Simbox Fraud: who encourages it, NCA or Telcos? – Part I

Figure One: SIM box route showing how much the state and telcos are losing to fraudsters because of government's pricing policy
Figure One: SIM box route showing how much the state and telcos are losing to fraudsters because of government’s pricing policy

The general position of telcos on fighting SIMbox fraud is that it is not worth investing millions of dollars to fight something that the National Communication Authority (NCA) has incentivized and can therefore stop my changing its pricing policy. For the telcos, investing into fighting SIM boxing is like fetching water into a basket; it will not yield any tangible result until the NCA reduces or removes the 19 cents per minute of minimum incoming international call rate.

Meanwhile, the general position of the NCA on SIM boxing is that even if SIM box operators get traffic from abroad, the telcos in Ghana can prevent them from terminating those calls in Ghana if they [the telcos] and or their agents do proper SIM registration before activating SIMs for customers; instead of the current situation where SIM cards are issued and activated in bulk, sometimes without proper registration for people who eventually use them for SIM boxing.

So the telcos and the regulator are simply pointing accusing fingers at each other, while the SIM box fraudsters enjoy a free ride, terminating practically hundreds of millions of minutes of calls in Ghana every month, and the country and the telcos are losing millions of dollars in revenue and taxes.

Grab your lenses and take a front sit. This writer will give you a very close shot of the damage SIM boxing in doing to this country, while telcos and NCA have taken entrenched positions on who is to blame for the fraud.

For starters, SIM boxing is system by which some people channel calls from abroad through the internet and terminate them in Ghana using local SIM cards fitted into devices called SIM boxes. Those SIM box operators get the traffic from global traffic carriers who carry traffic across the world for several telcos here and abroad.

The global carriers are looking for people who can take traffic to Ghana and other parts of the world for the least price possible, and the SIM box operators offer them as low as 6 cents per minute in some cases, while the law in Ghana says telcos should not charge anything less than 19 cents. In the face of 6 cents, 19 cents is woefully uncompetitive so SIM box operators are getting a lot of the traffic coming to Ghana, while the telcos get less.

The law and the numbers

In 2008, Ghana passed a law, The Electronic Communication Amendment Act, Act 786 fixing international termination rate (ITR) at a minimum of 19 cents per minute. Out of that amount, government is to get 6 cents and the telcos keep 13 cents and pay taxes on them as well. The law also states categorically that telcos are NOT ALLOWED to increase their local call rates because of the increase in the international rate. And telcos are also not allowed to charge anything below the 19 cent minimum for incoming international calls. The law spelt out clear sanctions in the form of fines if any of those rules were violated.

A year after that, in 2009, it was estimated that more than 300 million minutes of calls coming into Ghana came through the legitimate routes, i.e. the international gateways of the telcos. But in the following year, calls coming through legitimate route reduced to about 185 million minutes, which is about 43% reduction in legitimately routed calls coming into Ghana. Those 43% of calls may have still come into the country but through illegitimate channels, SIM boxes. This is contained in audit reports by a recognized international telecoms industry auditing company called Meucci Solutions.

As of 2012, the then Regulatory Administration Director at NCA, Joshua Peprah told journalists the international calls coming into Ghana through the legit routes had reduced further to about 100 million minutes. This was another 46% decrease from 2010, which means calls coming through SIM boxes were increasing. Currently, the country is said to be recording only 60 million minutes of legit incoming international calls per month; that is what the NCA is said to have been reporting to the Minister of Communications. So that is another 40% down for the state and probably 40% up for SIM box fraudsters.

Meanwhile, the US Telecoms Trade Agreement for the 2013 stated that in 2011, calls from US to Ghana reduced by a whopping 48%. This was largely because the cost of calls from US to Ghana increased by 73% for mobile and 46% for fixed line calls after the introduction of the 19 cents fixed minimum ITR in 2008. Before then, ITR used to be averaging around 12 cents per minute, even though it was not fixed.

Obviously the situation is not getting better after the 19 cents minimum ITR was fixed in 2008. But was the SIM box situation better or worse before the 19 cents?

Pre 19 cents

Figure Two: Showing the legal routes (telcos international gateways) through which the state and Telco gains. But relatively very few calls go through those routes
Figure Two: Showing the legal routes (telcos international gateways) through which the state and Telco gains. But relatively very few calls go through those routes

Prior to fixing the 19 cents minimum ITR in 2008, there was a free market situation where each telco went abroad and negotiated for traffic at their own prices. The average then about 12 cents per mimute. But some of the telcos charged as low as between 6 cents and 7 cents per minute to bring in traffic to Ghana. Big boy MTN in particular, could afford to ride on economies of scale because of its overwhelmingly large number of customers in Ghana, so it charged less.

