Thursday 23rd February 2012

Is The UCC Really Carrying Out its Mandate In The Telecom Industry?

By Brenda Ntambirweki

A few weeks ago, Ugandans woke up to the surprising news that the Uganda Communications Commission (the UCC) had dictated that telecoms were to charge no less than 2 shillings per second for phone calls. Although the UCC quickly recanted its position saying that this “directive” was “still under discussion”, this botched attempt at price control has once again brought to the forefront the glaring gap in Uganda’s competition law regime.

The UCC’s mandate is very clear. It is empowered under the Uganda Communications Act to, among other things, establish a tariff system to protect consumers from excessive tariff increase and avoid unfair tariff competition; to monitor, inspect, license and regulate communications services; to promote competition, including the protection of operators from acts and practices of other operators that are damaging to competition, and to facilitate the entry into markets of new and modern systems and services and to regulate interconnection and access systems between operators and users of telecommunications services.

Initially, I found it somewhat conflicting that UCC also has the mandate to fix tariffs through imposing price caps (ceilings or floors). This was clearly the basis of the 2 shillings per second tariff “directive”. But a close examination of the UCC Tariff and Accounting Regulations revealed that a price capped tariff must be derived from the cost of providing the services, based on cost causation and an oriented approach (determined by the UCC). These regulations also provide that their underlying objective is, among other things, ensuring that the tariffs charged to consumers are reasonable and efficient, cost-oriented and reflect optimum consumer satisfaction; and promoting a competitive environment and a level playing field by ensuring that charges are cost-based, transparent and non-discriminatory.

It is clear from the foregoing that the basis of UCC’s mandate in whatever capacity, but specifically with regard to telecommunication, is twofold: one, to protect fair competition and two, to protect the consumer from unfair tariffs. However with the erratic decisions that the UCC is prone to making, it is quite obvious that they are not carrying out their mandate especially with regard to promoting fair competition.

So how can the UCC properly carry out its mandate to enhance fair competition and ultimately protect the end consumer from excessive tariffs? Price caps are not always the best solution for a vibrant competitive market like ours. The UCC should be focussing on establishing whether the actions of particular service providers are affecting the market by having a negative effect on the competitive structure within the market. For instance, are the actions of telecoms with substantial market share affecting the market by affecting volumes and patterns of communication?

Secondly, the UCC should focus on ensuring that telecoms in dominant positions in the market are not abusing these positions. In particular, the UCC should be focussed on those telecoms whose economic strength gives them the ability to act independently of their competitors and their consumers. It is these telecoms that have the ability to weaken competition by for instance offering loyalty rebates to enhance their position in the market, charge unfair and/or excessive prices that are not driven by demand and supply, by tying products and by otherwise creating unfair trading conditions.

Thirdly, the UCC should be paying attention to agreements signed between the different telecoms and determining if these have the end effect of restricting competition, especially through price fixing.

Fourthly, if the UCC was keen on protecting fair competition as per its mandate, it would also focus on penalizing possible collusion by telecoms by concerted co-ordinated efforts and non coordinated efforts basing on the actions of a market leader. For instance, when a market leader drops prices, do the other telecoms follow suit, or do they ignore the action and continue with business as usual? When this happens, does the UCC bother to penalize the telecom that started the trend, or does it endorse it with silence?

I believe that right now the UCC is biting off more than it can chew, and that the UCC’s mandate is simply too big for a body charged with supervising all communication in Uganda. I believe that the UCC’s mandate should be reduced to a supervisory role over the whole communications sector, leaving the fair competition aspect in the hands of a capable local competition tribunal, equivalent to the UK’s Office of Fair Trading. Unfortunately, this is not likely to happen soon since the Competition Bill is still under discussion and is lacking in content. I am not aware if this Bill has been passed on to stakeholders for their input because it needs to be supplemented before it is tabled before Parliament. It is very disappointing that the EAC passed its Competition Act in 2006, but it will not come into effect until all EAC partner states have established operational competition law regimes in their respective jurisdictions. It seems that Uganda is dragging its feet with this very important piece of legislation, and yet passing it (amended) will go a long way towards enhancing fair competition and protecting the end consumer in the telecom market.

The writer is an Associate with Sebalu and Lule Advocates
This article initially appeared in the CEO Magazine published on the 4th of July 2011.