Interconnect debts, other liabilities deepen telecom sector’s woes

The Nigerian telecommunications industry is plagued by massive interconnect debt, which the Nigerian Communications Commission (NCC) puts at N165b. ADEYEMI ADEPETUN, x-rays the looming effect of this challenge on the sector.

The deregulation of the telecommunications sector in 2001 opened up the country and led to the issuance of telecoms licenses to major service providers.

Unlike the pre-deregulation era, which was characterised by poor service delivery by the defunct Nigeria Telecommunications Limited (NITEL), the erstwhile sole telecom provider, there has been an increase in international trade and investment in the country as a result of the telecommunication revolution in the country.

Indeed, from the meagre 400, 000 or thereabouts NITEL lines in 1999, to over 240 million connected lines out of which 160 million are active, the country can also boast of achieving 114 per cent teledensity.

This feat has been achieved based on the ruggedness of the quartet of MTN, Airtel, Globacom and 9Mobile, with huge regulatory support from the Nigerian Communications Commission (NCC).

The level of investment, both local and international has gone up to $70b.

Already, a World Bank study has indicated that for every $1 invested in telecommunications infrastructure, more than $6 is generated in returns on local employment and general economic growth.

Revenue from telecommunication services alone was estimated at $1.2t as at 2002.

Telecommunication networks are now making it possible for developing countries to participate in the world economy in ways that were hitherto not possible. However, the operators are faced with myriads of challenges.

Apart from the challenges of poor quality of service, which has continued to mar the progress recorded in the sector, the issue of increasing interconnect debts, is about to tear the sector apart.

In fact, only recently, the NCC revealed that operators owe each other a staggering N165b in interconnect debt. As at last year, the interconnect debt in the sector was put at N60b. This development means that operators’ debt profile got worse over the last seven months.

This rising number and volume of interconnect indebtedness amongst mobile telephony operators, amplified by unsavoury industry practices, is one of the major factors threatening the stability of the country’s telecommunications market.

What Is Interconnect Debt?

INTERCONNECT debt results when an operator fails to settle the cost of termination of service rendered to it by another operator in the industry. Interconnection is important in the telecoms industry because it enables the subscriber to seamlessly connect from one network to another.

Also known as termination rates, interconnect fee is the charge paid by telecoms companies to one another for terminating voice, data or other services over or across the other’s network.

Interconnect debt represents payments that have not been made by an operator for voice calls terminating in a network that does not belong to the operator.

In the case of Nigeria, the debt referred to also includes collocation debts owed by operators that are renting space to host their radio antenna(s) and base stations from a tower operator.

With interconnection, a subscriber does not need to know whether the person at the other end of the network subscribes to another network operator.

The issue of interconnect debt has been one of the issues that the regulator struggles to handle from time-to-time in order for peace and harmony to reign in the industry.

Apart from high interconnect debt, other interconnection issues troubling the industry include unverified interconnect debt claims, just and equitable interconnect rate, interconnect infrastructure and policy.

Sources revealed that but for the stringent conditions put in place for disconnection by industry regulator, the NCC, some operators would have been disconnected as a result of high interconnect debt.

Why This High Rate Of Indebtedness

ACCORDING to the Chief Executive Officer of Pinet Informatics Limited, Lanre Ajayi, the huge debt got to this alarming level because there are strict procedures for an operator to disconnect an owing operator, “so it is easy for an operator to pile up this debt knowing full well that it cannot be easily disconnected.”

Also, a former Acting Executive Vice Chairman of NCC, Stephen Bello, said the high rate of indebtedness in the telecoms industry can be attributed to poor corporate management; diversion of telecoms revenue to other private investments in other sectors and poorly drafted interconnection agreement between operators.

While noting that this interconnection indebtedness will slow down government’s socio-economic agenda on the expansion of networks spread and quality of service for subscribers, Bello said all hands must be on deck to reposition the sector to avoid imminent collapse.

“This interconnect indebtedness has the effect of introducing inefficiency into the telecoms industry and the national economy, unfair treatment of interconnecting partners will prevent subscribers from having value for their money,” he stated.

With the debt rising, operators have continued to trade blames over what was incurred with some alleging the inflation of figures, which they attribute to the faulty billing system of their competitor. Others lament that the debts are owned by clearing houses.

MTN, the largest telecoms operator in the country claims it is being owed the largest interconnect debt.

Checks showed that the telecommunications firm is being owed about 40 per cent of the total debts.

As the largest operator with 66 million subscribers, which often receive more terminations on its network, consequently incurred more unsettled interconnect rates from other players.

