Doubling down and making it worse

In South Korea, telco’s have managed to persuade the state to intervene and impose an entirely new regulatory regime for Internet peering. Called Sending Party Network Pays (SPNP), the government requires  ISPs (and Content Providers) to pay to send traffic to another ISP. For example, if a large ISP hosts a CDN, then the large ISP would pay to send traffic to a smaller ISP, even though it is the customers of the smaller ISP that are requesting the data (Scenario 1 in the graphic below). If that CDN is then moved outside of the country, then all ISPs have […]

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The tension between data caps and revenue maximization

Data usage is growing fast. But some telco revenues are not keeping pace with data usage. Why? In Africa, data usage is generally linked to increasing revenues. Why don’t we see the same trend in Europe? Figure 1 shows data usage compared to ICT sector revenues in Germany. We can see the same trends in the UK and other European countries.  One major factor that differentiates Europe – and other mature markets like South Korea – from Africa is that the growth of the ICT sector is bound to slow down with increasing market penetration. Once most households have fixed […]

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OTTs vs. Telco’s: competition and investment

The past few months have seen several telco CEO’s make the claim that OTTs are making their investments unviable. But is this the case? Are OTTs the cause of telco’s returns below their cost of capital? In the table below is a short summary of some of the CEO statements that have been in the media over the past year. If we look at the data, telco’s have healthy EBITDA margins, ranging from 29.3% to 30.6%, way above the average across 94 sectors of 12%. Return on Equity (ROE) is reasonable. The cost of capital is the lowest compared to […]

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Taxation for the digital era: Uganda

Accessible, reliable and affordable broadband Internet is the foundation of the digital economy and digital inclusion. Improved broadband penetration is associated with substantial socioeconomic benefits, contributing to enhanced productivity, facilitating information exchange, and improving service delivery across the economy. The ICT sector in Uganda is taxed heavily. MTN and Airtel alone made up 40% of excise duty revenues and 12.7% of VAT revenues in the financial year 2019/2020. Yet the sector’s GDP contribution is only 1.8%. While there is an increased and justified momentum around the world for the collection of a Digital Service Tax (DST), the introduction of yet […]

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Taxation for the digital era: Tanzania

Accessible, reliable and affordable broadband Internet is the foundation of the digital economy and digital inclusion. Improved broadband penetration is associated with substantial socioeconomic benefits, contributing to enhanced productivity, facilitating information exchange, and improving service delivery across the economy. Tanzania’s National Five Year Development Plan III (FYDP III) recognizes the significance of improved broadband penetration to both the job creation as well as the positive impact on the service sector, which contributes significantly to the country’s GDP (MoF 2021). The ICT sector in Tanzania is heavily taxed. Consumer taxes represent 32% of the total cost of mobile services (GSMA 2021). […]

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Taxation for the digital era: Kenya

Accessible, reliable and affordable broadband Internet is the foundation of the digital economy and digital inclusion. Improved broadband penetration is associated with substantial socioeconomic benefits, contributing to enhanced productivity, facilitating information exchange, and improving service delivery across the economy. The ICT sector in Kenya is taxed heavily. Consumer taxes represent 21% of the total cost of mobile services, compared to 14% for the rest of Africa (GSMA 2020). Mobile service excise duties alone contributed 2.2% of total tax revenue for the 2020 Financial year, compared to the sector’s GDP contribution of 3.1%. Other taxes such as WHT, VAT and corporate […]

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DRC to impose new taxes on mobile

The DRC is considering imposing a tax on voice bundles of USD 0.0075 per minute, USD 0.003 per SMS and USD 0.00005 per MB. At the same time, the regulator has prohibited any price increases. The net effect will be to  slow investment and economic growth. The new proposed taxes on SMS, minutes and data will limit the commercial freedom of mobile operators and force SMS, voice, data and mixed bundles to be withdrawn because prices cannot be increased. The net effect will be an indirect price increase through the withdrawal of bundles. This will hit the poor hardest. Read our policy […]

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What happens when a government relies too much on a single source of taxation?

What happens when a government relies too much on a single source of taxation?  The goal of taxation, especially for the ICT sector, is not revenue maximization, but to balance competing goals of access to the telecom services and at the same time generate sufficient revenue to pay for public goods like roads and health care. The excessive focus on excise duties as one of the main mechanisms to get tax revenue from the sector means that usage is penalized by driving up prices and lowering affordability. This also disproportionately targets the poor.  Figure 1 shows how Uganda has taken […]

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What happens when you raise taxes on mobile money? The case of Tanzania.

The focus this week is on the impact of tax increases on usage in the ICT sector. Tanzania offers a wonderful opportunity to see exactly how consumers react when the government decides to increases taxes. On the 30th of June 2021, the Government of Tanzania introduced new mobile money levies. The definition of mobile money includes the transfer of mobile money to another account (both bank and mobile money accounts) as well as money transferred using a bank’s mobile phone application but does not include bank to bank transfers.  Initially, the electronic mobile money levies ranged from 10 to 10,000 […]

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Upgrade of the ICT Evidence Portal

The newsletter this week is on our recently upgraded ICT Evidence Portal and especially the Tax Impact Calculator. We’re really excited about the ICT Evidence Portal because it gives key information about the telecom sector in Africa quickly and accurately. Regulators can easily benchmark their country against any other country on the continent. Operators can see how they compare against competitors. Any stakeholder can see what the impact of an increase or decrease in excise duties is going to have on tax revenue and the broader economy.   There are four tabs within the portal:  African Ranks – Ranks each country […]

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