Today, 17 May 2018 is World Telecommunication and Information Society Day. It is gravely worrying that two events related to telcom regulation abuse and possible waste of financial resources are playing before our very eyes.
The first one relates to an ill-fated $1.1bn contract signed under the previous government for “retail payment system infrastructure”, to effectively ensure mobile money interoperability. The second one is a duplicatory $ 89,473,500 contract signed by the current Ministry of Communications for, design, development and implementation of a common platform for traffic monitoring, revenue assurance, mobile money monitoring and fraud management. Duplicatory, because Subah, Afriwave already got controversial similar contracts.
Here are 30 summarised points compiled by members of IMANI Telcoms Team to guide you.
Mobile money interoperability under the previous government
- When the Bank of Ghana called for restricted bids in 2016 for a “retail payment system infrastructure”, it was clear from the context that the winner of the tender was going to be working on mobile money interoperability. GHIPSS had already been working on the other components of the system, such as RTGS and ACH. The missing piece therefore was connecting the mobile money platforms of the telcos to the GHIPSS infrastructure.
- Bank of Ghana decided that the project shouldn’t be funded from public funds. A private investor should foot the bill and then recover the funds from the mobile money “industry”. One company said the job could be done for 14 million Ghana Cedis. Another said, 5.5 million Ghana Cedis. Sibton said 4.67 Billion Ghana Cedis.
Bank of Ghana immediately disqualified the first two companies on the ground that those companies had asked the Central Bank to invest in various aspects of the project, and the Bank didn’t want any financial exposure.
- But if indeed this was the Bank’s attitude, why was it getting involved in choosing a monopoly provider to foist a system on the telcos at all? Why did it not, in the “facilitation” role it claimed it preferred, simply convene the telcos and convince them to integrate themselves, as was the trend in a number of countries in Africa already? Countries such as Madagascar, Kenya, and Tanzania?
- The Bank of Ghana did not bother to establish the capacity of the company to raise this crazy amount of money, even though the company had stated that it will spend $400 million on electricity and water and $92 million on insurance!
- How much was the company that won the bid hoping to squeeze out of mobile money? An average of $40 million a year for the first 5 years. Note the point very well: the contract and the financial proposal CLEARLY STATES that Sibton shall spend $1.1 billion on the project. It must then make enough money from charging the users of mobile money in this country until it has recovered the $1.1 billion and made a return on its investment, beginning with revenues of $200 million in the first 5 years.
- But this is the worrying part. The most profitable telecom company in Ghana is MTN. In its most recent financial disclosure, it revealed a profit figure of about $53 million. If we consider that the profit margins on its mobile money product is similar to its other products, then its profits from mobile money was a measly $7.2 million. But let’s even follow the crowd and assume that mobile money is wildly profitable. Let’s assume that rather than the 7% margin it makes on its general business, it makes 30% on mobile money. This will still imply a profit of only $31 million per annum on mobile money.
- Now here is the meat. MTN has 90% of mobile money accounts and 92% of deposits! So practically, it makes most of the profits! It is safe to say that the entire profit outturn in the “mobile money industry” in Ghana (on a 30% profit margin assumption) is not more than $40 million per annum!
- Why hand over that amount to a single contractor whose only task was to create an electronic ledger and implement some APIs to interconnect the companies doing all the heavy lifting?
- The problem with this arrangement is that it takes away all risk from the private operator since they have secured a guarantee that fees shall adjust to ensure that come what may they will recover their investment plus profit. In fact, the telcos themselves could have simply created the interconnections themselves.
- WHO DID THIS ANALYSIS AT THE BOG AND THOUGHT IT REMOTELY MADE SENSE??? Who would dare assume that telcos will sit down for all their profits to be wiped away to satisfy the “financial equilibrium” needs of some obscure contractor without seeking their own equilibrium, i.e. pass on the costs to longsuffering Ghanaians?
- But here is why we cannot blame the Bank of Ghana alone in this matter. There is no way on Earth that such a policy, dramatically affecting the way that telcos operate, could have been sanctioned without the acquiescence of other agencies, notably the NCA, and the Ministry of Communications itself.
Telecom Revenue Assurance and the Game of Musical Chairs by the Ministry of Communications of today
- Ghanaians will remember in 2014 that the government, in it’s bid to enhance its oversight and revenue generation activities in the telecommunications sector, contracted Subah Infosolutions Ltd to build and operate a platform for monitoring caller data records (CDR). Two government agencies, namely the National Communications Authority, (NCA) and the Ghana Revenue Authority (GRA) were at loggerheads over which of them had the mandate to authorize the delivery of such a service.
- In 2010, Subah Infosolutions was contracted by the Ghana Revenue Authority to oversee the revenue assurance activity from the telcos with regards to ensuring that the right surcharges were paid to the GRA as per the communications service tax provisions. Subsequent events around the mode of operation and the monies charged by Subah for apparently no work done have been in the news since 2013. At least GHC 75 million was collected by Subah Infosolutions for very little work done, although subsequently Subah was able to install its infrastructure and utilize its platform to monitor telco network data for the GRA. Advantage GRA.
