CONVERGENCE OF MOBILE AND FINANCIAL SERVICES:

IMPLICATIONS FOR MOBILE TELECOMMUNICATIONS REGULATION

BY:JEREMMY OKONJO

MWAGAMBO & OKONJO ADVOCATES

Convergence in ICTs

Meaning: the shift from the traditional “vertical silos” architecture, whereby different communications services were provided through separate networks (for example, fixed telecoms, mobile telecoms, CATV, IP), to a situation in which communications services are accessed and used seamlessly across different networks and provided over multiple platforms in an interactive way.

Levels of ICTs Convergence

1. Network convergence

2. Service convergence

3. Industry/market convergence

4. Regulatory convergence

Convergence

ICTs convergence most prolific in mobile telecommunications sector for 2 reasons:1. Mobile phone infrastructure used to offer

most ICTS and other services;

2. Convergence in mobile telephony has been at the expense of other ICTs sub-sectors e.g. ISPs, fixed line telecoms, branchless banking etc;

Mobile & Financial Services as Converged Services

Mobile Financial Services Models

• Bank Model• Mobile Network Operator (MNO) Model• Hybrid Model

The Role of Regulation in Telecoms, and Mobile Financial Services

Impact of Convergence on Mobile and Financial Services on mobile telecoms

regulation

• Regulatory overlap

• Regulatory arbitrage

• Regulatory inertia

• Regulatory conflict

Implications of MFS on Regulation of Mobile Telecoms in Kenya

1. Authorization and Licensing

2. Interconnection and interoperability

3. Competition

4. Universal access

5. Quality of service

Authorization and Licensing

• Introduction of the Unified Licensing Framework (ULF) of Licensing;

• Classification of MFS as Value Added Services under the ULF Licenses

Authorization and Licensing

Importance of Licensing:1. Raising fees/revenue2. Registration of Licenses3. Regulation of market entry4. Quality control5. Enforcement of regulations6. Contract between MNO and Government

Interconnection and Interoperability

• Interconnection - the physical and logical linking of telecommunication networks used by the same or different service licensees in order to allow the users of one licensee to communicate with the users of the same or another licensee or to access services provided by another licensee.

Interconnection and Interoperability

• Interoperability - the ability of communication systems, units or elements to provide services and to accept services from other systems, units or forces, and to use the services exchanged to enable them operate effectively together.

Justification for Interconnection and Interoperability

1. Consumer benefit perspective

2. Capturing valuable network externalties

3. competition

Levels of Interconnection and Interoperability in MFS

1. Platform interconnection

2. Agent interconnection

3. Customer level inter-operability

Regulation of Interconnection and interoperability

• Should Interconnection and interoperability be regulated by CCK?

• How do regulators balance access and interconnection rights with proprietary rights, and the need to encourage innovation and investments in MFS?

Competition

• Competition pushes firms to be efficient, innovative and customer oriented in order to thrive and survive in the market.

• Effects of competition: 1. Lower prices/tarrifs2. Higher productivity3. Increased innovation4. Greater connectivity

Elements of Competition in the MFS sub-sector in Kenya

1. Market entry2. Interconnection and interoperability3. Exclusive dealing agreements4. Cross-subsidy, service bundling and

predatory pricing5. Mobile Number Portability (MNP)

Universal Access and Service

• the objectives and policies that a government implements to ensure that all its citizens have access to the benefits of modern communications infrastructure and services, regardless of region or location, socio-economic status, ethnicity, gender, disability, or any other factor.

• Universal Service and universal access to telecommunications are distinct.

Universal Access and Service

• Universal service refers to service at the individual or household level, for example, a mobile phone in each home.

• Universal access, on the other hand, refers to a publicly shared level of service, for example, “simu-ya-jamii” payphones, or MFS agents networks.

Rationale for Universal Access and Service

• Telecoms, and ICTs generally, are socio-economic enablers;

• Market forces cannot eliminate market gaps left by service providers;

• Market supply and demand forces increases importance of universal access and services

Universal Access and Services

• Do the telecoms regulations on Universal Access and Service apply to VAS such as Mobile Financial Services?

Universal Access and Services

Why should UAS by applied on MFS?

1. MFS are bundled services

2. They are important for social inclusion

3. Regulatory inertia?

Universal Access and Service Concerns Relevant to Mobile Financial Services

• Extent and quality of network coverage;

• Provision of technology-agnostic mobile financial services;

• Design of user-friendly interfaces and subscriber-friendly registration procedures;

• Interconnection and interoperability.

Quality of Service (QoS)

In Kenya’s liberalized telecommunications sector, competition is considered one of the main tools for fostering innovation, fair pricing, and promoting high quality of telecommunications services. The objective to keep down churn rates in a competitive market is seen as an incentive for the provision of high quality services.

Quality of Services (QoS)

• Imperfect Markets;• Safaricom and Orange Telkom - have been

declared significant market players (SMPs) by the CCK;

• Need to implement a system for monitoring and reporting Quality of Service (QoS) of mobile telecommunications services.

Rationale for QoS Regulation of MFS

• Price/quality trade-off by service providers• Insensitivity of MNOs in asymmetrical

telecoms and MFS markets;• Published, comparable QoS indicators are

essential for assisting customers make informed choices and foster market competition;

Applicability of Quality of Service Regulations to Mobile Financial

Services • Indirect application – indicators ensure

network strength and availability, hence aid the provision of MFS;

• Direct application – the KICA QoS regulations do not address peculiarities of MFS;

QoS Elements Critical to Provision of Mobile Financial Services

• Complaints or redress mechanism

• Authentication and registration;

• Verification and tracking of transactions;

Recommendations and Conclusion

Regulatory response required at the institutional level:1. Regulatory convergence;2. Regulatory cooperation;3. Balance of ex ante and ex post regulatory

approaches;4. Regulatory trend-setting.

Recommendations and Conclusion

Regulatory Responses to specific telecoms regulatory issues:1. Licensing2. Interconnection and interoperability3. Competition4. Universal Access and Services5. Quality of Service