Analyzing Telecom Network Cost in East Africa

This expert-level training workshop conducted in Arusha in 2013 delved into the country-by-country analysis of telecom network cost modeling in the East Africa region. The workshop covered topics such as regulatory frameworks, transparency, skills and resources, cost accounting, depreciation methods, and cost modeling. Detailed insights were provided on the regional overview and cross-country comparisons, with a focus on progressing towards effective regulated cost-orientation.

• Telecom network
• Cost modeling
• East Africa
• Training workshop
• Regulatory framework

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1. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region EXPERT LEVEL TRAINING ON TELECOM NETWORK COST MODELLING FOR THE HIPSSA REGIONS Arusha 15-19 July, 2013 Christopher Kemei, ITU Expert 1

2. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Sessions 15/16: Country by country analysis in the Eastern & Southern Africa Sub- Region

3. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Review of cost-based regulation in Botswana Djibouti Eritrea Ethiopia Kenya Lesotho Malawi Mauritius Namibia Rwanda Seychelles South Africa Sudan Swaziland Tanzania Uganda Zambia Zimbabwe 3

4. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Analytical framework SCORE 1 2 3 4 A) Cost orientation framework Required by Law & Licence None Required by Licence Required by Law No costing methodology or models published Metholdogy / process and cost models published Methodology / process published Cost models published B) Transparency Requires some enhancement C) Skills and resources Poor Adequate Excellent Specified, implemented and audited D) Cost accounting and auditing Specified but not implemented Specified and implemented None E) Depreciation methods Tilted annuity or economic None specified Straight-line Annuity Top-down (e.g. historic, FAC) Bottom-up or hybrid (e.g. current, LRIC) F) Cost modelling None Benchmarks 4

5. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Regional overview Scores can range from 1 to 4; higher scores represent more progress towards effective regulated cost-orientation 5

6. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Cross-country comparison Scores can range from 6 to 24; higher scores represent more progress towards effective regulated cost-orientation 6

7. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Eastern & Southern Africa Sub-Region - Overall In almost the entire sub-region the obtaining legislative framework broadly provides for cost oriented tariff regulatory framework. However the instruments for the implementation of the broad legal framework need to be enhanced There is also need for harmonization in view of the diverse nature of the frameworks There is also the need for skill enhancement There is also the need for the adoption modern costing methodologies and the adoption of modern tariff regulatory processes including transparency 7

8. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Botswana - summary 8

9. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Botswana - comments The Legal framework in Botswana provides for cost accounting based on forward looking incremental costs as the methodology for the determination of termination rates. The LRIC cost model developed by consultants is used when a tariff review is due. The model is however not published. Operators with SMP have both retail and wholesale prices subject to control Would the representatives from Botswana like to add any comments of their own? 9

10. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Djibouti - summary 10

11. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Djibouti - comments Djibouti did not participate in the HIPSSA data collection survey therefore there was insufficient data for the assessment. However online research indicates as follows: That the law provides for an interconnection framework based on the principle of reasonable cost allocation. That there is only one operators providing both fixed and mobile services That tariff regulations forbids tariff that are below costs. Would the representatives from Djibouti like to add any comments of their own? 11

12. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Eritrea - summary 12

13. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Eritrea - comments Eritrea did not participate in the HIPSSA data collection survey therefore there was insufficient data for the assessment. However online research indicated as follows: The law provides for the establishment of a framework for tariff formulation (calculation). There is no NRA in place The Ministry of Transport and Communications is vested with the regulatory authority of the communications sector Would the representatives from Eritrea like to add any comments of their own? 13

14. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Ethiopia - summary 14

15. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Ethiopia - comments Council of Ministers Regulations No. 47/1999, provides for a framework for cost modelling. Aim to attract and sustain investment Prices theoretically to be based on efficient operator incremental cost Work on cost modelling was to be started in 2012 Single incumbent operator (fixed and mobile) so arguably cost-based regulation is not relevant. Cost accounting system is not fully implemented Would the representatives from Ethiopia like to add any comments of their own? 15

16. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Kenya - summary 16

17. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Kenya - comments The sector legislation in Kenya provides for the Legal framework for regulating tariffs based on efficiency and economy A cost model (pure LRIC) is in place but is not publicly available. Individual operators given their modules The depreciation method used is Annuity Would the representatives from Kenya like to add any comments of their own? 17

18. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Lesotho - summary 18

19. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Lesotho - comments Insufficient data provided through the HIPSSA questionnaire Cost accounting not mandated due to lack of appropriate legal framework. There is a planned review of the law No cost model in place. Would the representatives from Lesotho like to add any comments of their own? 19

20. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Malawi - summary 20

21. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Malawi - comments Cost accounting not imposed in Malawi due to lack of legal framework and skills There is a planned review of the Law Malawi operates a Sender Keeps All Cost model does not exist Challenges in data collection Would the representatives from Malawi like to add any comments of their own? 21

22. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Mauritius - summary 22

23. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Mauritius - comments The Information and Communication Technologies Act 2001, Act 44/2001 provides for a framework for regulating tariffs based on. Interconnection rates are computed based on historical costs using the FDC methodology The regulator (ICTA) issues regular directives on interconnection rates referred to as the Interconnection Usage Charges (IUC). Migration to a LRIC model is under consideration Would the representatives from Mauritius like to add any comments of their own? 23

24. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Namibia - summary 24

25. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Namibia - comments Cost accounting in Namibia is not implemented as the cost accounting regulations provided for in the Act are yet to be developed. There is no cost model in place. There is also insufficient skills Plans are underway to have a consultant assist in the development of a cost model. Would the representatives from Namibia like to add any comments of their own? 25

26. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Rwanda - summary 26

27. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Rwanda - comments The sector legislation, Law No. 44/2001 of 30/11/2001, provides for a framework for derivation of tariffs. The regulator (RURA) is mandated to regulate tariffs, for dominant operators (with SMP), based on objective and cost based criteria. However no cost accounting is imposed as the dominant player is yet to be determined Would the representatives from Rwanda like to add any comments of their own? 27

28. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Seychelles - summary 28

29. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Seychelles - comments The sector legislation, the Broadcasting and Telecommunication Act, 2000 mandates the Minister in charge of ICT to regulate tariffs. Interconnection rates are required to be based on incremental costs (additional cost accruing). The Department of Information Communications Technology in the Office of the Vice President is mandated to among others regulate tariffs based on incremental cost accounting principles. Would the representatives from Seychelles like to add any comments of their own? 29

30. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region South Africa - summary 30

31. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region South Africa - comments The Legal framework in South Africa provides for cost accounting obligations to operators with SMPs. Cost accounting separation guidelines are under development A Top down costing approaches based on fully distributed costing is used. In this approach data extracted from accounting separation reports and traffic figures submitted by SMP operators are to be used. There is no specific cost model in use. Would the representatives from South Africa like to add any comments of their own? 31

32. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Sudan - summary 32

33. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Sudan - comments Sudan did not participate in the HIPSSA data collection survey. However online research indicates as follows: That the Telecommunication Act 2001 mandates the regulator to approve the methods and costing of telecommunication services. The National Telecom Corporation (NTC) as the regulator is therefore mandated to regulate tariffs including the methodology of costing of services Would the representatives from Sudan like to add any comments of their own? 33

34. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Swaziland - summary 34

35. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Swaziland - comments Cost accounting not mandated due to lack of appropriate legal framework. No cost model in place There is no independent regulatory body as the incumbent operator also performs regulatory functions. Would the representatives from Swaziland like to add any comments of their own? 35

36. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Tanzania - summary 36

37. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Tanzania - comments The ICT sector legislation in Tanzania, the Electronic and Postal Communications Act, 2010, gives broad principles that guide operators in setting tariffs The Tariff Regulations, 2005, provide for cost oriented tariffs. The regulator, Tanzania Communications Regulatory Authority (TCRA) is mandated to ensure the application of cost oriented tariffs No cost model is in use presently (although LRIC models were previously developed) Would the representatives from Tanzania like to add any comments of their own? 37

38. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Uganda - summary 38

39. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Uganda - comments The sector legislation, Uganda Communications Act Chapter 106, provides for a framework for tariffs setting principles which include cost orientation and causality. A cost model based on LRIC was under development The model is not publicly available The depreciation method applied is the Straight-line Would the representatives from Uganda like to add any comments of their own? 39

40. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Zambia - summary 40

41. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Zambia - comments The Legal framework provides for cost accounting obligations to operators with SMPs Bespoke Hybrid cost model developed by consultant is used when tariffs are reviewed Data gathered in specific request. There is resistance by operators to give data. Cost model not published for confidential reasons Would the representatives from Zambia like to add any comments of their own? 41

42. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Zimbabwe - summary 42

43. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Zimbabwe - comments The Legal framework provides for cost accounting obligations to operators. Cost accounting is implemented using tariff proposal guidelines. Presently uses COSITU Model In the process of developing a new system based on forward looking costing methodologies for wholesale and retail services. Would the representatives from Zimbabwe like to add any comments of their own? 43

44. HIPSSA Cost model training workshop: Session 15/16: Country by country analysis in the East Africa Region Conclusions Good progress in establishing the legal basis for cost-orientation Cost modelling work at least started in most countries Too much reliance on accounting approaches (historic costs; straight line depreciation) Distinct lack of transparency in both methodology used and resulting models. Lack of skills and resources a widespread issue 44