Why cost of internet access is relatively high in Tanzania

Mobile services have played an important role in the revival of the Tanzanian economy by increasing productivity and social development. However, growth has plateaued in recent years, thus calling for a review of the existing regulatory framework to achieve further incremental growth in the sector.

Between 2005 and 2015, the performance of Tanzania’s mobile sector was the pride of the nation. Year-on-year subscriber increases were rapid, fuelled by increasing coverage and healthy competition in the market. Between 2006 and 2016, 17 million unique mobile subscribers were connected in Tanzania – a huge achievement. The sector was characterised by innovation, quality, and growth, and this generated a lot of excitement as subscribers expected more and more from the operators all the time.

A healthy regulatory framework was instrumental in the creation of that atmosphere. The government set the tone through its EPOCA laws, which were largely considered progressive. The industry regulator, TCRA, then under the leadership of Prof John Nkoma, was being acclaimed across the continent for its performance. And the tax regime was considered fair, making it possible for operators to earn healthy margins and continue to invest in new generations of technologies.

The government also invested in the National ICT Broadband (NICTBB), one of the best investments it has ever made, one which has the capability to unlock so much of its people’s potential. NICTBB reduced replication of operators’ infrastructures, ultimately reducing their operational costs and increasing their appetite for further investments.

Meanwhile, two dynamics had to be balanced. One, to increase digital inclusion. Two, to improve the sector’s contribution to the nation’s GDP, which left so much to be desired. Achieving these ends required a tricky balancing act, and it is at this point that things started to go awry.

Seeing all that money flowing around, especially with the explosions in mobile money and data services, the government thought that VAT alone was not enough, so it imposed 17.5 percent excise duty on all voice and internet services. Moreover, charges were imposed on blogging activities too – possibly with other political ideas in mind.

However, the government didn’t have the wherewithal of verifying the operators’ self-declared accounts of their revenues, a loophole which the telcos clearly utilised to their maximum benefit. The government’s attempt to install a system that would have solved that problem was met with general contempt, but when Dr John Magufuli assumed office he entertained no such nonsense – heads rolled at TCRA and the system became operational.

The Tanzania Rural and Urban Roads Authority (Tarura) also wished to have a piece of the pie. So, they came up with their own charges for rights of way (RoW), a fee of 1 dollar per month per metre of fibre cables laid. While Tarura was not being innovative by introducing that fee, the amount demanded shows that the officials were ill-advised at best. The last thing that one wants is to discourage fibre cable deployments, especially by charging up to four times what neighbouring governments, for example, charge.

Ultimately, according to one analysis, ‘taxes on the usage of mobile services represented a higher share of prices than any other country in the sub-Saharan region, at 35 percent’. The outcome of all of this was to erect the affordability barrier.

For example, a few years ago Tanzania was ranked number 33 out of 54 African nations for unique subscriber penetration, where only 39 percent of the population was connected, behind Kenya’s 59 percent and Rwanda’s 52 percent.

Similarly, the bottom 20 percent of the population by income spent 18 percent of their incomes for a 1GB monthly data basket, way beyond the 5 percent affordability threshold recommended by the UN Broadband Commission.

That led to the digital divide. While coverage was 90 percent, less than half of the people reached could afford the cost of internet services. When issues such as access to electricity, poor roads infrastructure, cost of handsets, and the sparse populations of the rural areas are thrown into the mix, the business case for improving mobile services becomes slim indeed.

But things don’t have to be this way. Ernst & Young’s report (2017) observed that ‘by reducing the excise duty on mobile airtime from 17 percent to 12 percent, GDP grows by $438 million (0.9 percent), and tax receipts grow by over $58 million (0.5 percent), accumulative fiscal gain of over $186 million over five years’. In other words, tax reforms would result in greater GDP growth and more government revenue.

What this means is that the government needs to take a more foresighted view of mobile sector development in Tanzania. Existing artificial affordability barriers ought to be dismantled in favour of further digital inclusion which will result in greater incremental economic growth.