangements with their third party Mobile Value Added Service (VAS) providers, where the telcos take a lion’s share and leave the “chicken’s” share for the VAS providers to share with content providers. And this year the telcos have announced some adjustments that scoop some more of the little money the VAS/Content providers got.
The VAS providers are mainly the young IT startup companies that develop the applications which usually run on the short codes that the telcos use to send stuff to their consumers and charge. Some of the contents are ring tones, motivational messages, bible quotations, and more.
Airtel has always maintained a 70%-30% revenue share arrangement with the VAS providers. Airtel takes a “whopping” 70% of the revenue and gives the VAS providers 30% to pay taxes on and share the rest with content providers like musicians and others whose provide the material that is sold to telco customers.
Vodafone used to have a 50-50 revenue share arrangement, but recently they have changed it to 70-30 in favor of Vodafone, and to the detriment of the young app developers.
Glo Ghana also has a 70-30 arrangement, but according to all the VAS providers, Glo has not paid them any money over the past two years, even though there has been lots of transaction on the VAS platforms with Glo.
Tigo’s revenue share arrangement with the VAS providers is 65-35. But all the VAS providers say Tigo is a difficult partner because when it comes to reckoning, Tigo always pose challenges. As a result the VAS providers are deserting Tigo, and the telco’s VAS revenue is now leaking.
Market leader MTN’s revenue share arrangement with the VAS providers is rather very interesting. MTN has a very different revenue share arrangements depending on how much revenue the VAS provider generates.
If a VAS provider generates between zero Ghana cedis and GHC59,999, MTN take 65% and the VAS provider keeps 35% to pay taxes, content providers and themselves. The arrangement is 60-40 for revenues between GHC60,000 and GHC119,999 and 55-45 for GHC120,000 and above. This means the highest a VAS provider could possibly get from MTN is 45% of the revenue it generates.
The VAS providers say this new arrangement from MTN was presented to them only this year and it represent a 10% increase in favor of MTN across board. They said MTN used to give 55% to the VAS provider for generating GHC120,000 and above, but it is now down to 45%.

Telecom quasi cartel?
As the global telecom industry goes data, it is mainly the work of the young App Developers both here and abroad that would boost data consumption and revenue thereof. And the global giants like Google, Apple, Microsoft, Blackberry, Yahoo and others maintain revenue share arrangements that put a bigger percentage of the VAS revenue in the pockets of the young App developers so they can develop more apps to boost data consumption.
But according to the VAS providers in Ghana, all the telcos here claim the decision for them (telcos) to keep a lion’s share of the VAS revenue was taken at the group level, and not in Ghana. So they could not change it to favor the VAS/content providers.
The VAS providers think the telcos use that “group level excuse” to impose tariffs; and they suspect the telcos are increasingly becoming a quasi cartel. They all increased tariffs almost at the same time, and now almost all of them have increased their share of the VAS revenue almost at the same time.
The local VAS providers/App developers are therefore worried that the way the telcos are scrambling for more revenue by all means, could eventually stifle the growth of the VAS industry here and put most of the VAS revenue from Ghana in the hands of foreign app developers.
But the telcos also blame it on increasing cost of operations as a result of heavy taxes, increasing power tariffs and other operational cost elements.
It is no secret what transpired between Vodafone and its fixed broadband (fbb) customers – how, according to the customers, the telco ‘lured’ them with an unlimited service at GHC45 then increased the price to GHC65 and placed a 15GB cap on it at the same time.
Some of Vodafone’s corporate customers have also complained to ADOMBUSINESS that the telco has in some cases tripled fbb tariffs without prior notice, but because competition is not offering anything better, the customers are forced to stick with Vodafone.

Unsolicited communication
As pointed out above, the telcos get a lion’s share of the VAS revenue and so very often the VAS providers abuse the rights of subscribers by offering unsolicited paid services, while the telcos sit aloof and treat those abusive VAS providers with kid’s gloves. Communication such as text messages, ringtones, caller ring back tones and other things are sent through short codes to subscribers without their consent and yet they get charged premium rates either monthly or instantly for it.
The telco/VAS provider would often send a message like “We are offering you this service. If you do not want it please send “STOP” to short code XXXX”. But for the millions of illiterates and non-tech savvy folk, who do not even know how to use SMS, they never send “STOP” so the service keeps coming, they do not enjoy it and yet they keep paying premium rates without their knowledge.
Some of the services also come in the form of phone calls from premium short codes and from regular phone numbers. Once the receiver picks the call he or she gets charged even without asking for the service. Vodafone is particularly notorious for this; using short code 2510 and regular phone number 0507807000. This writer is a victim of abuses from both numbers. A phone call from 0507807000 could be coming from any caller so one would not suspect it is a premium charge call. But it cost this writer GHC2 picking a call from that number and hearing about 5 seconds of some unsolicited and unnecessary information.
The telcos often claim the abuse is entirely from their VAS partners and those abusive partners often get sanctioned when their conduct is discovered. But the telcos themselves operate separate short codes through which they also commit similar abuses. For instance MTN has a 1355 caller ring back tone service, and several subscribers have complained of MTN imposing the service without their consent. It is difficult for one to know he/she is being offered the service because the caller ring back tone is what people hear when they call another person's phone. So the subscriber would not know. And very often that tone is an MTN advert. So MTN is using subscribers to advertise and yet the subscriber is rather paying for it without knowing.
There are similar abuses on other networks, all carefully designed to rake in more revenue through very unconventional means. Subscribers who discover the abuse and complain are taken off the service and sometimes compensated. But there are millions more who are not even aware they are losing money to a scrambling tactic by telcos.
If you thought some of the means the telcos and or their VAS partners are using to rake in revenue is bad enough, wait for the second part of this article and read about some of the straight up foul means they use to undercut each other for more revenue. But in the midst of it all that, the telcos are also doing promos, which are also geared towards more revenue, but offer lower call/SMS/data rates.