The Role of Telecommunications in Modern Civilization
Telecommunication has become an essential component of modern civilization, playing a crucial role in enhancing capital flows, fostering social interactions, and connecting continents seamlessly. It serves as the foundation of digital transformation, which has significantly impacted nations and developed economies. Behind this progress are complex global systems—comprising organizations, machinery, and technical expertise—that work together to support industrialization and improve human life.
The Industrial Ecosystem in Ghana
The telecommunication industry in Ghana is a vital sector of the country’s economy, contributing significantly to its gross domestic product through millions of dollars generated from local and international markets. This industry encompasses a diverse range of participants, including Mobile Network Operators (MNOs), International Wholesale Carriers (IWCs), International Wholesale Carrier Licencees (IWCLs), Interconnect Clearinghouse (ICH), National Communications Authority (NCA), Mast and Tower companies, and others. Unfortunately, recent years have seen a turf war within the industry, leading to a decline in profit margins for market participants due to reduced forex revenues.
Market Arrangement and Challenges
The industry operates under a mixed market system. International incoming voice calls, or traffic, carried into Ghana from outside the country are either routed directly to MNOs (MTN, Telecel, and AT) or via the ICH, which is established under the Electronic Communications (Amendment) Act, 2016 (Act 910). Conversely, international outgoing traffic is terminated outside the country without involving the ICH.
Beyond Ghana, International Wholesale Carriers route large volumes of traffic bound for Ghana directly to the MNOs. These MNOs hold gateway licenses issued by the NCA, allowing them to terminate international inbound traffic. However, the current setup for inbound international traffic results in settlements being conducted outside Ghana’s jurisdiction, depriving the country of foreign exchange benefits.
The NCA licensed IWCLs to route international inbound traffic through the ICH, but it did not revoke the gateway licenses of the MNOs. This dual channel for inbound traffic creates competition between IWCLs and MNOs, with the latter often marking down rates to gain more traffic volume. Rates for international inbound traffic are largely regulated, but compliance has been lacking among international carriers.
Market Interaction and Psychology
According to the Electronic Communications (Amendment) Act, 2009 (Act 786), IWCLs and MNOs must charge a minimum rate of 19 cents per minute. An additional 32% surcharge levy of 6.08 cents is payable to the NCA. The ICH’s interconnect rate for routing traffic is currently set at 0.7 cents, while the MNOs’ international voice transit rate for terminating traffic via the ICH is 7.425 cents, totaling 8.125 cents.
These rates are further increased by taxes such as the Communications Service Tax (CST), VAT, and levies, raising the total cost to 16.45 cents per minute for IWCLs. This leaves only a 2.55 cents margin for IWCLs, assuming all other factors remain constant. Meanwhile, MNOs have a price ceiling of 19 cents per minute, nearly 156% above their transit rate (the ICH route). This dynamic causes MNOs to lose money when traffic is routed through the ICH.
To maintain profitability, MNOs enter into bilateral agreements with IWCs, allowing them to adjust rates downward and distort market equilibrium. This stifles the growth of IWCLs, as they cannot reduce their rates below the minimum set by law. Consequently, providers of traffic to IWCLs may shift traffic to cheaper MNO routes, leading to a decline in IWCL margins.
As the price war continues, IWCLs eventually break even and begin to exit the market, negatively impacting forex inflows. Transit revenue dips, regulatory fees fall, and taxes decline, destabilizing the country’s macroeconomic environment.
Determinants of Price Rivalry
In addition to the exploitation of price controls by MNOs, taxes and regulations also contribute to the price war in the market. Indirect taxes on international inbound traffic amount to 27.65% of the rates, while the regulator’s surcharge levy of 6.08 cents increases statutory charges to about 102% of the rates. This high tax burden makes the market unattractive for IWCLs, who absorb these costs since they cannot pass them on to their clients.
Policy Proposals and Recommendations
The ICH offers a solution to the current market dynamics, enabling Ghana to participate effectively in the international traffic ecosystem and derive benefits. The NCA licensed IWCLs to introduce local content participation, aiming to secure foreign exchange inflows. For instance, in 2020, routing just 20% of international inbound traffic through the ICH injected $17 million directly into the country.
This direct forex inflow occurred because settlements for roaming and international inbound traffic were made in Ghana, unlike settlements between IWCs and MNOs, which typically occur outside the country. To support this, the NCA should enhance regulatory support for IWCLs, helping local entities compete with the dominance of IWCs. Additionally, the NCA could review its surcharge levy to improve market performance.
Conclusion
Ghana’s macroeconomic fundamentals are currently challenged due to recent fiscal difficulties. Strengthening these fundamentals requires radical policy shifts, especially regarding foreign exchange. Correcting the current market dynamics would improve forex reserves, stabilize economic indicators, and solidify the country’s fiscal base.
