THINKING THE UNTHINKABLE - AN AGENDA FOR AFRICAN REGULATORS IN THE 21^ST CENTURY

With certain honourable exceptions, African regulators - and the governments who drive their policy frameworks - have been sleep-walking backwards towards the future. Since News Update was launched over two years ago, significant numbers of African fixed line operators remain in government ownership and overshadow their domestic markets. Fully competitive markets are few and far between. The rise of mobile operators has been the continent’s success story but it has not helped address fundamental infrastructural issues. The governments have either lacked the courage or the will to make the kind of progress made on other continents. In this issue Russell Southwood provides a sketch of what a different future might look like, one in which governments and regulators embrace the future and look at how it can best benefit their citizens.

Regulatory processes are incremental. Even in developing countries that now have over ten years or more experience of pushing out the envelope of what is possible, it has been done in gentle steps. Nevertheless the early benefits in terms of access price and services spur on further progress.

The difficulty with this incremental process is that it’s hard to see what it would be like when you’ve got there: what consultants are wont to call the "end-state". In Africa without a clear vision of this sort, there is only fear and loathing of the future. There is the fear of job losses and lack of national control and a loathing of the idea of giving up a valuable, hard currency cash cow like the incumbent telco.

One of the few people who have talked about what a practical competitive framework would look like in Africa is Mike Van den Bergh of Gateway Communications who chairs the South African VANS Association, a private sector lobby group:" You would have an effective competent regulator. There would be a minimum of three full-service network operators. There would be well structured, competitively trading distribution channels with wholesale and retail providers. And there would be unrestricted access to facilities. There would also be subsidiary licences for broadband and the local loop".

Whether this is your idea of competition nirvana or not, the log-jam that prevents progress is usually the sale of the incumbent telco as it presents the government with a conflict of interest. The South African government pulled the idea of a third national operator because it did not want to prejudice the Telkom IPO. The twin headed hydra of privatisation and regulation cannot be tackled alone and the sooner African governments sell off the majority of their telco stake the better.

Getting from here to there will require a series of fundamental mind-shifts:

* Governments need to go from owning telcos and taking money out of them directly (anything from profits to corrupt skimming) to taking income in regulation fees and taxes. According to the Nigerian Vice President Atiku Abubakar, the Nigerian government has earned N130b ($1 billion) from telecommunications licensing since the commencement of the deregulation of the sector. Whilst not all countries have the scale of markets found in Nigeria the point still holds good at a smaller scale for other countries.

If governments collect tax through VAT from companies that collect the tax on their behalf, then each one of those millions of phone calls can be taxed. The usual problem of collecting taxes from inidividuals or companies in Africa is greatly reduced. You are taxing a relatively small number of companies who have the skills and systems to collect tax on your behalf.

In this way you begin to exchange the current inefficiencies, and poor service for a stream of traffic-related income. You leave the private sector to create greater efficiency, higher profits and better service. No world is perfect (as Nigerian mobile users will currently tell you) but with enough competition, not only will things get better but the market will grow faster.

* By selling off all or a large part of the incumbent telco, the role of Government changes. It then has to express its national interests through having a clearly expressed policy that describes what it is trying to achieve. Then both government and the regulator should be acting in a facilitating role: making sure that anyone who can genuinely help bring about the policy objectives will be facilitated to do so.

No government gives up control without a struggle and the approach described above requires a clear understanding that governments can no longer (if indeed they ever could) bring about changes by themselves. In Africa these difficulties are compounded by the governance issues of the continent. Governments seek to be strong on issues like security and political control but are weak in terms of actually implementing policy and delivering services to their citizens.

But in order for the full benefits of liberalisation to reach a wider range of citizens, government needs to be able to set a policy framework and then step back and let others help deliver it. It needs to operate at "arms-length" when policing this framework. It cannot, as currently happens in Ghana, both have the relevant Minister as Chair of the regulatory body and as de facto Chair of the incumbent telco. Powers have to be separated and should vigorously contested on both sides: in public or behind closed doors, you can take your pick.

* In an internationally competitive environment, the point of contention is not the cumbersome but dying rate-fixing cartel of the ITU but the terms under which competition policy operates decided by the WTO. Let’s not be misunderstood. The ITU is a fine body and may well have a role to play in closing the digital divide and in other areas but the accounting rate system is dead. Stop flying to those meetings and simply put the money into something more useful.

Almost all African countries have signed up to the World Trade Organisation’s 1994 General Agreement on Trade in Services (GATS) that covers basic telecommunications services. Algeria is on the point of joining the fold. The exceptions are: Eritrea, Ethiopia, Liberia, Libya, Seychelles, Somalia and Sudan.

It now covers 90% of world telecommunications markets (whether in terms of revenue, investment or traffic). On the basis of this agreement, each country will therefore have signed what is known as the "Fourth Protocol" laying out specific commitments to opening up markets in a document known as "the schedule". Some have agreed to complete competition, while others have opted for limited competition in mobile and data markets. Get in there and argue the terms but don’t resist the inevitable outcome of greater competition. Policy statements like the Halfway Proposition from Richard Bell provide a good starting point for these discussions (see issue 130).