The advantage for MTN then was that about 60% to 70% of all calls within and or coming into Ghana terminated on MTN because of it large customer base (the situation is still same). So even if MTN charged lower ITR, most of the calls coming through the gateways of other telcos terminated on MTN anyway, so they got their money through the interconnect arrangement. The interconnect arrangement is such that if a call came through the gateway of telco ‘A’ but terminated on the network of telco ‘B’, then telco ‘A’ paid telco ‘B’ an interconnect rate from its share. So MTN was getting more money even from calls coming through the gateways of other networks.

The NCA thought MTN had an unfair advantage over the others, so there was need to create a level playing field, hence the fixing of the 19 cents minimum ITR, so that no telco would go negotiate for less and get the opportunity to bring in traffic meant for other telcos. A Vodafone official recently told this writer that the NCA has also recently barred telcos from taking traffic meant for other telcos without the express request of the beneficiary Telco. This was because an audit revealed there was some undercutting still going on. At least three telcos were recently fined heavily for undercutting. MTN got over US$9.8million fine, Vodafone got over US$20million fine, which was later reduced to about GHC22million instead. And Airtel also got a smaller fine.

So the 19 cents minimum ITR was well-intended, in terms of creating a level playing field. But what has been the impact on SIM boxing?

The NCA had always claimed that SIM boxing was worse prior to the 19 cents minimum ITR than it is now. But the NCA has not been able to show clear figures to back its claim. This writer has written to the NCA to get figures but for more than two months the NCA has not responded to that simple query to provide figures to back a claim it has been blowing on top of the roof any time the issue of SIM boxing came up.

Arbitrage

In the absence of those pre-19 cents SIM box figures, what the telcos have stated is that the NCA’s pricing policy is rather the ONLY incentive to SIM box fraudsters. The argument is that local call rates in Ghana is about 3 cents per minute, but ITR is 19 cents minimum. So the fraudster offers to bring in the traffic at anything between 18 cent and 6 cents, and the international carriers abroad are more than happy to avoid the 19 cents and pay the lower rates to SIM box operators. They do not care how the traffic gets to Ghana, whether through fair or foul means. Once their clients (the telcos abroad) are not complaining, they are in business.

In fact, most of the SIM box fraudsters offer to bring in calls for as low as 6 cents per minute. And even if they terminate at the maximum local rate of 15Gp (about 4 cents) or even less in most cases, they still get 2 cents per minute arbitrage. If you multiply 2 cents by the difference between 300million minutes of legit calls in 2009 and the current 60million in 2014; that is 240 million x 0.02 = US$4.8million (GHC16.8million) going into the pockets of SIM box fraudsters every month. Meanwhile between the telcos and government there is about 0.19 x 60million = US$11.4million (GHC39.9million) to share every month. The state gets US$3.6million of that. And the five telcos share the remaining US$7.8million.

So it would appear NCA is happy scooping its US$3.6million every month from the paltry 60million minutes of legit incoming international calls, so it does not care much about the gargantuan 240million minutes being lost to SIM box fraudsters mainly because of the huge difference between its 19 cents minimum ITR and the low local call rates. And as stated above, the law also bars the telcos from increasing the local call rates to bridge the gap and kill SIM boxing. And yet the NCA expects the telcos to invest more money (which they are losing) in systems to fight SIM boxing. And the NCA actually accuse the telcos of not showing commitment in fighting SIM Box fraud, which is riding smoothly on the fuel of NCA’s own 19 cents minimum ITR.

The NCA often argues that if they did not fix the ITR at 19 cents and telcos negotiate for less, most of the money will remain in the hands of overseas carriers. Indeed, as Figure One above shows, the telcos abroad collect 88 cents per minute and pay overseas carriers 25 cents to send the traffic to Ghana. So NCA wants 19 cents out of that. But now, because of the 19 cents, Ghana is even losing out the more so the NCA’s wisdom has not yielded the desired result.

The second part of this article would look at the accusations the NCA raises against the telcos and what the responses of the telcos are. It would also look at some report from GSMA on the estimated direct and indirect impact of 19 cents surtax on taxes from telcos, other businesses, and on remittances, and much more.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s