market analysis and remedies in malawi

researchICTsolutions

Competition & Market AssessmentAnalysing the RFIs, Definitions & Remedies

MACRA, Blantyre14 January 2014

Andrew DymondPartner Research ICT [email protected]

1

mailto:[email protected]


The steps to ex-ante regulation

Remedies / Obliga-tions

Monitor only / remove obligations


Results of analysis – remedies or not

‣ Yes: If one or more defined markets do not have competition and the development of competition is limited by player(s) with dominance / significant market power (SMP), the regulator can decide on a specific remedy, or

‣ No: If the markets are found to have nascent (full or developing) competition – even if one or more player has SMP - the regulator should decide to limit attention to that of monitoring


Task re dominance in MalawiBest practice factors that should be considered in a dominance evaluation in Malawi

Factor Description Factors in Malawi1 Market share analysis – subscribers,

traffic & revenuesDefinitely a co-dominant market. Discuss the tariff, subscriber and traffic trends. What impact would lower MTRs or an Off-Net price cap have?

2 Size of undertaking(s) 3rd entrant into mobile market is at a distinct disadvantage

3 Control of main infrastructure not easily replicated

Two only main options for backbone

4 Technological advantages GSM vs. CDMA5 Marketing power, behavior & sales

strategyAirtel and TNM very dominant

6 Countervailing buying power on the demand side

What power have consumer associations, MISPA or Government?

7 Privileged access to capital markets Are international firms better placed?8 Economies of scale/scope GSM vs. CDMA9 Vertical integration Separation of incumbent is a potential remedy10 Barriers to expansion Mobile entry


RFI Data requestedInfrastructure Fibre routes Q3 2014 Q2 2014 Q1 2014 Q4 2013

Microwave routes BTS POPs

Wi-Fi Hotspots

Subscribers, active, SIMs, etc.

Fixed WiMAX CDMA CDMA-EVDO GSM 2G GSM 3G Fibre customers

Traffic Prices Distribution Network

Financial Report

RFI sent out


RFI responses received & analysedCompleted• Access

Communications Ltd.

Partial• MTL• TNM• Airtel• ESCOM• Globe

With consultant web research, data were sufficient to complete market

definitions, interim analysis and recommendations

Interviewed• Access Communica-

tions • Internet Service

Providers Association• Globe Electronics• Skyband

To 5 December 2014 To 12 January 2015

Submissions received• MTL• TNM• Airtel• ESCOM• Globe• Skyband• Burco

The conclusions and recommendations was

slightly revised based on new information


Recap: Defining Markets - Substitutability &

Hypothetical Monopolist Test ‣ The theory: What would happen in the event of a small but significant, lasting increase (5-10%) in the price of the defined service or product?

‣ Other products assumed to remain constant‣ Will other suppliers / products or services enter the market and limit monopolist’s

profit increase? ‣ The answer determines if a substitutable product or service exists and defines the

market

Example ser-vices

Start:Candidate services

Apply the hypothetical monopoly test

Profit increase?

Other companies / services enter

ADSLWiMAX

3G BroadbandNO

YES

Conclusion: Market defined

Add to

group


Recap: Mobile analysis - Basket price comparison for Africa‣ RIA website – lowest price

comparison http://www.researchictafrica.net/prices/Fair_Mobile_PrePaid.php?t=a&u=u

‣ Malawi ranked 39th out of 46 African countries compared by RIA

‣ The price of Malawi’s OECD Basket of services has fluctuated over the last 4 years and generally stayed well above average, while many other countries have seen falls in their prices

‣ It seems there has been a “comfort zone” which was not in consumers’ interest,

‣ ….. though actual prices paid are well below web-posted prices (Averaging around 50%) due to loyalty and location based discounts

