Poltical Economist

The Nigerian Communications Commission (NCC) is set to develop a new and proper pricing structure for high speed Internet services in Nigeria, in expectation of when broadband services become more ubiquitous in the country.

The move is in line with the Commission’s mandate of creating an enabling environment and promoting fair competition in the telecoms industry and in line with the strategic objectives of the National Broadband Plan.

The NCC said this will not only ensure the affordability and availability of Broadband but also ensure fair competition by checking price discrimination, excessive pricing, predatory pricing, margin squeeze and price fixing amongst other things.

To bring this to pass, NCC Executive Vice Chairman, Prof. Umar Danbatta, at a ‘Stakeholders Forum on the Cost Based Pricing for Retail Broadband and Data Services’ in Lagos, on Wednesday, disclosed that the commission has appointed Messrs’ KPMG to conduct a study on the above subject matter.

Danbatta explained that KPMG Professional Services, among other things would set guidelines for the regulation of the pricing of retail broadband and data services in Nigeria and specifically determine price cap and floor where necessary; develop a regulatory pricing model based on the peculiarity of the Nigerian broadband and data services market coupled with international best practices; design the framework for collation of data that will be used for the Determination; determine the appropriate cost modeling technique and methodology to be adopted; determine the appropriate pricing regulatory measures to be adopted; determine need for ex-ante and ex-post regulation with respect to pricing in the retail broadband and data market segments.

Other expectations from KPMG would include to develop a suitable definition of big and new entrant/small operators, if necessary; conduct a general assessment of the retail broadband/ data market segment with a view of determining the appropriate methodology to be adopted; and design a cost model that is suitable for determining retail prices for broadband and data services taking into cognizance the macro-economic, technology and technical relevant factors.

The outcome of the study, according to Danbatta would result in among other things; the determination of a uniform pricing structure within the broadband and data segment; ensuring effective competition in the broadband and data market segment; guaranteeing affordability and accessibility of broadband and data services in Nigeria; facilitating inflow, development and growth of the broadband market segment; and the stimulation of further economic growth considering the catalytic role broadband services plays.

The NCC EVC noted that the Nigerian Telecommunications industry has undoubtedly recorded significant growth over the years and the impact and benefits that come with this growth cuts across every segment of the Nigerian economy and the lives of its citizeny.

“Whilst the Commission is happy with this phenomenal growth recorded in the industry, especially in active voice subscriptions, we believe that the next critical phase is to ensure that everyone – wherever they live, and whatever their circumstances – have access to the benefits of broadband and this can only happen with the pervasive deployment of broadband infrastructure and services across the country considering the potential of broadband as a key enabler of national productivity, economic growth and development, social inclusion and cultural enrichment.

“The affordability and accessibility of broadband services however is largely determined by the prices that are charged for those services. Therefore ensuring that prices charged for retail broadband and data services are cost based in line with international best practice is critical to the deployment and uptake of broadband and data services in Nigeria,” he stressed.

Danabatta added that whilst addressing market dominance issues in the upstream, wholesale markets is one of the ways to facilitate competitive price levels in retail broadband access and service markets, saying that it is possible that such action may not be a sufficient constraint on pricing in all segments of a retail broadband market, “as such some form of ex-ante regulation of retail prices is appropriate or even necessary.”

In their presentation, a Partner in KPMG, Segun Sowande, explained that the Bottom-Up (BU) methodology will be adopted in developing the cost mode, which entails building up costs from many detailed components, and from the costs of each.

The BU model will look at demand; geographical data; distance; cost splitting and leased line cost (LLC). KPMG explained that Geographical data defines the nodes locations (and hence fibre distances), while the demand for services defines how many routers and multiplexers, among others are needed.

According to them, the numbers and distances define the total cost (volume x cost per unit or per km), while the total cost is then spit: the core network is split to broadband services, voice services, as well as leased lines. They added that the remaining leased line costs are broken down to the services, based on the numbers, the speed and distance of each leased line type.

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