KNOWING THE PRICE OF EVERYTHING BUT THE VALUE OF NOTHING - UNDERLYING PRINCIPLES

Without some underlying set of principles for a new policy framework, it would be easy to view the whole area as simply an act of maximising financial gain for the government. We would suggest the following broad principles:

* Let go and stop trying to control everything. Regulators have tried to control and licence everything from IXPs to cybercafes through to repair engineers. They are even trying to licence (and charge for) access to the ISM band that was put aside for "social" uses. You have to stop trying to licence everything that moves and let the market decide. It’s undoubtedly scary (often even private sector Africans talk nervously of a possible "wild west") but it will help things happen more quickly. If unsuccessful, companies can and will "go bankrupt" or be bought out by others. Regulation should be seen not simply as an act of control but as one way of encouraging economic growth.

* Regulation should be "technology-agnostic". Don’t try and stop new technologies coming into the market. Things like VOIP and new mobile wireless standards will either find a place in the market or fail. For Africa to connect its rural areas it will require a wide basket of different technologies including VSAT, wireless and radio. If different technologies have consequences for incumbent players, that’s one of the consequences of being in a competitive market.

* Insist that everything interconnects. Mobile players are still protecting their markets and minutes by not agreeing interconnection in some countries. Make it a cardinal principle that if something is legal that it can be connected into the main networks. Don’t be put off by existing players arguing that it can’t be done. In the majority of cases it will be possible.

* Make the processes as transparent as possible so that Africa’s new consumers can drive up expectations. Encourage lobbying from consumer groups, NGOs and the private sector. Set clearly announced service obligations that have costs if they are not met. For example, if someone’s fixed line phone is not working, the telco has to repair it in 24 hrs or pay a penalty to the consumer. A financial threat of this kind would marvellously focus the minds of those responsible for service. In this way it would create a sense that better is possible so that telecoms and related sectors might become the vanguard of African business practice.

* Put an end to cronyism where those who get to bid locally for licences are the "usual suspects". Encourage local investors from outside those who count as friends of government. Open out the regulatory debate so that a wide range of people can get involved. You won’t be able to please everyone - there’s often simply too many divergent interests - but who said being a regulator was going to make you popular?

IT’S NOT WHAT YOU DO BUT THE WAY THAT YOU DO IT

There are many African regulatory issues that might be tackled but we would suggest that the strategic "high-ground" can be captured in three broad areas:

1. The strange case of VOIP

African regulators have got themselves into a terrible twist over VOIP. In almost every African country anywhere between 5-10% of the international call market uses VOIP illegally. Ghana’s regulators tried to put in jail ISPs who it was alleged were using it. Other regulators (Ethiopia and Kenya) conduct occasional equipment seizures using the police in a vain attempt to beat back the inevitable. And what’s illegal for some is increasingly being adopted by the incumbent telcos to cut their own international call rates. Companies like ITXC and iBasis have built up a wide-ranging customer base with incumbent telcos. But trying to stop the use of the technology does not tackle the central issue: the monopoly that most African incumbent telcos have on terminating international calls.

Someone we spoke to recently described this monopoly as "a drug that the regulators don’t know how to wean them off." There are ways that it can be done. Senegal’s Sentel gathered together the illegal operators and reached an arrangement with them. It didn’t end up with what it might have charged but it retained a proportion of its income and it reduced the size of the grey market at a stroke. This is the gentle approach where you encourage the incumbent telco to wholesale international bandwidth.

The more radical approach is the Chilean model where you open up international calling to competition. The international rates are published in the paper every day and you don’t need a special phone to choose a cheaper operator. (see issue 34)

At least one African country is edging nervously towards opening up international calling through VOIP and Mauritius has recently pulled forward the date when its incumbent telco will lose its monopoly. Yes, those dates can and should be moved forward.

2. Not just a second national operator (SNO) but more

The recent announcement by Angola that it will licence four fixed line operators shows that simply going from a monopoly to a duopoly may not be enough. It’s important to think about how having several operators would accelerate investment and would allow maximum opportunities to enlarge coverage.

The issue is not one solely of number of competitors but also types of competitors. Telcos are notoriously ill-accustomed to competition and therefore having two does not always produce the desired effect. A Tanzanian source close to the regulator pointed out that in the mobile field it was not until Vodacom entered the market that there was a genuinely competitive market. Perhaps African regulators should allow at least one non-traditional operator to enter the marketplace to change the terms of competition. Why not open out the field to those involved in corporate networks or the internet?

The recent debates in Ghana about the new infrastructure company that might be put together from all the different networks owned by the government has focused on whether this will distract much-needed investment from the incumbent telco Ghana Telecom. But the "national interest" is better served by trying to attract private investment (local and international) so that the two can compete and improve what’s offered in the process.

3. The Rural Challenge and much more besides

African regulators’ biggest challenge is to deliver on the kind of social obligations that used to be the direct responsibility of Government. The most crucial of these areas is the rural challenge: getting connectivity out in an affordable form to Africa’s largely rural populations.

