Telecom Sector Has Lost Over US$58 Million in Price Wars

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The price war between Lonestar MTN and Orange-Liberia started in 2012 when some telecommunications providers began a practice of un-ending price promotions that pushed all mobile service providers into a “price war”.

Between 2015 to 2018 due to ‘three-day free calls’ other anti-competitive promotions 

At long last, the government of Liberia, through the Liberia Telecommunications Authority, has announced the absolute end of the controversial promotion of US$1 for three days of unlimited calls, commonly known as the ‘three days free calls’ promotion, which mobile communication subscribers in Liberia have enjoyed over the last five years.

According to latest data coming from the LTA, over US$58 million in value was lost within four years as the gross revenue of the sector fell from a high of US$150 million in 2015 down to US$92 million in 2018.

Both Lonestar Cell MTN and Orange Liberia have had their turns to be named largest taxpayers by the Liberia Revenue Authority.

“As one of the largest contributors to national income,” the LTA said, “depressed telecommunications prices result in lower tax and revenue to finance public welfare and development programs and have an over-all negative impact on the country.”

The announcement comes well over six months since the LTA’s price floor order 0016-02-25-19 was issued on February 25, 2019, to take effect on April 15 the same year. The order is an intervention to stop predatory pricing wars between the two Mobile Network Operators (MNOs), Orange Liberia and Lonestar Cell MTN which have stifled sector growth and plummeted revenue significantly over the last few years.

The order, upon issuance, was sharply opposed through a petition for judicial review filed by Orange Liberia, one of the two competing MNOs, arguing to the court that, “LTA cannot determine and impose surcharges as same is not within its regulatory authority, as that authority was removed by an Act passed by Legislature and published on August 29, 2017.”

However, in his ruling, Judge Scheaplor R. Dunbar of Civil Law Court ‘B’ said, the LTA’s order was promulgated in conformity with the Telecommunication Act of 2007, stressing, “that the said order does not violate any provision of the Revenue Code.”

All sides ready to cooperate

In a joint statement issued on Friday, August 30, 2019, the two competing MNOs, Orange Liberia and Lonestar Cell MTN, notified the public that, by directive of the LTA and in accordance with LTA Order 0016-02-25-19, a new regulatory fee (5%) and price floors on mobile voice on-net, and mobile data services will be introduced beginning September 1, 2019.

Voice packages will now have a minimum Floor price of one point five six cents per minute (US$0.0156) on each call provided in packages to customers by their MNO. Data packages will now have a minimum Floor Price of two point eighteen cents (US$0.0218) per Megabyte (MB) of data provided to customers by their MNO.

By October 15, 2019, there is expected to be a surcharge of 0.8 cents (US$0.008) on all on-net voice calls, as well as 0.65 cents (US$0.0065) per MB of data.

While is true that the government finding sources of revenue to pay salaries for civil servants, the joint statement from the MNOs said telecommunication subscribers are informed that the price floors imposed by the new order.

According to them, both operators are abiding by all Government regulations and directives and will consequently adapt their offers and promotions. Subscribers are invited to contact their operator or LTA for further details.

The price war started in 2012 when some telecommunications providers began a practice of un-ending price promotions that pushed all mobile service providers into a “price war”.

According to the LTA, Mobile Network Operators (MNOs) have been forced into selling packages to outdo each other with offers below market cost and clearly not profitable creating market instability. The promotional packages have been popular but at the cost of diminishing revenue to providers. Diminishing revenue hinders innovation, stalls infrastructural development nationwide, and reduces the Quality of Service, giving rise to dropped calls as network loads increase.  As the national regulator, the LTA was compelled to intervene and stop the escalating price wars.

Reduced Revenue

“The price floor is an appropriate response and an effective tool for price control when market forces fail as indeed they have,” the LTA says. “We are confident that consumers will experience increased services through fair pricing and providers an increase in overall revenue.  We also expect that consumer behavior will not change more than 10%.”

