Telcos must be ready to share infrastructure with new entrants

World over, telecommunication markets attract regulation to open up their facilities to third parties and newcomers to facilitate entry. 

The telcos that are to a large extent seen as the owners of these facilities supply the market with the inputs and provide services to end users, and naturally may have an incentive to refuse new entrants access to their facilities.

In most markets, the mobile sector reflects an oligopolistic posture — a result of limited number of operators that can be authorised due to the technical constraints stemming from scarcity of frequencies.

In essence, the technical barriers introduce a limitation for prospective players who desire to provide mobile telecom services.

The huge amount of investment required to develop and run mobile phone infrastructure to cover most of the market constitutes another important barrier to entry for new operators.

Regulators believe by allowing mobile virtual network operators (MVNOs) — firms that provide mobile communication services without their own radio spectrum — to operate is one way of increasing competition and distorting the oligopolistic posture of the mobile telecoms sector.

With the recent happenings in the mobile telephone sector, a vivid debate about the intensity of competition in telecoms markets has recently emerged.

The Communications Authority of Kenya (CAK) has pushed the idea requiring mobile network operators to sell or lease spare spectrum capacities to mobile MVNOs.

So far, we have seen three players — Finserve Africa Limited, Zioncell Kenya Limited and Mobile Pay Limited — licensed as MVNOS.

In light of this do we need a regulatory framework to define the relationship between the established telcos and MVNOs? 

Should MNOs be required by regulation to open up their networks for MVNOs and if so, under what terms and conditions? Or are the telcos’ motivation to lease out their spare capacities if they exist, sufficient to facilitate entry of MVNOs?

To tackle these issues, a quick case study of other jurisdictions such as Ireland, the UK, the US, Spain and Japan would provide a glimpse of what the MNOs in Kenya expect from the regulator.

Taking the scenario in Ireland where the regulator mooted the idea of allowing MVNOs to operate, there were four MNOs and a non-existent market of MVNOs by 2008.

The regulator sought to introduce competition. This saw the emergence of Tesco in partnership with O2 Mobile operator, opening up the market to 13 more MVNOs.

In the US and UK markets, the MNO-MVNO relationship is not regulated. The MNOs have market dominance and services are seen to be pro-customer.

Free market forces have made it easier for new entrants to come in and serve the pre-paid market segment, especially in the US.  

In Japan, the regulator intervened to stimulate the growth of MVNOs sector. However, it did not force telcos to open up their networks to MVNOs, but encouraged potential operators to negotiate partnerships with telcos.

The regulator was to come in as an arbiter of last resort.  Interestingly, in Spain, the relationship between MNOs and MVNOs was frosty. The regulator had to intervene and give direction to the operators.

But in Netherlands, the regulator allowed market forces to freely determine the relationship between MNOs and MVNOs while it only provided guidelines for harmony in the sector.

Going by trends in other markets which to some extent mirror ours in terms of pricing and perceived dominance by the MNOs coupled with the expected exit of two telcos from the market, operators should brace themselves for regulatory intervention to allow MVNOs access to their facilities.

This is based on the quest for increased retail competition, lower prices as well as boosting mobile services penetration.

With the regulator bent on seeing the MVNOs concept succeed in the Kenyan market, we expect them to exploit existing gaps and create market opportunities for themselves.

Again, the new entrants have been spared stringent investment conditions to roll out businesses save for investing in billing and customer care systems.

We may also soon see MVNOs come up with innovations such as terminating calls on Wi-Fi networks, especially in partnership with counties that have set up Wi-Fi networks.

A small pep talk to MNOs, just see MVNOs as a way to reach new customer segments, new distribution channels, the ability to serve a niche segment that an established telco cannot quickly customise to their needs, a strong brand in sync with a key customer base and a more profitable way to reach a particular market segment.

However, MVNOs should never be a direct competitor to their host because once they start to cannibalise their hosts’ customer base, the relationship will turn sour.

However, telcos have a reason to get worried. History has shown that when MVNO access is provided for by regulation, the new operators have come out as strong competitors in the telecoms markets.

For this concept to succeed in Kenya and tap opportunities in the market, appropriate regulatory framework is needed. New laws will offer potential investors relative stability to plan their entry into the market.

There is also a need for the telcos to manage their expectations of what they expect to gain by leasing their assets to new service providers. 

Finserve Africa Limited, Zioncell Kenya Limited and Mobile Pay Limited, I wish you well in your marriage with the MNOs Safaricom, Airtel and Orange.

Mr Baraza works at the IT department, Nation Media Group. Email: [email protected]