What’s wrong with the declared turnover of subsaharian telcos?

My profession led me to carry out several audits with telecommunications operators,

particularly in sub-Saharan Africa and the Maghreb. In addition to the organizational aspects, fraud investigations (including SIM Boxes), certain audits carried out at the request of

regulators, were aimed at checking the sincerity of accounts and data declarations (traffic, parks, turnover ...).

In many sub-Saharan African countries, telecommunication operators are the real "cash cows"

of the states. I even encountered the case of an East African country where the incumbent was asked to pay the salaries of civil servants.

Excluding VAT on the sale of goods and services which is purely fiscal in nature, all operators are heavily taxed on their turnover by the regulatory authority directly dependent on the State. Hence the regulators' suspicions about the sincerity of the reported results (most

often on a monthly basis): minus turnover, "forget" certain revenues, or even attempt to escape certain specific taxes under cover of imprecise definitions or inconsistencies between

licensing terms and regulations.

Roles and responsibilities of the regulatory authority ?

In Africa, the development of the telecommunications sector is a tremendous growth driver. A market of nearly 50 billion Euros and an average penetration rate of 50%. Thanks to the

infrastructures of mobile networks, requiring little investment to cover vast territories, the most advanced technologies are deployed (4G, mobile money, etc.) and the mobile terminal has become a universal tool for users (voice, Data, internet access, payment and money

transfer via mobile, etc.).

However, since 2013, the growth rate of mobile phone revenues has been decreasing, despite

a steady increase in the number of subscribers. One of the main reasons is the proliferation of email applications such as WhatsApp, Viber, Facebook Messenger, etc. Called OTT (Over The Top) and consequent new web technologies. However, operators are investing in voice,

messaging and data communications infrastructures, without any compensation from these quasi-operators, which do not contribute to the development of these countries but use the

operator networks free of charge. Hence economic results go against the objectives.

The main objectives of the regulatory authorities are to regulate the market, organize and develop the sector to create wealth, employment and fight against poverty and inequality; To

enable public access to quality electronic communications services throughout the national territory at affordable prices (+ Universal Service); To foster the development of broadband

services, which are essential to the emergence of the digital economy; To promote healthy competition in the electronic communications market through efficient regulation; To optimize the planning and management of scarce resources, including radio frequencies.

These global objectives stem from technical missions such as pricing, rules for interconnection, numbering plan, equipment approval, domain name management, spectrum

allocation, etc. .

In some countries, the regulator has developed systems for collecting traffic data from

operators in the country (automated systems connected to operators' platforms) in order to complement and compare data reported periodically with those collected in a way automatic.

Different taxes and charges levied on operators

In most African countries, regulators impose a 2% tax on turnover, the main source of their income. But there are many other royalties. One of the most important is the taxation of minutes of incoming international calls (eg: $ 0.05 / minute).

Annual fees include the following:

­ The equipment approval tax (eg 5% of the CIF value),

­ Annual fee on stations (eg 10% of the cost of the ticket per station) ­ Annual fee for operating radio-relay systems (eg 10% of the cost of the security) ­ Annual fee for operating mobile frequencies (eg $ 5000 / Mhz)

­ Etc.

What are the components of the turnover of telecommunication operators?

The main sources of income are:

• voice services

• interconnection services • Other recipes • data services

• Resale of transmission capacities • value-added services

• sale of terminals • SIM card sales

According to the graph below (MTN source), the first two items represent 92% of the total.

Declared vs estimated turnover

The graph below shows the difference between the Voice traffic volumes collected

automatically and the volumes declared by the operators of the country. It can be seen that the deviations are very small or zero.

On the other hand, in terms of reported and estimated turnover, the gap is larger. The graph below shows the evolution of the aggregate turnover of all operators in a West African country.

70%

22%

3%

2%1% 1% 1%

0%

Distribution of the revenue

voice services

Interconnection services

Other revenues

Data services

Resaling transmission

capacities

Value Added Services

Sale of mobile terminals

The average difference [Estimated - Reported] over the period is 14%.

Relativize!

An average difference of 14% may seem important to regulators. However, we have to put things into perspective. In my experience, reporting errors and inconsistencies are often more

important than hidden intentions to trim sales. Sometimes even the reported turnover is higher than the actual turnover!

Examples of multiple errors encountered in declarative files:

• On-net voice traffic volume multiplied by 1000

• Data missing over a period in the declarative statements whereas this data is present in the source files of the operators

• Differences in interpretation of what is an "active" park

• Inconsistencies of national interconnection data (outbound from A to B totally different with

Inbound in B from A)

• Etc.

Another particularly acute problem in sub-Saharan Africa is the development of fraud,

including SIM Boxes that divert part of the incoming international traffic into local traffic. Regulators should realize that the taxation of the minutes of this incoming international traffic

is beyond its control.

Calculations made on the basis of the countries I audited give us losses of revenue for the regulator far superior to the losses of supposed under-declaration of the turnover. Indeed, if

operators also lose money because of the cost of international call termination greater than the one of terminating a national call (eg $ 0.23 vs. $ 0.10), they do not lose totally money with

this false national traffic. On the other hand, it is a consequential loss for the regulator. If, for example, it charges $ 0.05 per minute of inbound international call, the correspondence at the level of turnover taxation will bring it only 2% of the same minute at local rate (for example,

$ 0.10 X 2/100 = $ 0.002. The loss is 25 times greater for the regulator.)

- CFA

5,000,000,000 CFA

10,000,000,000 CFA

15,000,000,000 CFA

20,000,000,000 CFA

25,000,000,000 CFA

30,000,000,000 CFA

GLOBAL MARKET DECLARE

GLOBAL MARKET ESTIMATE

The often conflicting climate between operators and regulators should not be a substitute for

accurate and detailed quantitative and qualitative data analyzes. The role of regulators is also to help operators to combat fraud by any means.