NCC Miffed By High Incidence Of Interconnect Debt

AT a recent meeting, the Chairman of the Board of the NCC, Senator Olabiyi Durojaiye, expressed displeasure at the high incidence of unpaid interconnect debt.

According to him, the problem is one of the issues that the regulatory agency sought to address through the recent Corporate Governance Code, which the commission articulated for the industry recently.

From Ajayi’s perspective, the implication is that the operators being owed may be cash-trapped and that would affect their capacity to render services to their clients, which may lead to poor quality of service to the populace.

A telecoms analyst, who doesn’t want his name in print, told The Guardian that there is the tendency for the interconnect debt to soar higher between now and next year if the lingering issues are not well tackled.

She explained that the country has no official settlement platform in the telecoms sector, hence operators, especially the bigger operators continue to settle interconnect debts at their pace, thereby accumulating the debts to the detriment of smaller operators.

“None of the operators in Nigeria has a settlement scheme in place with their interconnect partners.

Invoices are sent out at the end of the month and the operators just sit back and wait for payment from the interconnect partners.

It is only when payment is not received after a long period of time that dispute and reconciliation is embarked upon. This has led to high a level of disputed interconnect indebtedness,” she stated.

According to her, despite the growth in alternative disputes mechanisms, many telecom providers still enter into interconnection agreements without inserting dispute resolution or arbitration clauses in their agreements.

“Once a claim arises out of or in connection with such interconnection agreement, especially recovery of interconnect debts, the creditor telecom operator is bound to be at a loss as to how to recover its outstanding debts,” she stressed.

Also commenting on the impact of interconnect debt on the performance of the sector, the Chief Executive Officer, Medallion Communications, Ike Nnamani, said the impact remains great, and has the capacity to lead to disconnection of some networks due to prevalence of bad debt.

“This then impacts negatively on quality of service, loss of service to consumers both on voice and data services in some cases and a serious loss of revenue for the networks that are disconnected.”

Operators Struggle To Stay Afloat

Some industry watchers have analysed that the issue of interconnect debt, coupled with rising capital expenditure (Capex) and operational expenditure (Opex) may kill the industry

These debts in the industry, analysts believe are capable of threatening the stability of the Africa’s largest telecoms market, if the consequences of not settling the debts are not effectively managed by the government.

Already, checks showed that the interconnect debt profile increase was due to inactive status of majority of the debtors, who were mainly Code Division Multiple Access (CDMA), fixed line networks operators, as well as, Internet Service Providers (ISPs).

Already, about 21 licensed telecoms operators, which are among the debtors of interconnect charges have been declared inactive by NCC.

Some of these operators, which had gone moribund, include Starcomms, Reliance Telecoms (operating as Zoom), Intercellular Nigeria, MTS First Communications, Disc Communications, WiTel, O’Net (Odua Telecom), Rainbownet, Monarch Communications, XS Broadband, Webcom and IPNX.

Can An Operator Disconnect Another Operator?

THE 2012 NCC Guidelines on Procedure for Granting Approval to Disconnect Telecommunications Operators (the 2012 Guidelines) provides that where an operator has fully exhausted all the options contained in the interconnection agreement for resolving interconnect disputes, it may apply to NCC for disconnection of the services of the debtor telecom operator.

But the procedure for granting approval for disconnection is quite cumbersome, little wonder no telecom provider has been disconnected in recent times on account of default in payment of outstanding debts.

Commenting on the matter, a telecoms expert, Kehinde Aluko, said that the procedure for disconnecting debtor telecom providers should be reviewed to reflect modern realities.

Aluko wants the NCC to probe and scrutinise the packages of telecom operators to ensure that they conform to international best practices, saying: “The sanction against clearing houses who fail to remit interconnect revenue to the creditor telecom provider should be explicit.

In the same vein, telecom providers should protect themselves by inserting unambiguous arbitration clauses and invoke such clauses when interconnect debts remain unpaid. A lingering problem demands a proactive solution.”

According to him, the large volume of the interconnect debts in the telecoms sector is often linked to disparity issue in revenue sharing ratios between mobile telephone operators, and their fixed wireless counterparts.

To Nnamani, the regulator has been trying to find a lasting solution to this problem.

“The last option for the regulator is to mandate that operators that have not settled their interconnect debts should be disconnected from terminating traffic on other networks. However, this also has the effect of potentially making the operators involved to go out of business,” he stated.

Corroborating earlier claims, the NCC chairman, Durojaiye, further noted: “The commission is particularly concerned with issues of massive interconnection indebtedness and unethical practices of masking of international calls.

This sort of unethical behaviour is part of what the Code of Corporate Governance is set up to address.

