Can we regulate telecoms market without price controls?

Kwame Owino’s critique of the Communication Authority (CA) of Kenya’s approach to regulating the industry provokes some thinking. He argues that CA is obsessed with price controls as if it is the only tool for regulating the industry.

Specifically, he criticises the recent consultant’s report on the market analysis as laying the foundation for CA to engage in “unimaginative instruments of price controls and forced infrastructure sharing”.

Whereas this seems to be true, it begs the question: Can the telecoms market be regulated without invoking the traditional price controls?

If the answer is yes, then what are these alternative mechanisms for regulating the communications industry? This is actually an open and ongoing research area.

What is clear, however, is that price controls as a lever for managing an industry that is increasingly internet-driven is no longer tenable. This is because the inherent nature of telecoms services has radically changed due to the ability to provide such services over the internet.

DISTANCE REDEFINED

Take voice communication as an example. In the old days, the regulator was able to establish the cost of a telephone call between Nairobi and London based largely on the geographic distance between the two end points.

Today, the same telephone call is digitised or broken into several packets and pushed to London through different multiple internet channels before being reassembled and delivered to the London recipient.

Essentially, distance or geography was redefined by the internet. The implication is that the distance between Nairobi and London is no longer the straight line that regulatory agencies were used to.

Furthermore, for the duration of the call over the internet, the geographic path to destination would keep changing every second of the call as the equipment looks for less congested routes.

It is therefore impossible for any regulator to purport to dictate the price of the call based on the traditional parameters that were largely grounded on the geographic distance.

BLUNT REGULATORY TOOLS

The internet killed geographic distance as we used to know it and in so doing wiped out 50 per cent of regulatory tools that informed price controls in the telecom sector.

Once telecommunication services moved over to the internet, the regulator was left with blunt regulatory tools that need to be urgently renovated in order to deal with the contemporary realities of the communication markets.

Price as a regulatory tool is no longer sufficient, especially in an environment that is increasingly releasing digital products that are essentially free to the consumer.

How would one dictate a price for a product that is being given free of charge such as Airtel’s controversial Free Basic Service? The regulator must clearly become innovative to remain relevant, particularly in an environment where telecom providers are often ahead of the game.

One approach regulators could try out involves setting regulatory targets for providers to achieve, without necessarily getting too involved in the price dynamics.

Based on its mandate, the communications regulator is expected to ensure citizens have universal access to quality and affordable communication services, while guaranteeing fair returns to the telecom service providers.

REGULATORY TARGETS

Since price has some relationships with profit margins, quality of service and market penetration, one could implicitly control it through these very parameters.

In free-market conditions, very high prices will obviously limit market penetration, while very low prices would compromise the quality of service due to congestion arising from sudden uptake of the service.

The regulator could therefore implicitly control pricing by challenging the telecom providers to strictly meet the regulatory targets of market penetration and quality of service while avoiding to get directly involved in the pricing details.

It may be difficult to implement but in its most simplified form, operator X may have its licensing requirements saying that in County A, it must have over 60 per cent of the population actively subscribed to broadband internet within five years.

The operator is then left to its own devices to achieve these regulatory targets.

MULTIPLE PLAYERS

Whether the operator does it by offering free services or premium services, the regulator would care less – as long as after five years, 60 per cent of the population is actively enjoying high-quality internet access and services.

Of course there is the little bit of what mechanism to use to arrive at appropriate regulatory targets, but broadly speaking, such an approach would spare the regulator the near impossible task of trying to establish the price of internet-based communication services.

In a fully digitised environment where products are modular in the sense that their delivery is shared across multiple players and geographic distance is no longer relevant, the regulator has no choice but to innovate.

Mr Walubengo is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT. Email: [email protected], Twitter: @Jwalu