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Impact of Floor Pricing on the Telecom Industry in Liberia - An Investigative Account

Impact of Floor Pricing on the Telecom Industry in Liberia - An Investigative Account Featured

After years of intensive lobbying by Orange and MTN, the Government of Liberia(GoL) has agreed to provide unprecedented intervention to support telecom companies and their profitability. Orange and MTN, operate in a duopoly in Liberia, and have been indicating that their current competition does not allow for them to generate sufficient profits. This is in spite of the fact that in most countries in which they both operate, there is much heavier competition with at least 4 or more operators.

Meanwhile, it is unclear what the Operators actual profit margin is. It is widely reported that such multinational operators charge themselves brand fees, management fees and interest so as to transfer their profits overseas to their mother company. This practice has recently been called into question in numerous countries in West Africa as potentially prohibited.

Despite this aggressive form of transferring profits, the Government as conceded to the Operators and agreed to intervene in the market on their behalf. This was done after a careful study conducted by the Liberia Telecommunication Authority (LTA) determined that the Government would need to also raise its share of tax revenues on the sector, after many years of declining tax revenues.

The LTA is the state-owned regulator, enforcing regulations to raise revenue and to monitor  quality of telecommunication services in the country. Among other things, the LTA issues licenses to radio and television stations, and each category of licenses is valid for 12 calendar months, renewable annually.

Accordingly, to lure the Government into establishing price floors that abolish the $1 for 3 days promotion and raise the cost of internet service, the Operators agreed that the Government would also establish regulatory surcharges, just as the Operators experience in several other countries. This compromise was to ensure that while the Operators enjoy windfall profits from new regulations, the Government can also raise sufficient revenues to finance its development and Pro- Poor Agenda.

While governmental intervention to provide Operators price floors is unique, regulatory surcharges are very common across West Africa. In neighboring Guinea where both MTN and Orange both operate profitability, the government regulator levied the same regulatory surcharges on the telecom sector. In spite of these surcharges, the Guinean telecom sector remains highly profitable and continues to expand. Meanwhile, consumers in those countries continue to enjoy highly competitive prices.

It’s worth noting that the Price Floor is already positively impacting the sector’s revenue. However, until the surcharges on the Operators takes effect in March 2020, the Government is realizing a very small benefit relative to the Operators. In the meantime, the Operators have a window of time to enjoy a windfall without sharing much of the benefit. Meanwhile, given the windfall the Operators are enjoying, it is clear they will have the capacity to finance the surcharges, as they already do in other countries where consumers enjoy quality service.

According to Mr. Mamadou Coulibaly, General Manager of Orange- Liberia, who has complained at the Supreme Court of Liberia, is quoted in France-based JeuneAfrique magazine claiming “We pay an average of 20 million US dollar in taxes each year. On iis own, this surcharge represents $32 million turnover of 63.1 million. While such figures seem high, they do not correlate to the situation Orange faces in Guinea where it has higher charges and yet has enjoyed immense growth and profitability.

According to the GSMA, the global telecommunications trade association chaired the Orange Chief Executive Officer, in Guinea Orange pays the equivalent of $0.63 cents per minute surcharge and 5% surcharge on internet services. The new surcharge in Liberia effective March 2020 shall be very similar at $0.80 cents per minute and 5% on internet services. Unlike in Guinea, Liberia is not raising its GST from 15% to 18%, its corporate tax rate from 25% to 35%, introducing SMS surcharges of $1.1 cents per SMS or the substantial spectrum fees that are imposed on top of licenses costs.

Notwithstanding these surcharges, Guinea has not assisted Operators with mandated price floors. Therefore, it is reasonable to anticipate regulatory surcharges will not change the Operators ability to prosper. In fact, with the regulatory support of price floors, the Operators may thrive even more so than they do in Guinea and other West African countries which do not offer such friendly regulatory support.

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