“Henceforth, the commission will be taking very tough measures against any detected unethical behaviour and industrial malpractice in order to safeguard the health of the entire industry. Compliance with the spirit of the code is a necessity,” he said.

Durojaiye continued: “Going forward, the commission, as part of its initiatives to ensure compliance, will intensify monitoring level of compliance.

To encourage satisfactory compliance, the commission has instituted a yearly reward system to recognise and commend the most compliant companies,” he stated.
Stakeholders Seek Resolution Of Issue

WITH this challenge persisting, stakeholders have called for a holistic, but urgent and pragmatic approach to the matter.

According to the President, Association of Telecommunications Companies of Nigeria (ATCON), Olusola Teniola, the industry requires an automated interconnnection settlement payment scheme to be introduced to prevent future accumulation of this type of debt, especially as the industry operates a predominant prepayment charging tariff system, hence the collection of the interconnection fee where it applies, is already available to be deducted and paid to the terminating network at the point of the call being made.

General Manager, Regulatory Affairs, MTN Nigeria, Oyeronke Oyetunde, lamented that, “The issue of rising profile of interconnectivity debt is something that needs to be comprehensively discussed in the industry otherwise, it may pose questions around sustainability of the industry.”

Worried by the unfolding scenario, the Chairman of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), Gbenga Adebayo, at a recent forum urged the NCC to conduct a study into why interconnect debt is growing in the industry.

“We want you to look at interconnect debt and why operators are owing. We should not only ask for the amount the smaller operators owe, but also know whom they owe.

It might be that these companies are not willing to owe but owe because of circumstances beyond their control.

We need to address this. More focus should be placed on smaller telecom players with the aim of asking questions that will reveal their true status,” he said.

According to the Chairman, National Association of Telecommunications Subscribers of Nigeria (NATCOMS), Chief Deolu Ogunbanjo, “whatever happens between the operators as regards the debt issue should not be passed on to the consumers.”

He urged the regulator to look critically into the issue and ensure that it is resolved on time to avoid collapse of more players.
Regulator Exploring Options To Avoid Industry Collapse

THE Executive Vice Chairman of NCC, Prof. Umar Danbatta, admitted that the huge debt profile of operators has become a major problem for the regulator.

He added that the greatest danger of the situation is that when those who owe refuse to pay, it could cripple the network of the operator being owed.

He said the regulator was looking at what could be done to ensure that the situation does not get out of hand.

He said: “We mediated on what the actions and powers of what the commission can do in terms of crisis like this because there is a debt crisis in the industry. But it is being managed very well.

We all agreed that pragmatic ways must be found to settle the debts and a deadline had been given as mid-July for the payment plan.

“That is pragmatic, it is being worked out in order to ensure that those who owe will start paying and those who are being owed start receiving what is being owed to them,” he said
The Way Forward

ATCON president, Teniola said one of the issues responsible for unverified interconnect debts was the fact that most interconnections were dcone through peer-to-peer mechanism.

According to him, only 10 per cent of traffic must pass through interconnect operators, “If this percentage is raised to at least 50 per cent, operators would have the confidence to invest in interconnect infrastructure.”

This, he added, would eliminate the high incidence of disputed and unverified interconnect debts and invariably contribute to prompt settlement of such debts.

From Nnamani’s perspective, “For a system that is 95 per cent prepaid, the inability to pay for terminated calls cannot be blamed on the subscribers not being able to pay the telecom operators, because between 60 to 70 per cent of all interconnect debts in Nigeria are disputed debts.

This is because over 95 per cent of the interconnect calls are still passed on a peer-to-peer basis among the operators, resulting in disputes and inability to reconcile call records.”

He blamed the situation on lack of an official settlement platform for the telecoms industry, and called on the NCC to come up with policies that would address issues with interconnect debts in the country.

He suggested the introduction of Nigeria Interconnect Settlement Scheme (NISS), which he said, would reduce the accumulated debt profile and improve cash flow among operators.

The NISS platform, he added, would offer a high degree of accuracy in the settlement of interconnect bills.

The call records from interconnect exchange operators, will be used to process the invoices and confirm payments due to each operator.

For operators that decide to present traffic that has been exchanged directly, the processing at NISS will be used as the invoice amount and payment will be made based on this, he said.

He added that NISS would become as effective as the Nigeria Inter Bank Settlement System (NIBSS) in the banking sector, if well implemented.

“The NISS will also offer real-time visibility of the net cash positions and obligations of operators on a daily basis.

This will enable the operators and their partner banks to plan ahead and ensure there is cash availability to meet their obligations when it becomes due, unlike the current situation where invoices are sent several months down the road and the obligation becomes too large to handle from the operators angle, resulting in disputes and inability to pay,” Nnamani said.