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Thursday, 6 December 2007

The neverending Celtel surge...

Reuters report that Celtel is now on course to achieve its 2007 target of 2m users, and projects that its subscriber base will reach 2.7m in 2008. To top it all, it now plans to offer 20% of its shares on LSE. The question of who is empowering Zambians between Celtel and Zamtel, has never had a much clearer answer. The irony of course is that its Zamtel's incredible inefficiency in the sector that is actually fuelling Celtel's market dominance. I have previously argued that faced with a weak regulator (Communication Authority of Zambia), this may well be bad news for the future. Two or three years down the line Celtel may possess a lot of market power which are best anticipated now and handled with a giving CAZ more powers to regulate tariffs through the pending ICT bill, liberalisation of the international gateway and necessary break up of Zamtel in two as we have argued here.


  1. how good is MTN doing ?

  2. MTN's growth is disappointing.

    The same article suggests : In its release of its subscriber numbers for the quarter to end-September, South Africa's MTN reported 194,000 subscribers in Zambia.

    But may be I am being too harsh, given that their 2006 base was around 90,000. That is more than a 100% growth!

  3. Two or three years down the line Celtel may possess a lot of market power which are best anticipated now and handled with a giving CAZ more powers to regulate tariffs through the pending ICT bill, liberalisation of the international gateway and necessary break up of Zamtel in two...

    Cho, you're quite right, but having followed your previous blogs on the issue I think you've placed far too much emphasis on liberalising the international GW than it deserves. Here's how I would prioritise the above list:

    1) Empower the regulator CAZ and for goodness sake, give them autonomy for once.
    2) Breakup Zamtel. Actually no; privatise it instead, keeping possibly 50-50 ownership between local and others.
    3) Liberalise the IGW

    The problems seen in the Zambian comms market today (and foreseen in the future) are largely a combination of a weak regulator and an inefficient incumbent operator. However, remember that this situation is not entirely unique to Zambia and is actually typical of a market emerging from a monopoly. We've seen this all before in the US, UK and just about everywhere else. And this is all in recent history because telecoms liberalisation in it's present form is very young, perhaps 2 decades old or less.

    Empowering the regulator is probably the toughest one because of the local culture of political interference in government departments. Zambia is yet to see a totally independent regulator in any sector with enough clout and autonomy. That's the first problem.

    You pointed out that Zamtel's problems are structural. I agree, but I think it's more structural in terms management. It's about the people given to run this behemoth and what free hand they have to do what they, as professionals, would want to do for the business and it's customers.

    The IGW is a political hot potato because it is a real money generator as everyone can imagine. So in maintaining the status quo, the idea is more of protectionism of income than it is of security, contrary to what someone else suggested in your other blogs. It's for similar reasons that government would not issue land-line licenses, (though this is now pointless as mobiles have surpassed landlines by far), as well as VoIP. As mentioned above, this is not the very first time this issue is being tackled in the world. So let's avoid re-inventing the wheel and just look at what others did it. and see what ideas we can pick from them. The UK for instance is seen as leader in telecoms liberalisation after successfully breaking up the original postal services company into separate and mail and telecoms copmanies, created a powerful regulator, introduced in countless mobiles carries (virtual ones too), and now this local-loop unbundling (LLU), just about the last hurdle.

    Speaking of VoIP, actually I should add it to the list above somewhere between the first and second points because it's an enabling technology and banning it is shooting yourself in the foot. Yes, it's banned in Zambia, check CAZ website (which was not accessible at the time of writing).

  4. Zedian,

    A useful contribution to the debate.

    In terms of the priority of gateway liberalisation, I am in full agreement with you that this is should not be an immediate step. Infact I would state it differently. Opening up ZAMTEL to more competition at the moment without wider "structural changes" would be even more costly for the tax payer. So I very much agree that prior steps are needed before gateway liberalisation.

    But where we differ slightly, is on the actual sequencing. I prefer the following:

    1) Government needs to enhance the regulatory capacity of Communications Authority of Zambia

    2) We restructure Zamtel so that it becomes a company just like any - full commercialisation. I believe this is where we are at the moment.

    3) Liberalise the GW.

    4) Change ownership model of Zamtel e.g. consider breaking it up in two (Zamtel Int and Zamtel Domestic) and Government can retain the domestic entity or go for the PPP.

    So I think where we differ is on actually on (4)!!

    I think once you achieve full commercialisation in Stage 2 and liberalise the gateway in Stage 3, I see no reason why you have to break it up. Of course you believe we can go for straight privatisation and then leave the contentious issue of access behind.

    I have a problem with that. Privatising the gateway before full access would be discriminatory. You would replace a government monopoly with a private monopoly. Even in the face of strong regulator.....[see the blog on proposed ICT Bill]..with powers to regulate tariffs, it would still be a sub-optimal solution as long as the gateway was restricted.