TunisiaKenyaGhanaEgypt

EthiopiaNigeria

South AfricaTanzaniaRwandaUganda

CameroonNamibia

BotswanaMozambique

D.R. CongoMoroccoZambiaLesotho

Burkina FasoNiger

Cote d'IvoireZimbabwe

ChadMalawi

SenegalGuinea-Bissau

SwazilandAngola

Seychelles

0 5 10 15 20 25

Selected Pre-Paid Mobile Pricing

OECD 2010 Low usage Pre-paid Basket

http://www.researchictafrica.net/prices/Fair_Mobile_PrePaid.php?t=a&u=u




Malawi’s relative ranking since 2010 in US$

‣ The position has fluctuated between 20th and 44th lowest in Africa‣ However unpublished loyalty & location based discounts reduce tariffs

significantly

Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 20140.00

5.00

10.00

15.00

20.00

25.00

30.00

Average Malawi

24 39 40 41 44 44 36 32 27 20 23 38 41 31 38 39

Rank

Cheapest OECD Basket US$


Price rises & fluctuations in Malawi largely due to exchange rate‣ Malawi’s prices based

on lowest published tariff for OECD call/text basket are high, and have increased in Kwacha due to the decline in the USD rate

‣ However, the RFI responses suggest that Malawi’s prices are not as high as implied by the OECD basket methodology

‣ This is due to relatively high consumer response to high Off-net differentials and operator incentives with On-net discounts

USD: MWK


Reconsidered previous questions on mobile voice pricesIn Malawi, what reasons are there for prices to be higher?

Lack of competition beyond the Airtel / TNM duopoly reduces customer choice. However, effective prices paid appear to be less than 50% of those implied by the basket methodology, and ARPU is around $2.00

How do the operators compete with one another for customers & revenues?

Primarily loyalty, sign-up location-based (dynamic) discounts, and other ad-hoc incentives

Are prices and options easily understood by consumers? The RFI responses have shown a very strong customer response to On-Net incentives such as

location – based discounts (implied by 92-93% On-net calling pattern) The strength of response relative to other countries may be due to Malawi’s low per-capita

income, combined with high interconnect / Off-Net premium

Is price control justified? - Retail, or wholesale (terminating rate) MTR reductions will not directly impact customers due to their established strong On-net calling

pattern Operator interconnection revenues are therefore low percentage of total

What country or countries should Malawi use as a benchmark? Countries are unique, but those implementing lower MTR regulation (e.g., S. Africa and Kenya)

have improved the most


The Malawi ICT Market – Overviewincluding RFI response resultsThe main operators‣ Fixed Operators (*Unified licenses)

- Malawi Telecommunications Limited (MTL) http://www.mtl.mw/ <20,000 subscribers connected via copper loops based on RFI response – 80% corporate customers

- Only 6 PSTN exchanges

‣ Mobile*- Airtel Malawi & TNM – Approx. 5 million (around 50/50% shares)- MTL – CDMA & EV-DO- ACL – CDMA & EV-DO

http://www.mtl.mw/

http://www.mtl.mw/

http://www.mtl.mw/


Mobile Revenue shares from the RFI responses

‣ Voice 75%‣ Data 12%‣ Mobile money still very small‣ Both operators report 92% of outgoing

calls or traffic minutes are on-net!‣ This reduces the direct consumer

impact of MTR reduction as a remedyVoice Data SMS Leased lines &

OtherMobile money

0%

10%

20%

30%

40%

50%

60%

70%

80%

Airtel Retail Revenue Distribution

Voice Data SMS Leased lines & Other

Mobile money0%

10%

20%

30%

40%

50%

60%

70%

80%

TNM Retail Revenue Distribution

‣ Call revenues per minute of use 16-24 MK

‣ ARPUs in the US$ 2-3 range


Revenue shares – Compare Safaricom The resilience of voice Data’s hard road The importance of M-Money

66%

7%

9%

18%


Broadband services – competitive market

‣ Fibre to the premises- A few businesses (e.g., banks / National switch)

‣ DSL- MTL only – No information- Price US$ 25 /month for 128Kbps min. service

‣ Fixed / semi-mobile wireless- Major ISPs offering WiMAX – 4,000+ residential, 1,000+ corporate- Other fixed wireless 3,000 residential, 1,000+ corporate- Mostly in the 4 cities

…. up to 14 total with some presence via CDMA- Pricing trends – competitive, both unlimited & volume based

‣ Mobile broadband market shares- Household penetration – 3.35%+- Growth rate – 78%- Airtel /TNM shares – around 50/50 % of WCDMA/HSPA- MTL EV-DO – subscribers no information- ACL EV-DO - 5,000+ subscribers- Globe & Skyband EV-DO, 00’s subscribers

Total cable-based broadband subscribers currently very low. No information provided by MTL

Total mobile broadband subscribers est. 400,000+Growing rapidly

10,000+ sub-scribers


MTL Network Backbone Facilities• MTL “Today and Tomorrow”

presentation October 2010• Facilities are existing today• Three fibre routes to E.

