Echos of a fourth Mobile Telco Player in Zambia

Back in April 2017, we heard from the Minister of Transport and Communications Hon. Brian Mushimba that cabinet had approved a new licensing framework in the telecoms industry. The new licensing framework was formulated in partnership with ZICTA for the Information Communication Technology (ICT) and telecommunication industry in Zambia.

This means that Zambia could potentially have a fourth cellular network provider. This was in an effort to boost much needed competition in the sector as well as allow more foreign investment and create jobs and of-course allow governments to collect more taxes.

The minister was quoted saying “The new regime now allows any operator to apply for a license and allow operator of data such as Vodafone to take a new license that allows them to do voice over IP (VoIP),”

In the past the government held off from allowing new entrants into the telecommunications market and hoped to instead encourage more competition among existing network providers. However, ZICTA’s report on the matter shows that the recently reduced levels of growth in the mobile and telecoms industry is what prompted the start of the conversation. This led to the suggestion of the introduction of Mobile Virtual Network operators or MVNO’s

The report proposed the definition of MVNO licensee is as “an entity that has not been assigned spectrum for provision of mobile cellular services but is able to provide mobile cellular services to customers by using the spectrum assigned to a Mobile Network Operator by the Authority

Or put easily, a mobile virtual network operator (MVNO), is a wireless communications services provider that does not own the wireless network infrastructure over which it provides services to its customers.

The report produced by ZICTA states that a consultation with the public and the stakeholders from September 2016 to October 2016 which led to the following feedback:

  • 89% of the consulted individuals saw in necessary to introduce MVNO’S
  • 88% agreed there was no need to limit the number of MVNO’s allowed in the country with the remaining 12% wanting a limit on foreign MVNO’S AND more Zambian MVNO’s
  • 78% stated that there needed to be legislation in place to compel current Mobile Network Operators (MNO) to share infrastructure as they maybe inclined to resist new entry on MVNO’S into the market.

And with that consensus the new MVNO licensing framework was built.

So, what does this mean for you and me? Well economic game theory would predict that the consumer can only gain from added competition. The current situation see’s the incumbent telecommunications providers operating in an oligopoly. In this situation, the market is controlled by few big players who control their own pricing and output. The players of the game set their strategies based on what they think the other players will do.

Oligopolies tend to be quite dangerous as the players tend to become comfortable in predicting the other players moves and the previous government policies provided ample barriers to entry into this market.

The question then stands, will the addition of one extra player break the oligopolistic behavior of the already established firms?

True to economic nature the answer is divided. According to theory the new entrant will likely keep the incumbent on their feet in the early phases of implementation. This means consumers can expect to see more competitive prices, better service and more innovative products. The already established firms will look to keep your loyalty by offering you better deals than currently available and the new entrant will look to win you over by offering an even better package all together most times ignoring their costs and operating at a profit. So, in the first instance the environment will be a little less oligopolistic.

However, after some time has passed, assuming only One company enters the market, the prices will start to move towards a new equilibrium price which takes into account the fixed costs that the company needs to cover in order to operate which would most likely be the end of a lot of promotions. As the new number of players increases to 4 for the entire country, this would still be considered an oligopoly and we might find ourselves not so much better off than when we first begun.

Of course, this view could be seen to be overly pessimistic and maybe the new company will be able to keep the current providers on their toes indefinitely. If that is the case then well and good. But in the spirit of being prepared for the worst. The best possible situation for the consumer would be if we are able to attract more cellular network providers to come in and dilute some of the power currently being held by the few operating firms.

For now, we wait and see which company will become the 4th cellular network provider as it has yet to be announced, although most people have a pretty good idea of who it will be.

Hats off to Hon. Brian Mushimba and ZICTA for hearing the cries of the consumers in this sector and taking steps in the right direction to rectify the issues.

Maybe the energy regulators can follow suit..?

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