Andile Ngcaba of South Africa’s Department of Communications was talking two years ago about how if the incumbents would not connect up rural areas then these areas should be offered to small-scale rural operators who should be allowed to connect to the main network. By all accounts, talking like this encouraged Telkom to start connecting those types of areas somewhat more speedily. But leaving that incidental benefit aside it remains a good idea.

The regulators need to stretch the marketplace so that increasingly large areas can be covered by one or other of the main players or by small-scale licensed players. Andrew Dymond of consultants Intelicon has pointed out how this process can be encouraged by differential pricing: those ringing from urban areas to rural places will pay more than those ringing out from rural areas. In this way those who a greater capacity to pay will help finance rural roll-out.

Rural areas tend to be poor but that’s not the whole story: they are not universally poor. Tanzania’s TaTedo did survey of who could afford solar panels in rural areas. 15-25% could afford to pay cash and 35-40% could pay by credit facility. Approximate cost of solar panels? US$2500. This is one small speck of evidence but doesn’t it make you want to know more?

Where even the market cannot be stretched, the regulators will need to use their Universal Service Access funds to fund provision. One of the strongest cases for funding provision of this kind must surely be for education in schools. The case for a special low-cost e-rate is unarguable in developmental terms: these are places where the skills of tomorrow will come from. If schools are encouraged to "wire-up" in rural areas then they need to be accessible out of school hours to the wider population. "Wiring-up" should not compete with providing basic items like buildings, wages and books but could provide a spur to other improvements.

So imagine if you will a point three years from now. Each African country has three or more fixed line operators. The telecom and related sectors have grown by 10-30% bringing new jobs and skills. The improvements in infrastructure have allowed African companies to compete in world ICT markets in previously unimaginable ways. The palpable social changes that mobiles are already wreaking on how Africa thinks of itself have gone up a notch. People can actually see how a different future might be possible. It’s possible to get a phone installed in 48 hours and international calling charges have fallen by 30-50%. The first major roll-outs of broadband would be happening outside South Africa, Fantasy? It will be if African regulators and governments don’t pick up the challenge and embrace the future.

CITI AND INNOVATION HUB IN SOUTH AFRICAN BID FOR WORLD ICT MARKETS

The Cape IT initiative, a not-for-profit public-private partnership promoting the development of the knowledge economy in the Western Cape, said last week that it had strengthened its ties with The Innovation Hub in Gauteng, through an informal partnership that is aimed at consolidating the activities of both parties for the greater benefit of the ICT sector nationally.

The Innovation Hub is a partnership between the Gauteng Provincial Government’s Blue IQ initiative and SERA, the Southern Education and Research Alliance (a strategic partnership between the CSIR and the University of Pretoria). With a designated technology focus, The Innovation Hub is being established as a catalyst to spur the next wave of knowledge-intensive industries in South Africa. It will stimulate synergistic partnerships between investors, entrepreneurs, tenants and service suppliers to create an influential business network and an enabling environment for fast-growing start-ups.

In terms of the partnership both parties will work together in promoting stronger linkages between the regions and in creating a more collaborative focus on cluster facilitation. This includes sharing knowledge resources, such as ICT guest speakers as well as information on high-profile international delegations to South Africa. CITI and The Innovation Hub will also share incubation facilities, meaning that the concept of reduced rates for start-ups seeking lower barriers to entry, will be cross-communicated and supported by both parties.

Marketing Manager of CITI, Judith Middleton commented: "Although CITI focuses on developing the ICT cluster in the Western Cape, its overall aim is to facilitate the creation of jobs and prosperity through IT. The Western Cape offers numerous competitive advantages in this regard and has the potential to serve as a launchpad into Africa and Europe but this does not detract from the fact that the overriding goals of CITI and The Innovation Hub are closely aligned. Ultimately, both organisations are working to develop the ICT sector locally, for economic and social reasons. On the one-hand, skills development in the fast growing field of IT offers considerable potential for longer-term job creation and on the otherhand, at an economic level, development of the ICT sector will strengthen the attractiveness of South Africa for direct foreign investment and wealth creation."

US$4 MILLION INVESTED IN ZAMBIAN ELECTRONIC MEDICAL RECORDS

Investigators from the Center for Research in Women’s Health at the University of Alabama at Birmingham (UAB) and the Zambian Ministry of Health will receive $4 million from the Bill & Melinda Gates foundation to develop a state-of-the-art, electronic obstetric and newborn medical record in Lusaka, Zambia. The initiative represents a major commitment to technological infrastructure enhancement in the linked Lusaka District Health Clinics and the University Teaching Hospital.  "

The central idea behind the collaboration is that automated recording and assessment of obstetric and newborn care delivery, coupled with computerized surveillance of birth outcomes, will result in better individual patient care, as well as systematic improvements in obstetric and newborn outcomes. "In individual pregnancies, the ability to document processes and recognize deficiencies of care in an ongoing fashion should be of immediate benefit," says UAB’s Dr. Dwight Rouse. "Furthermore, the data that the system will provide to health policy makers in the Central Board of Health on the frequency and severity of adverse birth outcomes will be invaluable as they allocate scarce health care resources in Lusaka."