Supplanting copper : pricing and quality of GSM telecom services in Africa

Abstract

Introduction: The mobile phone is one of the greatest innovations of the 2 0 th century. It allows a user to communicate information - data and voice - regardless of their geographical location. Its importance has grown tremendously, as people adopt it for use in personal/business uses, disaster mitigation/security and in the improvement of the health and overall welfare of a particular people. Although the world's first commercial portable cellular phone was only just developed in 1983 by Motorola, yet, in these past 25 years, we have seen a speedy and widespread adoption of the cell phone, first by the developed, and in more recent years, by the developing countries. The growth rates in Africa in particular, have been exponential over the past decade. As with other countries, telecommunications in African countries, before the advent and adoption of the cell phone, was largely through fixed telephony. However, fixed line services which were controlled by public monopolies were characterized by high levels of inefficiencies manifesting in both a long waiting period before connection could be made and an expensive call rate. Due to limited access and long waiting periods, African fixed telephony could even be said to have suffered from negative network externality. To this end, while mobile telephony in many other countries have been adopted as a complement to the fixed telephony, in Africa, growth trends show that the mobile phones are acting more as a substitute, than a complement for the fixed line (but that might be changing). In particular, according to statistics by the International Telecommunications Union (ITU), Africa is the only region where more revenues were generated from mobile services, than from fixed line services. Particularly, within the region, the number of fixed telephone subscribers to 100 inhabitants, increased dramatically from 1.9 to 3.2, while that of mobile subscribers increased from 0.2 to 21.6, over the 10-year period from 1996 to 2006. The title of this thesis, "supplanting copper," thus hails from this observation of mobile phones taking over from fixed lines, which traditionally are affiliated with their copper line infrastructure. Increased growth in the telecommunications sector has been largely attributed to the liberalization of the telecommunications sector, whereas in times past, one single entity, usually a government owned organization, had monopoly over the provision of phone services. This liberalization usually brought a lot of revenue for the government. For instance, we see that the two highest privatization proceeds recorded worldwide, were for the sale of fixed telephony companies, namely NTT Japan for $70,469 million and British Telecom in the United Kingdom for $22,931 million in 1999. Table 1 in the appendix shows all top ten proceeds from this same study. This observed trend of privatization of the telecommunications sector in many developed countries is now observable in many African countries. In the 1990s, many African governments began to sell licenses to private sector providers, for mobile telephony. The sale of these licenses, which permitted private companies to provide telecommunication services, as defined by their countries, have also often resulted in a lot of money for the government. We see this in the particular case of Nigeria, where MTN Nigeria acquired its license in November 2000, for $285 million, while Globacom Nigeria paid US$150 million. Not only have governments liberalized the telecommunications sector, they have also introduced considerable amount of competition to the sector. Studies have shown that competition has been instrumental in increasing efficiency and driving down prices consumers have to pay for their mobile telephone services. In a particular study of OECD countries, "it was shown that the ending of monopoly brought immediate improvement to mobile subscription penetration. Again, it was noted in the same study, that upon examination of the relationship between mobile market structures and growth in 1995, "it was noted that, in 1994, the average growth in markets with three operators was, on average, three times higher than in markets with monopolies" (OECD, 17, 2000). While many African countries have witnessed an unprecedented increase in the number of subscribers for mobile telephony, call price, as indicated by price per second or per minute, that the consumer pays, are still relatively high. Conversely, the quality of service that consumers are receiving, are still low. There has been widespread complaints, particularly in the popular media of African countries on the high prices that consumers have to pay to use their cell phones, and the frequent and persistent poor service they receive. However, there has been no systematic study, which we know of, seeking to understand the reasons for the high call rates and poor quality of cell phone service in Africa ...