    The problem is that as long as the gateway is not liberalised or there's no shared ownership of the gateway, the owner (whether private or public) will always have the incentive for gold plate investment.

    I therefore doubt whether having a strong CAZ and a privatised broken up ZAMTEL, without a liberal gateway would deliver much benefits in the long term. It would be an improvement on the current position, but would certainly lead to some unnecessary and costly investment for the mobile operators who rely on the gateway.

  5. Cho,

    I've seen the complexity in commercialising Zamtel before liberalisation.

    Falling short of allowing each of the operators to run its own IGW, a shared ownership of this facility makes quite an interesting case.

    But which would you prefer between the two approaches and why?

  6. Zedian,

    Its worth underlying the point that in theory anyone is free to own the IG....the 1994 Telecommunications Act sets the framework for this...the problem is that the licence fee for the gateway is highly prohibitive...and also Government would have to approve the licence...its "policy position" is that it does not want one...

    Competition rules may also prevent two private companies getting together to share gateway costs..

    I think the best approach is for government to reduce the cost of gateway access and provide unrestricted support for anyone who wants to build a gateway...universal access...let the market decide whether it wants to have 50 or 1 gateway....

    In the meantime government, CAZ and ZCC would need to allow firms to partner together to share gateway costs. This is normal. Its like airlines sharing policing costs at airport or financing terminal facilities together.

    Infact in the USA two airlines can can jointly own an airport. Its the same way with the IG.

  7. I think the best approach is for government to reduce the cost of gateway access and provide unrestricted support for anyone who wants to build a gateway...universal access...let the market decide whether it wants to have 50 or 1 gateway....

    Precisely! Government has got to realise that the current IG ownership system is stifling comms development and is actually hurting consumers.

    I deliberately omitted my opinions on the pros and cons of a shared IG or multi-IG system because I didn't want to pre-empt your response.

    There's a brilliant example of a shared facility in Zambia. The Central bank (BOZ) and commercial banks have setup a cheque clearing system whereby a company jointly owned and operated by the commercial banks operates the facility.

    The actual CAPEX and OPEX (minus license fees) required in setting up and running an IG is low in comparison to the other operations of an operator. So the IG license fee barrier must be lowered and ownership policy reviewed for the direct benefit of the consumers thru' lower resulting tariffs, and not indirectly thru' government revenue obtained in licenses.

  8. Agreed. But Of course we started off with your assessment that gateway access could be delayed :)

    I have struggled to understand why the Zambian government is unwilling to take forward the necessary reform to move this market forward.

    But I guess the reasons may be similar why Government has not fully liberalised other forms of communications e.g. television or printing press. We must not be afraid of giving cheaper and better information to people in whatever form...whether through television or the ability to access internet cheaply or make a phone call abroad...

  9. Yes, my initial analysis was that liberalising the GW was less of a priority than privatising and reorganising the incumbent. I still think so, because an inefficient incumbent operator with a disorganised and demoralised workforce is hurting the industry and users much more than a monopolised GW is. I also think that it would be a lot more difficult to convince government to let Zamtel part away with the GW, its "cash cow".

    However, your explanation of the complexity which could arise from trying to separate the GW from a fully privatised Zamtel is the overriding factor I have considered.

    So it's question of what's best in the long term as a total solution.

  10. I note that ZAMTEL has now increased the rates. Not sure how this will help their current financial position. Much of their problems derives from the debt owed to them by government.

    Here is the article from the Post:

    ZAMTEL raises phone tariffs
    By Nomusa Michelo
    Tuesday December 18, 2007

    ZAMTEL has announced increases in rates for fixed lines and Public Switched Telephones (PSTN) and its mobile phone service Cell Z effective January 1, 2008.

    According to a public notice from Zamtel, the increases have been effected to enable it provide better services to customers.
    “Zamtel wishes to inform its esteemed customers that in order to provide better services, new tariffs will be effected on Cell Z and fixed line (PSTN) networks,” the notice read in part.

    Cell Z to Cell Z calls will cost K22 per second from K20 per second while off peak rates increase to K13 per second from K10 per second. The tariff changes from Cell Z to other networks are the same as Cell Z to Cell Z.

    The notice also stated that PSTN rates for Band B trunk calls will go up from K10 per second to K16.67 per second during peak hours, while off peak rates have been increased from K5 per second to K12.50 per second.

    And rates for Band C trunk calls for off peak rates will increase from K8.33 per second to K12.50 per second, while peak rates remain unchanged at K16.67 per second.

    Meanwhile, charges for local calls during peak hours remain unchanged at K3.33 per second while off-peak rates have increased from K1.67 per second to K2.50 per second.

    “All other tariffs not mentioned including those for international services remain unchanged,” the notice read in part.


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