According to the regulator, the price for calls “dropped from 14 cents per minute in 2014 to less than 1 cent per minute in 2017 and is still falling. Smaller service providers including Novafone and Libercell, were forced out of the market, leaving only MTN and Cellcom, now Orange.”

LTA says that the implementation of the tariff will promote efficient and sustainable competition for the benefit of end-users to monitor and prevent abuses of a service provider’s dominant position and to monitor and prevent practices that would restrict competition.

3 COMMENTS

  1. Liberia has always been a market economy based on free enterprise, but slowly, government bureaucrats are changing that model into what is evolving as a socialist model where government set prices or over regulate an industry which negatively impacts the industry and slow its growth. That is wrong-headed and it will only harm economic growth and innovation. Whenever government set prices that should be left to market forces, businesses tend to sell less of those commodities and the result is bad for consumers. Those items become scarce on the market and prices go up or the black market takes over. Either way, the consumer is harmed. The government needs to get out of the way and let competition flourish because it always lower prices for consumers and stimulate economic growth. The telecom industry grew quickly when the government liberalized the sector. Prices came down quickly because of competition. Prices for SIM cards used to be $65, but quickly dropped to about $5 today. That’s the power of competition and free enterprise. Unfortunately, we’re seeing the opposite happening and it is gradually stifling the telecom industry.

    Over-regulation is harming the Agricultural sector as well. Recently I read a news article that the government wanted to, or has implemented new rules to limit who can export cocoa beans out of Liberia by imposing a $10,000 annual fee for would-be exporters. This is a very bad policy because it disadvantages Liberia entrepreneurs, leaving foreigners to take over the cocoa export business. Also, cocoa farmers would be discouraged from growing more cocoa because they can’t sell their produce to the highest bidder because of government regulation. This kind of government policy discourages investment in the cocoa industry and hurts the overall economy. The best way to develop an industry is to create incentive for investment and competition, not over-regulate it. If I was planning to invest in cocoa farming, I won’t do it now because I can’t sell my cocoa beans to the highest bidder of my choosing because of government regulation. America is the economic super power of the world today because it allows free enterprise and competition. The US government does not set prices.

    Because other African countries have such regulations doesn’t mean it’s suitable for Liberia. Those cocoa producing countries like Ivory Coast, Ghana, and Nigeria have developed their cocoa sector because they have been doing it a long time. Why would we adopt their policies willy-nilly without a thorough study on how it might impact our economy? That’s very shortsighted. Our economy is so small compared to other African countries but we want to adopt their policies without any thought for our unique circumstances. That’s just a terrible way to make public policy.

  2. Phil,
    “Because other African countries have such regulations doesn’t mean it’s suitable for Liberia”. Stated in the third paragraph of your comment, I think it makes sense.

    It seems that Liberians are experiencing an identity crisis. It seems that we’re going through the wilderness or perhaps we need a moral guidance. Years ago in our country, landlords were willing to rent a one-bedroom or more by requesting a monthly payment. It’s been changed. These days in Liberia, a 6-month deposit or more must be paid up front in order to rent. The policy (if it is worthy to be called a policy), is un-Liberian. It is a borrowed policy from the Ivory Coast, Ghana and other countries.

    Doing the one-year payment is unsuitable for Liberians. Motor bikes run like crazy. Then you have the motorized three-wheelers commonly known as keke. It’s okay for the young men to earn a living, but running around like crazy is a little unusual, to say the least. The bikes have produced a lot of “zogos”. That’s not say that had there not been bikes, there wouldn’t be zozos.

    We tend to borrow a lot of cheap stuff. Some of those things may not be suitable for Liberia.

    • Hney – We’ve become a copycat nation. They say “Oh, other countries in the sub-region are doing it so it’s fine to do it in Liberia” without careful analysis of the impact on our very poor consumers. That’s plain stupid. I’m not much for government regulation but there are times when the government needs to step in as in the case of apartment rental. It should be one month security deposit and one month rent in advance. That should be enough.

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