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MTN fine is punitive, not anti-market 12 Feb 2016

There have been many commentaries on the $5.2 billion fine imposed on MTN Nigeria by the Nigerian Communications Commission (NCC), which was later reduced by 25%. Many have voiced their opinions for and against it. I welcome diverse opinions on any issue but I was surprised to read some arguments against the fine insinuating that the NCC decision will scare investors away from Nigeria.
    
A bit of history is needed here to help us better understand how we got here. In August 2014, the four GSM operators were hit with a total fine of N120.4 million for not deactivating unregistered SIM cards. Of this fine, MTN got N102.2 million, Globacom N7.4 million, Etisalat N7 million and Airtel N3.8million. According to NCC, the deadline for a new directive was disobeyed by MTN, hence the fine of $5.2 billion.

Now, it is fair to say this is a very humongous penalty. Some have even suggested that it is the biggest in the history of the telecommunications industry, globally. I cannot confirm that, but what such commentators have failed to do is find out what the regulations are in other countries for the violation MTN has been fined.

A new sheriff in town

In MTN’s case, the NCC acted in accordance with the law. In other words, NCC acted justly. Section 20(1) of the Registration of Telephone Subscribers Regulation of 2011 states: “Any licensee who activates or fails to deactivate a subscription medium in violation of any provision of these regulations is liable to penalty of N200,000 for each of the unregistered but activated subscription medium.”
    
According to NCC, MTN violated this regulation. Perhaps, what the authors of this regulation didn’t foresee was that one of the telecom operators would default on 5.2million unregistered SIM cards. MTN’s problem was with the volume of unregistered SIM cards and not NCC.

Any Nigerian who wishes the country well should agree that a violation of any of our laws or regulations should not go unpunished. We should not stand by and watch our rules and regulations of engagement flouted by any business or individual.

It is possible that MTN violated or called NCC’s bluff because the telecoms company knows the terrain. What MTN didn’t factor into that calculus was that there is a new government in town headed by a sheriff who clearly has no favourites and is acclaimed for his ‘I belong to everybody and belong to nobody’ quote. He has given directive to all regulators to do their job as specified by law.

In far away Toronto, Canada’s foremost business newspaper, Globe and the Mail, described the fine thus: “Seven months after a dramatic election that toppled Nigeria’s government, the world is still waiting for a clear economic policy to emerge in Africa’s most populous country. But its shocking decision to demand a $5.2-billion (U.S.) fine from a cellphone company is offering some early hints of change.” A hint of change indeed and a decisive one if you ask me that lends credence to the President’s acclaimed mission of not having the business-as-usual episode that muddled the country into a state of pitiful economic crisis.

Anticompetitive practice

Prior to this, MTN had been found not to comply with some of NCC rules. Outside Nigeria, the MTN Group was recently slapped with a Ugandan court order to pay $662,000 in damages for anti-competitive behaviour.

Regulation is very necessary in a competitive, dynamic economy rooted in the rule of law. Yet it must be smart, balanced and implemented holistically with the health of the economy in mind. A strong, well-designed rule sends a signal to the private sector and can be a crucial driver of innovation.

What some of those who argued against the fine probably missed is that regulation of any form is a double-edged sword. It protects the rule of law and can also protect the public from the negative externalities of private economic activities. However, an excessive or poorly-designed regulation can slow economic activity.

One analyst referred to MTN as the golden goose that lays the golden eggs because of its contribution to the country’s tax revenue and so should be left alone. It’s like saying Messi and Ronaldo are good players who attract more spectators and good ratings and so should be left alone after violating a soccer game rule.

If there is anything to be learned from the MTN fine, it is that NCC and its stakeholders need to do more collaboration and subject its regulations to more public scrutiny.

Last November, National Agency for Food Drug Administration and Control (NAFDAC) also imposed a N1 billion fine on Guinness Nigeria Plc for various clandestine violations of NAFDAC rules, regulations and enactments. A month earlier, Stanbic IBTC Holdings suffered the same feat from Financial Reporting Council (FRC) when it was fined N1 billion over allegation of material misstatements in its accounts for 2013 and 2014

Regulation serves as an important leverage of state power alongside fiscal and monetary policy, which all play vital roles in the shaping of any economy. Principally, the aim of the state is to guarantee regulations and regulatory structures are in the interest of the public.

Supporting investment through regulation

Interestingly, as evident in the economic activities of the governments of Indonesia, South Korea, China amongst others, regulatory policies promoted through economic growth and developments lead to structural reforms, liberalisation markets, international market openness and less constricted business environment for innovation and entrepreneurship.

Simultaneously, successful regulations assist in extenuating the challenges facing governments by closing the loop between regulatory design and evaluation outcomes. Emerging economies like Nigeria need effective regulations to support growth, investment innovation, market openness and uphold the rule of law. On the other hand, a poor regulatory environment will ultimately undermine business competiveness and citizen’s trust in government in addition to encouraging corruption in public governance.

Public interest

After reading the section of the regulations which NCC acted upon and based on the November 2, 2015 letter to NCC by MTN where it admitted infraction and pleaded for leniency, I believe NCC acted in order by imposing the fine. It was in the interest of the public which has been at the receiving end of the security challenges that the country has been suffering.

The objective of every regulatory policy is to ensure that regulations are in the public interest. The unregistered SIM cards were a national security issue and so had to be dealt with accordingly. Earlier last month, President Muhammadu Buhari sent a strong signal during his visit to the UAE where he asked businesses not to put profits above national interest.

The major argument raised by those who oppose the MTN fine is that it will scare investors away. That’s not true. Rather, it may serve as an encouragement to future investors that our economic policies are measurable and well-articulated, because policies are not being made up as the economy pushes along.

There is no denying the fact that overbearing regulatory agencies imposing arbitrary fees can hinder investment. The fine imposed by NCC is not a cost of doing business and does not fall under any category of ease of doing business indicators or market entry cost for investors. It’s a fine for violation.

The decision by NCC was not unpredictable, it was not harsh, and the regulator only acted based on what was enshrined in an act drafted four years ago of which MTN was aware.

Effective regulation can provide a strong support for meeting our economic challenges and social renewal. Conversely, ineffective regulation will slow recovery and inhibit growth. For Nigeria to build a vibrant economy based on rule of law and protection of its citizens, all regulatory agencies must live up to their respective responsibilities.