Africa coast Seacom & EASSy cable landings existing today

(Now fibre connection)

Fibre route com-pleted, shared by Airtel

Now a fully fibre route


Role of ESCOM • Second fibre backbone incl. 3 additional fibre routes to the coast

• All or most companies using ESCOM in addition to MTL

• Impact - cost has reduced from $1,700 to $400-700 / Mbps per month

• Will trend downwards to $100-200 (cost at the coast)

• Potential for FTTx services using ESCOM poles


Backbone & Fibre Checklist‣ MTL Fibre: Mzuzu – Blantyre & rings, Mzuzu-Tanz border

‣ ESCOM Fibre: Lilongwe-Blantyre, and to Moz & Zambia‣ Globe has invested in the electronics on ESCOM

routes‣ Airtel Urban rings

‣ Also a partner or tenant in the MCL Mzuzu-Tanz border route

‣ World Bank / RCIP route ‣ To be commissioned in August 2015‣ This will provide a 3rd supplier of fibre to the coast, via

TanzIs there competition in transmission capacity supply? What are the options for ISPs? …… Options do exist

What about prices? …..have reduced, could still come down more


Infrastructure sharing today

‣ TNM lists 46% of towers “shared”‣ ACL stated that 30% of its BTS’s are

shared‣ The proposed bottom tier Facilities

License will strengthen the regulatory direction to tower and facilities sharing


Internet Market - Licensed ISPsBroadband retail markets

Malawi Broadband Pricing on websites

• Consultant research on websites of MTL, Skyband, Globe, Burco, Airtel and TNM confirms a strongly competitive and stratified (multi-level) market for supply of broadband and internet services to consumers, small businesses and corporates


Recap: Data prices‣ International bandwidth

described as “high cost” in a 2013 market report

‣ Telegeography Report in 2012 “Lifting Barriers to Internet Development in Africa: Suggestions for improving connectivity” showed Malawi as regionally comparable, though higher priced than coastal East Africa

‣ What is the price trend today?


Comparison of relevant countries Q3 2014

‣ Small reductions from 2012 only

‣ Malawi now compares favorably. Web-site survey shows prices even below that shown depending on volume purchased

Kenya

Malawi

South Africa

Tanzania

Nigeria

Mozambique

Uganda

8.7

8.7

9.2

9.3

11.2

12.8

13.7

Price for 1GB mobile broadband data (USD)


But quality not so good yet‣ OOKLA Net Index QoS “ping tests” show Malawi considerably behind neighbours in average household consumer data speed measurement

‣ Operators appear to be competing on price at the expense of quality until wholesale capacity prices fall to the level available at the coast

‣ ISP average bandwidth per corporate customer also approximates the measurement

Malawi

Mozambique

South Africa

Nigeria

Tanzania

Uganda

Kenya

0 1000 2000 3000 4000 5000 6000 7000

1521

3050

3906

4344

4434

4439

6287

Broadband Average Speed (Kbps)

http://www.netindex.com/download/2,201/Malawi/




Wholesale broadband market issues‣ Are ISPs able to obtain

- IP transit and International access- Managed national lease lines, e.g., PDH and/or SDH- Bitstream service- Fixed end user access – Unbundled local loops to derive xDSL

services ‣ How many choices are there for leased line capacity

- Today - Expected developments within 2 years

‣ Other forms of access to consider, e.g.,- Infrastructure sharing @ fair commercial rates (e.g., BTS sites and

ducts)- Best practice is for the regulator to monitor or set principles and

practices, but not prices


Value chain perspective - broadband

‣ Final retail prices have influential upstream wholesale markets (S. African example)

‣ Three separate broadband markets identified

Incl. peering

(IXP)


Potential markets in MalawiCategory Market CommentVoice Retail Local fixed retail Less than 2% penetration and <6% of market

Mobile retail High priced, co-dominant operators

Voice wholesale

Mobile termination US$ 0.04 - could go to $0.01-0.02Fixed termination US$ 0.04 – no so important

Broadband retail

ADSL Single market in urban centres - competitiveFixed wireless / WiMAX / 4GMobile broadband / 3G Competitive with WiMAX in urban areas

……. The only option in rural areasHigh quality fixed broadband for business (e.g., FTTx or guaranteed quality WiMAX)

