Tuesday, 24 February 2015

Digital Migration, PPP and Uncompetitive behaviour in Kenya

TWO WEEKS AGO, the government of Kenya closed down the analogue broadcast system in some parts of the country. That meant all broadcasters had to shift to the digital broadcast system. While others were crossing the bridge, three leading media house chose to shut themselves even from the digital platform on which they were broadcasting previously. Their argument, they have not been in the digital broadcast platform and that the digital carriers were carrying the content of KNT, NTV and Citizen TV illegally.

 That move sparked off a debate that is still raging. The context of this piece is not to plunge into the Cacophony of noise that is passing for debate. Mine is to explain the new business model into which the media houses are moving.  The noise and shenanigans is a reflection of the failure by the media houses and their supporters- some of who claim some place in the intellectual world- to understand the concept of private Public Partnerships and what it involves.

 PPP is a business model which allows the government to divest itself of some of its functions to the Private sector.  The private sector is mainly involved in service delivery and maintenance of public platforms through which the services are delivered.  This model is useful in sectors in which service providers are also the regulators. The PPP model involves unbundling the functions of the sector so that some functions can be transferred to the private sector.

One such sector is energy. For years we knew of only Kenya power and Lighting Company in electricity generation, distribution and transmission. This sector was unbundled into four distinct functions: Generation, Regulation, Distribution and transmission. Now we have KPLC- distribution,  Kengen-in generation, Ketraco in transmission . Another entity, Geothermal Development Corporation was also created to fast track geothermal energy generation.

 In the telecommunications sector, the Former Kenya Posts and telecommunications was unbundled into; the regulator, the postal corporation and telecommunications service providers. This unbundling has witnessed the near death of the fixed line telephony provider. The ownership of National broadcast signal was placed in the hands of CAK or its predecessor, CCK in much the same way as Standard Gauge railway is the property of Kenya overseen by Kenya Railways Corporation. KR owns the Railway line. That is the platform.

 In the old dispensation, CCK used to grant investors the license to operate a Radio or TV station. Then the investor was to build the transmission stations.  In the Analogue technology, one needed to build ten transmitter stations to cover the entire country.  However, Transmitter stations are expensive to build and operate. That is why it needed an investor with deep pockets. Only KBC and Citizen owned more that transmitter stations country wide. The others owned only five transmitter station in the country.  That means that only KBC and Citizen TV could reach the entire country.

The rest had a limited reach until the entry of digital satellite TV carrier, DStV which carried their signal to the rest of the country.    It was thus inefficient and expensive.

However, new technological advances have spawned a new business model.  The digital technology has spawned more efficient and affordable model. The model Unbundles service provision from distribution of content.  This unbundling has separated content development and provision from the distribution function. This has made it possible a third party to be licensed to carry the distribution function. That is how broadcast signal Distributors came into being. This simply means that the TV investor will simply plug his studio to some platform and his content is broadcast for a fee. The fee is way cheaper than running a transmitter station.

The model is new in Kenya and some regulatory authorities such as Kenya Airports Authority still own, operate and regulate Airports in the country. However, it is also moving in the direction of licensing private players to develop Terminals such as the Greenfield terminal at JKIA.  The authority, reports say, will employ the same business model to develop Airports in Lamu and Lake Turkana.

 The function of distributing the national asset was placed squarely on the shoulder of CAK. It  had thus to choose between providing the platform itself or divesting that function to someone else. It chose to transfer the function to BSD’s. The much maligned CAK and its predecessor CCK, invited a third party to perform, the distribution function for a fee thus divesting the broadcasters of the expensive distribution function which stymied their growth, that is, expansion to cover every part of the country with their broadcast signal.

It is at this point where illiteracy becomes manifest.  In the new dispensation, content – not financial muscle- is king. And this is where competition is open. It is the digital platform that will enable the growth of specialty TV channels –and we’re beginning to see this emerging with such Channels as Farmers TV and Health Africa TV.  Many more would soon follow.

Now all it takes is a million shillings a month for one to broadcast country wide.  Competition is in content development- not deep pockets or ego. If you have right content, viewers will tune to your channel- and advertisers will follow in case of Free-to-Air channels. On the converse, if one is producing unacceptable content, like the political diet these channels are fond of thrusting down our throats, then we can switch to something more palatable. The field is wide open for the three media houses to dominate the scene. But the probability of them doing so is very low. First they have to transform themselves into something better than what they are.

They must shed off the arrogance that has seen them assume that they can force the government to do their bidding. That they have been off-air for two weeks without anyone going on the streets to protest is a wakeup call. They need to change and change pretty fast.

 As for competition in issuing BSD licenses, inviting Media houses to bid for such licenses was uncompetitive in fact illegal.   In the analogue era, those with deep pocket s could hoard the frequencies thus denying others, the use of the same. For instance, Royal Media services, which owns Citizen TV owns 15 transmitter stations. Of these 5 are illegal because they were not licensed by CCK.  They could therefore hoard the frequencies from other deserving cases or they choke small stations to death.

So to ensure to ensure competition in the provision of services, the way to go is to bar the players –either directly or through proxies from applying for licenses. Just imagine Kenya Airways -or its proxies- getting a license to build a third terminal at JKIA. Would other airlines use it?  Imagine Modern Coast becoming the concessionaire on Mombasa road. Would Chania express ply the same route? That goes against the law of competition. The same is true of granting a BSD to NTV, Citizen and KTN or their proxy ADN. They would beat the competition to oblivion.

 In the new Business Model, the platform is something like ThIka highway handed over to a concessionaire so that motorists pay for use. The highway is open to all users provided they pay and obey the rules of use.  Matatus, Buses, bodabodas, trucks and HCVs can use the road provided they pay the requisite fee. No one is disadvantaged no one is favoured: All have equal opportunity. The only competitive edge is the quality of their service. 

In the new business model broadcasters are like Matatus plying Thika highway. Their copy right is their passengers inside their vehicles not the one waiting at the bus stop. That is the one they are competing for.

 So is CAK’s economics right? Damn right!

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