New tax on international incoming traffic takes Côte d’Ivoire one step backwards

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When the SAT3 submarine fibre cable was damaged on 24th July at Cotonou in Benin, alternative routes were quickly put in place to carry a major chunk of the international outgoing and incoming voice and data traffic from Benin, Togo and Nigeria. At the time, Côte d’Ivoire Telecom confirmed to us that both Togo and Benin asked for capacity on 25th July. International connectivity was restored on 26th July 3pm for Togo and 7pm for Benin via Côte d’Ivoire’s access to SAT3. This incident underlined the vital role that alternative terrestrial transmission networks have to play as well as Côte d’Ivoire’s potential as a hub routing neighbouring countries’ traffic. What might have been a bright future has just lost a bit of its shine as Côte d’Ivoire’s Government has introduced a new tax on international incoming voice traffic. Isabelle Gross looks at the impact of the Government’s decision on the telecommunications sector in Côte d’Ivoire.

On 10th August, the Minister of ICT informed Côte d’Ivoire’s telecoms operators that the tax on international incoming traffic will apply as of 1st July. It is worth noting that the initial application date of the tax was 4th May 2009 but was suspended when UNETEL, Côte d’Ivoire’s telecommunications industry confederation, requested further clarification. The new tax applies to all international incoming voice traffic: this includes direct traffic as well as transit traffic and roaming calls.

Article 54 of the Official Journal of 16 April 2009 states that the tax “is incurred by any foreign company benefiting from interconnection and is paid on its behalf to the fiscal administration by the national operator. The tax rate is 20 CFA francs (4.5 US cent) per minute of international incoming voice traffic”. In other words, the Ivorian Government has increased the wholesale price for terminating voice traffic in Côte d’Ivoire by about 20%. This increase flies in the face of the current downward trend in wholesale prices for African destinations. For Côte d’Ivoire’s telecoms operators, the outcome in the short term is pretty clear: a fall in the volume of incoming minutes that will translate into reduced income. In other terms, this price increase means that people calling Côte d’Ivoire from abroad (including the Ivorian diaspora) will call less often or for less long.

Côte d’Ivoire telecoms operators are simply the scapegoats of the whole affair. They were given the task of informing international carriers that they will need to pay an extra 4.2 US cent per minute to terminate their voice traffic in Côte d’Ivoire. They have also been tasked to collect the money on behalf of Côte d’Ivoire’s fiscal administration. When international carriers and foreign telecoms operators have been made aware of the increase in termination costs, some of them, particularly those with bilateral termination agreements have in turn been inclined to increase their own termination prices. As a result, some international destinations will become more expensive for Ivorian too and they are likely to call less often or for less long. Côte d’Ivoire telecoms operators will be twice penalised, with a potential decrease in volume of international outgoing traffic.

Last point of contention: who will pay 4.2 US cent per minute on all incoming traffic between 1st July and 10th August? Will it be Côte d’Ivoire’s telecoms operators, or the international carriers? It is unlikely that international carriers will pay for it as this would mean them incurring a net loss. In order to minimise default risks that Côte d’Ivoire telecoms operators might incur, the tax should not be applied at the billing stage but rather when the payment has been received.

What will this 4.2 US cent tax be used for? According to the Official Journal of 16 April 2009:

- 2.5 US cent “will be allocated to finance checks on incoming international traffic to Côte d’Ivoire and fight fraud in the telecommunications sector. This portion of the tax will be affected to a fund to be created named the Control and Fraud-fighting Fund”.

- 1.5 US cent “will be allocated to the State’s budget”.

- 0.2 US cent “will be allocated to the Culture Fund”.

It may seem amazing that 60% of the tax will be allocated to a “Control and Fraud Fighting Fund” when the decree’s explanatory notes says that “it (the tax) is to ensure a minimum of tax income from the turnover generated by these services”. Unfortunately Côte d’Ivoire is not the only country tightening its control on international traffic. Congo has recently introduced similar measures. In an interview with the magazine Reseau Telecom, Thierry Lézin Moungalla, Congo’s Minister of Post and Telecommunications, insisted on the regulator’s control mission and justified signing up a foreign company for technical assistance in the following words “ the company, Global Voice (GVG) is well known in the international wholesale voice market and has made us a service proposal with a very good partnership contract. We didn’t hesitate and went for it. In other words, it is win-win partnership”. At 2.5 US cents per minute, the company gaining the contract in Côte d’Ivoire will hit the jackpot. With roughly 50 million international incoming minutes per month, the tax will generate about US$2.1 million per month.

This tax, which looks more like a new customs duty, will be a serious barrier if Côte d’Ivoire’s telecoms operators are to make any significant progress in capturing the transit traffic of neighbour countries. If the wholesale price of a minute of transit traffic becomes too expensive via Côte d’Ivoire, the existing demand for transit capacity will shift to countries offering lower prices. Just as Côte d’Ivoire is closing downs its borders, leading African telecoms professionals are calling for borderless networks. In a recent press conference, Ernest Ndukwe, CEO of the Nigerian Communications Commission (NCC), has advocated the concept of "Fibre Without Borders (FWB) as a panacea for achieving a possible African telecoms revolution in terms of seamless telecommunications connectivity, quick and affordable broadband access to the citizenry.” It looks like as if Côte d’Ivoire is set to go in the opposite direction!