Supplied competitively by MTL, Skyband, Burco, Globe

Broadband wholesale

Local access (unbundled loops) Loops not in good condition … could be opened to competition but questionable value & no strong interest from ISPs

Bitstream services Apart from ESCOM being present, these markets dominated by MTL. Competition exists but it is probably held back by MTL and ESCOM non-transparency.The best practice remedy would be to separate MTL’s facilities business from its networks services (and ESCOM’s telecom and power businesses), and publish wholesale prices

Bandwidth lease line / transmission capacity (e.g., price of E1’s, 34, 100 Mbps), including tower access

International Gateway accessInternational Internet leased lines


Conclusion: How many markets and which ones appear to be competitive?

Voice‣ Fixed is very small & solely MTL unless VOIP services allowed for data service providers‣ Mobile is dominated by Airtel & TNM because of the demand for GSM‣ ACL and new entrant will be at peril without MTR reduction and access to 900 MHz GSM

frequenciesData / Internet‣ High quality business customers, including VPNs, MPLS, etc.‣ Upper–end consumer and small business‣ Mobile broadband‣ No remedies necessary at retail, but QoS is influenced by continuing wholesale

constraintsUpstream fibre, bandwidth and international access ‣ Competitive but duopoly, MTL and ESCOM are both dominant‣ Prices and terms are improving, but‣ Could be accelerated and become more accessible with enforced open/transparent

access to MTL fibre and ESCOM telecom service (ideally separation of accounts to accompany the four-tier licensing system)


Recap: Markets studied in Africa (1)‣ NCC Nigeria conducted market studies in 2010 and

2013Nigeria 2013 Determination of Dominance in Selected Communications Markets

Markets Status of competition

Designation of Dominant Operator

Mobile Voice (incl. SMS) Not effectively competitive

MTN designed dominant

• Accounting separation• On-net & Off-net tariffs to be

the same• More data reporting

Fixed Voice Market is in decline No dominant operator

Fixed data (broadband) Nascent market No dominant operator Mobile data ( GPRS, EDGE to 3G broadband)

Effectively competitive No dominant operator

Upstream segment - Spectrum, tower sites, networks - Wholesale broadband / Internet access, - Wholesale Leased Lines - Transmission capacity

Not effectively competitive

GLO and MTN designated as dominant operators in this segment

• Price caps combined with price floors on their retail services

• Accounting separation


Markets studied in Africa (2)‣ CCK (Now Communications Authority of Kenya)

conducted market studies for a LRIC cost model in 2010

Kenya 2010 Determination on Interconnection Rates for Fixed and Mobile Telecommunications Networks, Infrastructure sharing and Co-Location; and

Broadband Interconnection Services

Markets Status of competition Remedies

Voice (Fixed and Mobile) Telekom Kenya and

Safaricom dominant

Imposed Price cap on off-net retail tariffs Imposed Interconnection / Terminating rate glide path Required lower SMS terminating rates

Wholesale broadband internet access

Nascent market Regulation not appropriate/deleterious to investment. CCK monitor market performance, especially interconnection.

Transmission (wholesale leased lines transmission links Trunk and partial private circuits (PPC)

Nascent market

Regulation not appropriate/deleterious to investment. CCK to monitor market performance CCK to monitor the market for infrastructure sharing & co- location, imposing settlement if commercial negotiations fail

International connectivity Nascent market Regulation not appropriate/deleterious to investment. CCK to monitor market performance.


Africa (3) Uganda caseUganda 2009, Competition and Dominance in the Telecom Sector (Consultant

recommendations)Markets Status of

competition Remedies Retail Voice (Fixed and Mobile) Effectively competitive Internet services (retail, broadband & dial-up)

Effectively competitive

Leased line services (retail) Effectively competitive

Wholesale Fixed termination All operators have

SMP Cost oriented price control Mobile termination All operators have

SMP Cost oriented price control Fixed call origination N/A (Competitive voice market) Mobile call origination N/A (Competitive voice market) Transit N/A Prospective market to be created through

interconnect regulation International access Effectively competitive

Transmission links (wholesale leased lines and transmission capacity (Trunk & Partial Private Circuits)

UTL & MTN have SMP

• Accounting separation• Retail-minus on end-end leased lines• Cost-oriented price control on other trans links• Requirement to make available information on

location of links and capacity available• Same remedies on access to Int’l leased lines

