OLIGOPOLY IN ZAMBIA’S MOBILE
Competition Policy, Telecommunication Sector, Mobile telecommunication industry, Zambia Information and Communication Technology Authority (ZICTA),MTN Zambia, Airtel Zambia and Zambia Telecommunication Cooperation(ZAMTEL).
Since independence, in 1964, Zambia’s industrial has taken several phases and faces. The continuous changes in the industrial nature of the country is attributed to several reasons ranging from political, economical and external influence especially from the foreign donors and International Monitory Fund and World bank activities.
In the command economy where the government centralized service delivery and development ,Zambia’s industrial base was wide but very weak as citizens owed nothing in terms of companies or private firms, but the state through the president, Dr, Kenneth Kaunda dictated what industries to be planted in Zambian soils. So even if Zambia contained about 235 parastatals which showed as though the industrial base was wide, but these entities were running at huge losses hence depended heavily on the subsidies from the state. Almost all industries, mining, communication, energy, agriculture, manufacturing and processing were experiencing serious losses as a result of political mismanagement, lack of recapitalization and the external factors like the oil crises of 1980’s. These industries from 1972 to 1991 operated in the protected environment in which competition and quality were not significant indicators of success, but after the change of government in 1991, came under increasing pressure to compete in an environment which was rapidly changing and becoming difficult to asses and predict. Hence, there was industrial transformation after Zambia’s adoption of the free market system. The country saw the birth and death of certain industries. Many parastatals which couldn’t take off were either liquidated or privatized to pave way for private sector participation in the resource allocation and service delivery. So certain state-owned firms like Zambia Telecommunication (ZAMTEL), Zambia Postal Services and some financial institutions were subjected towards stiff competition so that their viability could be tested.
One of the industries which experienced serious transformation and competition after economic liberalization was Telecommunication. Telecommunication in command economy was only populated with one centrally-controlled firm called post and telecommunication cooperation (PTC) which later changed to Zamtel and Zambia Postal Services after delinking it. But by today several privately owned companies in this industry have mushroomed. For instance, companies such as MTN Zambia, Airtel Zambia, Zamtel (state owned), Celpay, Digital Micro link, etc. operate in the Zambia’s communication industry. However, the first three deal in specifically cellular (Mobile phone) telecommunication i.e. mobile cellular telecommunication system. The organization for Economic Cooperation and Development (OECD) has noted that, “the telecommunication industry has been transformed by increasing vigorous competitions in an environment of rapid change.” (OECD, 2001, 1).
Therefore, the paper will analyze the operations of the mobile telecommunication in the Zambian economy and what market structure it can be categorized. It will show how in this selected industry, the main players compete for customers (market share) through both price and non price competition.Lastly,the essay will highlight how this industry is regulated by the state so that abusive competition practices are eliminated.
From the introduction, the writer has selected to analyze one of the cardinal components of communication called Mobile telecommunication industry or mobile phone telecommunication. “This is an industry which deals with digital communication technology in which (in contrast to baseband) the bandwidth (data carrying capacity) of a single medium such as a wire, cable, or channel is divided into several independent pathways. Using techniques such as frequency division multiplexing, broadband enables fast (45 Megabits per second or more) and simultaneous transmission of different signals (data, audio, video), and interconnection of different devices on network. (www.searchmobilecomputing.techtarget.com/definition, 24/08/2012)
MAIN PRODUCTS FOUND IN MOBILE TELECOMMUNICATION INDUSTRY
This industry deals in several products and services. It is interesting to note that the industry generally deals in homogeneous products which are at the disposal of each and every player in the market. These homogenous products are as follows;
(a) GSM (Global System for Mobile communication) Network
This is one of the most important services offered which never existed sometime back in Zambia. It is a digital mobile telephony system that widely uses a variation of time division multiple access (TDMA) and is the most widely used of the three digital wireless telephony technologies (TDMA, GSM, and CDMA). GSM digitizes and compresses data, then sends it down a channel with two other streams of user data, each in its own time slot. It operates at either the 900 MHz or 1800 MHz frequency band.
Customers with mobile handsets communicate through different network providers using GSM.
Customers communicate or research through this product provided by the network providers. People can access cardinal information, process data and send messages through internet. Customers can use internet in applying for jobs using internet being provided by the industry. Mostly this is competitively done through dongles or phones themselves.
(c)Mobile Phones and other electronic gadgets
A mobile phone is an electronic telecommunication device, often referred to as a cellular phone or cell phone. Mobile phones connect to a wireless communications network through radio wave or satellite transmissions. Most mobile phones provide voice communications, Short Message Service (SMS), Multimedia Message Service (MMS), and some of these phones may also provide Internet services such as Web browsing and e-mail.
The network providers besides providing cellular telecommunication for ease networking, they provide other gadgets used in this communication. These include iphones, tablets and dongles (modems).
