Wednesday, November 30, 2016

The NCC's directive to raise Data Prices makes NO sense!

My text message to the Minister of Communication

Imagine for a moment that NAFDAC requested Coca Cola and the 7Up Bottling Company to price Coke and Pepsi at N150 per 50cl bottle so that Big Cola can stay in business and gain share. Would you think it made any sense?

Probably not.

I exaggerate a little for emphasis, but that is exactly what the NCC has tried to do with their recent re-introduction of price floors for data. In the absence of a press release from the NCC explaining their reasons, we turn to excerpts from a post on The Cable, the writer of which claims to have seen NCC’s letter to the Telecom Companies.
“In order to provide a level playing field for all operators in the industry, small operators and new entrants to acquire market share and operate profitably small operators and new entrants are hereby exempted for the price floor (0.9k/MB) for data services,” it said. 
“For the avoidance of doubt a small operator is one that has less than 7.5 percent market share and a new entrant is an operator that has operated less than three years in the market.
“Also, note that effective date for the interim price floor is December 1, 2016.”
This is befuddling, and that is putting it mildly.

I am a big believer in free markets. With the exception of a few institutions related to security, infrastructure, and health* – I don’t believe governments have any business setting prices - whether reductions or increases. The ultimate aim of a business is make profits and return value to shareholders, and in the absence of a monopoly or other anti-trust concerns – government should stand by and let businesses decide which prices are best for them.

I also don’t believe in subsidizing consumption (e.g. petrol), and believe we should subsidize production (e.g. Agricultural Services), but this is a post for another day.

Here is an excerpt from Daily Trust:
“An NCC official who pleaded anonymity told Daily Trust yesterday that the regulator came up with the new data regime after some new entrants into the market complained that there was no way they could break even if they operated on same data regime with the likes of MTN, Glo, Etisalat and Airtel.” 
Globacom currently charges 21k/MB apparently because of the economies of scale advantage, compared to Smile which charges 84k/MB, or four times Glo’s rate, in order to break even.”
So, if Globacom can afford to price their data at 21k/MB because they have the necessary scale, we should force them to sell at 90k/MB so that Smile can stay in business?

In which world does this make sense?

Even if Glo is not making a profit at their current pricing of 21k/MB on some plans, they must have chosen that pricing because it aligned with their current objectives. Any Nigerians who don’t like Glo have the opportunity to patronize MTN, Airtel, Etisalat, ntel, or whatever ISP works for them. But no, the NCC has decided that whatever profit Glo is making at 21k/MB is not enough – force them to increase prices so other businesses can gain share and Glo can make more money. (The latter may not happen as Glo data consumers may then reduce data usage).

If the smaller players find that they cannot compete** in their current form, they should either band together to create scale or serve niche needs. I am disappointed that the NCC has chosen to protect the interests of a select few over the interests of the Nigerian people.

I was recently discussing mobile advertising with a Business Partner, and was surprised to see Opera Mini still had a significant market share in Nigeria. I told them how I had not even seen the app in the past four to five years.

Now may be the time to reinstall Opera Mini.

Brace yourselves!

* This is my current list, but it may grow longer as I grow and my thinking continues to evolve.
** Indeed they cannot compete in their current form, not only on cost – but also on service. I have Swift, ntel, and Smile and live in Lagos, and there are still times when I cannot connect to the internet through any of the three and have to resort to my MTN or Etisalat mobile connections.

UPDATE: As of 6pm on Wednesday November 30, the NCC bowed to pressure and suspended implementation of the price floor.

No comments:

Post a Comment