- In 2015, the NCA decided to proceed with the creation of an Interconnect Clearing House (ICH) as a basis of accounting for the SIIT returns which were being bypassed through SIMBOX fraud. The ICH was to be established at the cost of GHC40 million in 2015 with the view to curbing revenue losses to SIMBOX fraud, while estimates by the government indicated revenue losses of $5.8 million to SIMBOX fraud around 2011
- Speculations were that the ICH would be better placed to monitor the landscape and prevent cases of SIMBOX fraud through the deployment of special systems and save the state money. Per its license, Afriwave, the operator of the ICH would create a common independent mechanism to monitor the routing, billing and settlement of local and international interconnect traffic for existing and future telecoms activity.
- Afriwave’s core activities included revenue assurance as well as other value added services like identity registering for blocking stolen lines among others. However, its core mandate is revenue assurance.
- It is quite interesting that this activity by the NCA led to a serious conflict with the contractors for revenue assurance contracted by the GRA, Subah Infosolutions. This conflict got to a head when the NCA refused to acknowledge the legitimacy of Subah’s operations in 2015, with the then Director-General, William Tevie indicating that Subah didn’t have a license to conduct real time monitoring of international traffic for revenue assurance. It proceeded to communicate to Subah Infosolutions to cease its operations in the telecommunications industry on the 12th of November 2015. Meanwhile, just a week before, the NCA issued a license for what it called “International Monitoring of Traffic” to Afriwave Telecom Ghana Limited to carry out real time monitoring of international traffic.
- These two industry players were essentially doing the same thing but sanctioned by two different state institutions without clear guidelines on how to co-operate, and it was unclear how the systems would be treated independently or the data that they handled.
- To deepen the confusion further, the GRA in December 2016 renewed their contract with Subah Infosolutions, only for the NCA to direct all mobile network operators to disregard data requests from Subah for revenue assurance activities.
- The question then is, why is the NCA refusing to issue a license to Subah Infosolutions, if Subah has been contracted by a fellow government agency for revenue assurance.
- Secondly, what is the role and status of Afriwave in the middle of these activities, and are they still discharging their agreement as per the contract they signed, or it has been abrogated?
A NEW PLAYER IN 2017
- A new entrant in this game of musical chairs has emerged, in the midst of all this confusion. GVG/Kelni, a Haitian originated company, has been awarded a contract for, guess what; design, development and implementation of a common platform for traffic monitoring, revenue assurance, mobile money monitoring and fraud management. Just like in previous arrangements, the preamble to the contract indicates the mandate as emanating from both the Act 865 and the Act 786.
- What is perplexing from a policy and strategy point of view is the rationale behind signing a new contract when there is no clarity as to the statuses of the mandate of the previous contractors operating in this revenue assurance space.
- There has not been any defined and clear performance parameters set for the contracts related to Subah and later Afriwave, and it is therefore very difficult to decipher whether their services provide value for money. Indeed, there has been no such report of underperformance by the stakeholders that contracted Subah. The issue then is, why did the Ministry of Communications go ahead and sign a new contract under the name of a common monitoring platform for a service that is already being rendered under an existing contract by a fellow government agency?
- Already, the contract upon signing stipulates that a payment of USD 1,491,225 be paid monthly for a 5-year period, amounting to a total of USD 89,473,500. Per the stipulations of the contract, which was signed in December 2017, the monthly payments are supposed to begin not later than 30 days after the contract was signed. This means by inference that the state through the Ministry of Communications owes at least USD 5.96 million as of May this year. Has the Ministry of Communications paid up?
- In contrast, the SUBAH contract allowed for similar amounts to be paid ALSO for no work done for a considerable period of time to the tune of some GHC 4 Million a month. Are we saying that for the activities of revenue assurance we need such staggering maintenance figures?
- In racking up these costs, it would be very important to know what work has already gone into the creation of the CMP till date, and what value it has added or accrued to the state in terms of revenue to justify this staggering figure. It is also very curious to an observer why the contract in its current form automatically provides for an extension for a further 60 months after the expiry of the initial period based on a very vague terms of reference in terms of performance.
- Seeing that we need to learn from history, we note with grave concern the addition to the scope of the contract the activity of mobile money monitoring, considering that the GHIPPS has the necessary infrastructure as a clearing house to handle the full scope of that activity.
- It is time the policymakers in the telecoms industry begin to see the demerits in the implementation of the SIIT regime. The implementation of revenue assurance and oversight has been fraught with so much controversy, with so much money being charged by service providers that it is difficult to be seen if we are indeed gaining anything from it as a nation.
- In countries like South Africa and Nigeria, there has been ZERO incidences of SIMBOX fraud because of an absence of SIIT.
- A total of the quantum of purported service charges, starting from SUBAH in 2010 till 2013 when it was uncovered that a possible GHC 75 million had been paid for no work done (in the region of around $35 million in those days, and at todays rate around GHC 110 million), to the current dispensation of outlays of around $350,000 monthly is very problematic. We have only been given as a nation from time to time vague estimates of losses due to SIMBOX fraud. If that is the case that these services are absolutely necessary and indispensable, we will need to examine how much is lost monthly to SIMBOX fraud and how much we pay as a nation to these service providers in totality to actually determine the real value add.