CHRACTERISATION OF MARKET STRUCTURE OF MOBILE TELECOMMUNICATION INDUSTRY IN ZAMBIA
This industry can best be categorized as an oligopoly.
An oligopoly according to Webster J.T “is an industry comprising very few firms producing homogenous or differentiated products; it is difficult to enter or leave the industry.”(2003:381)
So in Zambia the industry has been categorized as an oligopoly because it is dominated by very few firms/ producers who compete for customer base. These firms operating in the market seem to deter any entry by other firms from entering industry on the pretext that the market is very small hence can’t accommodate numerous firms.
This market is dominated by three companies, namely Airtel Zambia, MTN Zambia and Zambia telecommunication Company (ZAMTEL).These players in the market compete for market, hence they show varying positions.
“According to a Zambia Information and Communications Technology Authority (ZICTA) assessment, Airtel Zambia and MTN Zambia hold dominant positions in various relevant markets for the period January 1, 2012 – December 31, 2012.Airtel Zambia and MTN Zambia, according to ZICTA, are dominant in local mobile voice, mobile termination and sms (short messaging service) while Zamtel joins them in the mobile and sms termination.” The Post Newspapers Zambia, (26/03/2012).
Additionally, certain documents have shown that it must be understood that their market shares measured in terms of number of customers, is very different. Reports by Zambia-advisor.com show that in early 2009 Airtel (earlier called Zain) had market share of slightly above 78%, while MTN stood at 26% and Zamtel (cellz) stood at less than 7%.
With this market share, it can clearly be seen that it is Airtel and MTN who are controlling the market while Zamtel follows.
As such Zambia has a highly competitive market in this industry as each one of them is trying to win as many subscribers as possible. So during the discussion the writer will concentrate on showing how the most dominant of the three-Airtel and MTN are competing with each other. ZAMTEL is not showing much competition in this industry as seems its expansion level has reached the climax signifying that the customer base it contains is enough and any further increase would bring communication distortions.
PRICING AND OUTPUT DECISIONS OF MOBILE TELECOMMUNICATION INDUSTRY
Since this market comprises very few firms, they are usually very much aware of each others actions. Their existence is interdependence as for one firm to effect the price change is always aware of the reaction of the other firm.
Webster, J.W (2003, 471), shows that “oligopolistic industries are characterized by interdependence of managerial decisions between and among the firms in the industry.” Firms are keenly aware that pricing and output decisions of any firm will provoke a reaction by competing firms.
So the pricing system of one firm like MTN is dependent on how Airtel or Zamtel will react to that system. If MTN or Airtel decides to cut the intra-network or cross-network charges the market might react by following suit in fear of losing customers. But if the other firm leads in increasing the price of network system on voice calls, other firms may not follow the price leader, hence becomes relatively more expensive than the rest, so loses some market share.
For instance, in early 2010/11, Airtel due to its dominance of more 80% raised the charges for both intra-network and cross-network for prepaid and post paid customers.
“Ngabo Nankonde, the ZICTA Public Relations Manager, explained that Airtel was the most expensive mobile phone provider followed by Zamtel and MTN the lowest. It was explained that where Airtel charged K21/second for prepaid peak periods for intra-network, MTN K17/second (consumer diaries report, 2011 financial year).Since Airtel had become relatively more expensive than any other network; some customers migrated to MTN which had not followed the Price increase. As such Airtel lost more than 10% market share to MTN, and to retain it, Airtel must reduce the charges to “grab” part of the lost market share from MTN.
It is because competitors will not follow the price increase by one firm but might follow a price cut in fear of losing market as explained above.
As a result of this arrangement, the demand curve for these oligopolists, MTN and Airtel, isn’t straight as the case with the usual classical economic arrangement. It is flatter above the current price, with a sudden change of slope at the current price it shows a kinked demand curve characterised with sticky prices
KINKED DEMAND CURVE
It is a model of firm behavior that seeks to explain price rigidities to oligopolistic industry.If Airtel is a price leader charging the prepaid subscribers K17/s intra-network, will have difficulties in changing price. If it decides to raise the price higher than K17/s, at K21/s as earlier seen, MTN or Zamtel won’t follow, hence Airtel’s services will be relatively more expensive, and so will lose some customers. But if reduced price below K17/s, to K10/s for the same arrangement, MTN will follow in fear of losing the market share to Airtel.Ultimately, Airtel might decide to leave the prices unchanged for quite sometime unless MTN decides to cut its own charges.
However, doing so reduces the revenue and there by profits.
This is the reason why economists have described oligopoly as experiencing sticky price especially in this arrangement where products offered are homogenous.