& transmission


Conclusions & Recommendations (1)

Market 1

Basic facts Comment Remedy Options Recommendation

and impactFixed voice

MTL DominantNo likely competitorsAccess was licensed as a fixed operator but offers only CDMA

Very small and insignificant marketDecline in fixed customers is common across the world

Option 1 - Do nothingOption 2 - Open up competition by enabling ISPs and other entrants to offer VOIP services, at least to closed user groups

Option 2 will be available under the new converged license regime.Impact will be to increase competition and open a new value added revenue stream for ISPs


Solutions & Recommendations (2)

Market 2

Basic facts Comment Remedy Options Recommendation and Impacts

Mobile voice

TNM and Airtel co-dominantMTR at US$ 0.04 is above benchmarkMalawi’s retail prices appear to be low on a regional comparisonOver 90% of traffic is On-Net3rd GSM entrant late to market The existing 3rd operator (Access) has requested GSM frequencies

The existing 3rd operator (Access) is at a technology disadvantage with CDMAExisting dominant operators were over-supplied with 900 MHz spectrum but some re-farming is in processThere is enough available 900 MHz spectrum to provide the existing 3rd & expected 4th operators with min. 5MHz spectrum

Option 1 - Reduce MTR to US$ 0.02 or below on a glide path, which will be to the advantage of the 3rd operator and new entrant Option 2- Offer the existing 3rd operator (Access) min. 5MHz GSM spectrum at 900 MHz, as well as enable the 4th operator Celcom to operate at 900 MHz Re-price 900 MHz progressively in blocks as a scarce resource, including to existing operators

Both Option 1 & Option 2Impact will be increased viability of non-dominant operators, increased competition and likely ultimate price reductions for consumers


Recommendations & Conclusions (3)

Market 3 Basic facts Comment Remedy Options

Recommendationand Impacts

Broadband retail - urban and suburban

Competitive supply for consumer, small business & corporate data markets in urban & sub-urban areasPrices low by regional standards but QoS is also generally low (speeds low by regional standards)

Suppliers include MTL (DSL, EV-DO, WiMAX); major ISPs (WiMAX, EV-DO, emerging Fibre); three mobile operators (3G GSM & EV-DO)

No remedy required at retail levelBut QoS could be impacted by addressing the wholesale market

No recommendation required at retail level But market could be impacted by the remedy recommended at the wholesale level



Market 4 Basic facts Comment Remedy Options Recommendation and Impacts

Broadband retail - rural

Rural markets are mostly limited to mobile 3G supply

Suppliers are GSM operators, the 3rd operator, sparse ISP presence

No pricing related remedy, but USF should be employed to target investment through expansion subsidies, open to all players as well as demand-side measures such as targeting schools, health centres, public administration, public awareness and IT training

Implement USF non-discriminatory investment projects for network expansion and demand stimulation



Market 5 Basic facts Comment Remedy Options Recommendation and Impacts

Wholesale Transmission capacity, leased lines and facilities access

MTL and ESCOM dominantMTL is also vertically integratedESCOM is offering wholesale fibre & transmission capacitySimbaNet (under World Bank RCIP) will offer a third choice of capacity and gateway access supplier

6 fibre gateways exist to the E. Africa cable landingsWhile the entry of ESCOM as a wholesaler reduced the cost per MBps at least 2/3 (to US$ 600/mo), there is need for further reduction and more equal access to fibre facilities.The SimbaNet entry could lead to further reductions and open access, though the impact could be marginal

Option 1 – Monitor and mediate only and expect further price reduction from the entry of SimbaNet Option 2 – Unbundling / Separation of accounts for MTL (and ESCOM) under the new facilities licence regime Option 3 - Open Access (without separation), i.e., non-discriminatory practices and published reference pricing offers

Option 3(Option 2 would be expensive and challenging to manage)

Options 3 will offer more transparent, lower, cost-based prices for fibre, bandwidth & infrastructure. access, will reduce costs & improve QoS at retail level


Next steps‣ MACRA to review recommendations‣ Industry to submit comments on the recommendations

by 31 January‣ MACRA to make final determination on

- Regulatory measures- Monitoring requirements- Maintain database of information

‣ MACRA to implement in Q2 2015 - as soon as the new Communications Act is in place

market analysis and remedies in malawi

Technology