Pricing Of the Internet Bundles and Dongles
These Zambian ologopolists, MTN, Airtel and Zamtel moved further in internet pricing competition in 2010. With the introduction of internet connectivity using Dongles or certain phones, Airtel sold the internet bundle of 1GB at K200, 000, but when MTN introduced its own and set the price less than K200, 000, Airtel reacted by reducing it to K150, 000.MTN followed suit and set at K125, 000 per gigabyte. Airtel also reduced it to K125, 000 and it has remained at that price.
They are currently competing on the amount of time that 1GB of data bundle takes to be used up and expire.
Later these firms started also competing on not only data bundles but also dongles and handset pricing. When MTN entered into agreement with ZTE to produce cheap dongles which only accept MTN simcards to be sold at only K150, 000, Airtel and later Zamtel followed suit with their Huawei modems by Huawei Technologies of China and sold at K150, 000.
The competition behavior is the same on mobile phone and sim cards. Both Phones and Sim cards by Airtel were quite expensive and were sold separately. But when MTN entered the market, and started selling these products at reduced price and combined, Airtel for fear of losing out customer base reacted by cutting the prices and started also selling the combination of both Sim cards and phones fixed for the network only.
These firms have moved further in producing double-sim phones which can allow two sim cards provided one of the simcards belongs to that network. These phones are sold cheaply.MTN started by producing a cheap phone, but Airtel followed by producing a cheaper double-simed phone containing more features than the MTN one called HUAWEI which was sold at k180, 000.
So the pricing competition goes on, and currently the ‘war’ is on non-price competition.
It is the competition in other components other than price such as quality of service, after sales service, customer relations and quantity of product.
For this Zambia mobile phone oligopoly to win or maintain the market share, each one has instituted several strategies to overcome the other.
(a) Point Accumulation Plans
Airtel introduced the loyalty programme where customers are accumulating points for using Airtel airtime. For very K500 used, a customer earns certain number of points which can later be converted into either data bundle or talk time for usage. As that was creating an impression to customers, MTN reacted by introducing a similar point accumulative plan in which customers are also having points for certain amount of talk time used.
(b) Mobile Banking services
In their quest for to impress and woo more customers, these Zambian olygopolists have moved further into mobile banking services. Airtel started by introducing this service in which customers would easily transact from their phone like sending money, buying airtime, paying bills to various utilility providers such as Zambia Electricity Supply Co-operation(ZESCO),Muilt-choice etc.Later,MTN reacted by introducing the similar facility for its customers who had started contemplating on moving to Airtel to enjoy these services.
(c) Threshold plans
These are plans which work as follows: in MTN, when a customer uses airtime of K500, he/she earns 5 minutes free, Airtel responded by introducing the similar arrangement and called it 5X PLUS FREE calling Promo, where anyone who uses up to K6, 500 per day earns up to 72 minutes free to be used within the same day.
However, Zamtel is on the sluggish side of competing as the two giant firms in this industry fight for market share.
(d) Increasing network coverage
MTN and Airtel are also competing on the network coverage in Zambia. They understand that having a wide coverage is not only convenient to customers but also cheaper to them as they will operate only within the network (for inter-network is expensive). So they are heavily involved in recapitalization in order to expand their networks to capture new customers especially in rural areas. As such these firms will show competition even in their business themes on adverts. At one point in 2011,MTN showed, “MTN,everywhere you go” but later Airtel which also wanted to show that they had a better coverage…produce a statement, “Airtel, the network which is truly everywhere you go”. All these are meant to convince the customers on how wide they have covered Zambia.
(d) Corporation social responsibility
These firms, MTN and Airtel have extended their non-price competition into now the corporate social responsibility they understand that getting involved in either directly assisting people or supporting activities cherish by citizens, will win them some customers as a result of good will.
In recent times, MTN has been sponsoring soccer in Zambia and Africa at large for instance, Zambia’s premier league is called MTN/FAZ premier (super) league as it is sponsored by MTN.In response organized what is called Airtel Rising Star which is meant to groom the young soccer generation.
Finally on pricing and output, these oligopolists are involved in serious marketing and advertising of their products. They advertise to show how cheap or quality their products are. The competition in their quest for large market share has been extended to marketing strategies. They are ready to spend huge amount of money on any news media be it online, radio, Television or newspaper tabloids. It is due to this competition that has made MTN increase its market share from 27% in 2010 to 34% in 2012. Airtel has reduced to 60% from 78% while Zamtel has dropped to 6% from 7%.
So currently, according to Grant Thornton Budget Bulletin, 2012 shows this,
Airtel Zambia 60%
MTN Zambia 34%
Source: Grant Thornton Budget Bulletin 2012, page 14
So the report shows that Airtel lost about 20% of market share to MTN (1 bid)
GOVERNMENT REGULATIONS OF MOBILE PHONE INDUSTRY
In the word of Kaira.T (2011, 35), “the essence of regulation should be to promote business entry, growth and socio-economic development by controlling and prohibing anything that prevents such development.”
Naturally and historically, oligopolies have a tendency of exploiting consumers through wrong pricing methods as well as other non-competitive practices. These companies may choose to enter into price-fixing or market-sharing cartels or collusion.
“Collusion is the desire to achieve point profit maximization within a market or pressure price and revenue instability in the industry” (tutor 2u, a level economics blog).To pressure out such exploitatory tendencies by MTN, Airtel or Zamtel, Government of Zambia instituted a body to regulate the activities of all players in communication and Technology fields. The body is called Zambia information and Communication technology Authority (ZICTA).
According to the online journal, the Zambian Economist, entitled Information and Communication Technology Bill 2009, ZICTA is an economic regulator with power to regulate tariff for “dominant’ players and agreements interconnections. “ (19/07/2009).
This institution, ZICTA was set up to check and regulate bad practices by these firms such as predatory pricing, collusion in setting up prices and any anti-competitive tendencies.
For instance, “in the first half of 2011 a way to ensure competition practices in the telecommunication market, ZICTA held consultative sessions with all operations in order to finalize and decide on issue of tariff forbearance. It also finalized guidelines to regulate their running of marketing promotions” (Grant Thornton Zambia-Budget Bulletin 2012: 14)This shows that ZICTA has been empowered through information communications and Technologies (ICT) act of 2009 to protect the rights of consumers of all types including the disables. ZICTA is authorized by the act to punish by withdrawing the licence of any firm not conforming to the set standards like quality provision of services, non-competitive practices which include predatory pricing. It can force the ailing to compensate or apologize to the customers affected.
The government through ZICTA mandates these mobile phone providers to display the costs of all plans introduced to the customers. For instance, early 2012, Airtel was forced to disclose the charges of their musical plan to customers and not to charge customers forcibly, but rather ask them.
ZICTA is also involved in regulating the dominance position of a particular firm and market concentration. For instance, when market power of Airtel was almost reaching 81%, it became a concern as that would reduce competition as it would monopolize the market and hence lead to serious customer abuse by Airtel. So, ZICTA systematically regulated the system to reduce the fast growth of Airtel by maintaining that other firms, MTN and Zamtel control certain regions before Airtel could move in.
ZICTA in some instances is mandated to regulate the market concentration for the firms. Market concentration entails the total number of competing firms in the industry. So in the mobile telecommunication industry, the market concentration is only three in Zambia as firms controlling the industry. Now if another firm such a Vodacom would want to enter the Zambian market, ZICTA is capable of determining whether it would plausible for the fourth firm to enter the market. After making necessary calculations, ZICTA can either allow or block the new entrant.
PRICING POLICIES IN MOBILE TELECOMMUNICATION
In this industry, there are no deliberate policies on the pricing of the product; it is a free-market system provided they don’t abrogate the ICT act of 2009 of being non-exploitative.
As opposed to Energy Sector where prices of products like fuel, electricity and water are priced in accordance to government regulations, the mobile phone industry pricing system depends on the forces of demand and supply and level of competition. As explained earlier pricing depends on competition, however, the state through ZICTA will only come in if the pricing system is full of exploitation of customers. For instance, in 2010 when Airtel formerly called Celtel (then Zain) was becoming very dominant with almost 80% of market share, ZICTA moved in to control this dominance as it would have created a monopoly of which monopolies are mostly exploitative.
In summary the writer’s choice, mobile telecommunication industry has been analyzed starting with its brief history. This is an industry which deals with digital communication technology in which the bandwidth (data carrying capacity) of a single medium such as a wire, cable, or channel is divided into several independent pathways. Using techniques such as frequency division multiplexing, broadband enables fast (45 Megabits per second or more) and simultaneous transmission of different signals (data, audio, video), and interconnection of different devices on network. The essay has shown further that this is industry can be categorized as the oligopoly as it contains only three firms namely MTN Zambia, Airtel and Zamtel who are actively competing for market share measured in terms of number of subscribers to the network.
These oligopolists compete strongly to win as much market as possible involving both price and non price competition. They have shown competition on how they price their products like voice calls, internet charges and communication gadgets. As such the demand curve for the Zambian mobile telecommunication industry players just like any other olygopolists is kinked.
Finally, the essay has shown how the government regulates the mobile telecommunication industry in Zambia. The industry is regulated by the body called Zambia Information and Technology Authority (ZICTA) set up by act of parliament.ZICTA was empowered by 2009 information bill to regulate and control the industry on any possible abuses by these olygopolists who are competing fiercely for the market share.
However, there are no deliberate policies set up by the government on pricing system to be followed by the players. Unlike the energy industry where the government through certain statutory bodies set and regulates the fuel prices, the mobile telecommunication industry’s pricing is under the influence of forces of demand and supply. The state through ZICTA only comes in if there is suspicion of exploitation.
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