Is the Claro sale to Digicel good for competition in Jamaica?
On March 11, it was announced that Digicel had purchased Claro, the third mobile operator in Jamaica. The transaction will effectively reduce the number of mobile operators from three to two. This post examines some of the regulatory issues that should be considered.
Mergers and acquisitions of telecoms companies are not unusual. Towards the end of March, a merger was announced between AT&T and T-Mobile in the USA. A few days earlier, it was revealed that America Móvil, the Mexican telecoms giant, would be selling Claro, its Jamaica subsidiary, to Digicel, and America Móvil would acquire Digicel’s El Salvador and Honduras operations. The transaction is subject to regulatory approval in Jamaica, but concern is being expressed in some quarters on the likely effects of the purchase on the mobile market. This approval is the remit of the Minister with responsibility for telecoms. He will be advised by a number of sources, most importantly, the competition, spectrum and utilities regulators. Discussed below are a few of the regulatory issues that must be considered.
The extent to which competition in the mobile market will be affected by the purchase is expected to be the most crucial consideration of the regulatory review process. In any market where fair competition is desired, it is important that no one player controls the market or is unaffected by the actions of its competitors or of consumers. Currently, Digicel is reported to have the largest share of the mobile/cellular market in Jamaica. Although Claro had the smallest market share of the three operators, Digicel’s market share will undoubtedly increase thanks to the acquisition. Hence the regulators should consider the impact of this change with regard to (among other things):
- the extent to which Digicel’s market power will change
- how the market concentration will change
- the possible effects of the purchase on other operators in the market and on competition in general.
Secondly, one of the primary objectives of competition and regulation is to realise benefits to consumers. Competition is generally expected to drive down rates, and to improve access to and the availability of a broad range of telecoms services. Hence another matter that must be considered is whether or not, or the extent to which, the acquisition is in the long-term interest of end-users.
Further, the regulators should attempt to determine whether competition in the mobile market will be substantially lessened if the purchase were approved. Digicel’s acquisition of Claro will decrease the number of players on the market from three to two.
Finally, there has been a history of rivalry between the two mobile operators from which consumers have benefitted, but that will no longer obtain. The regulators will need to examine these and other markers of competition to better inform their decisions and recommendations.
In the three-operator market that has existed in Jamaica, there has been active jostling between Digicel and Claro. Claro, as the newer entrant, would have been keen to increase its customer base and even to capture market share from Digicel. Generally, Claro’s retail rates are cheaper than those offered by the other providers, especially Digicel. However, with this purchase, the rates currently enjoyed by Claro’s customers will eventually be brought in line with those established by Digicel.
The regulators will also need to consider the impact of the purchase on the current arrangement for the use of Jamaica’s numbers and radio frequency (rf) spectrum by Digicel and Claro. The numbers and spectrum allocated to mobile operations are finite national resources that must be prudently managed. Regulators usually require justification in order to assign numbers or spectrum to an operator, in order to prevent hoarding of those resources; and to ensure that other licensees are not unfairly disadvantaged. More importantly, if operators are allowed to hold on to numbers or frequencies, far in excess of what they need, insufficient resources will be available for other prospective operators to the market, which could become a barrier to entry.
Through the purchase, Digicel will most likely acquire both the numbers and frequencies that were assigned to Claro, which it might not necessarily need. Although Digicel and the regulators might be prepared to rationalise the assignments that have been made, in the case of numbers, the exercise might not be as simple. Currently, Claro has been using the numbers it has been assigned, and it might be difficult for complete number groups to be returned to the regulator without affecting Claro’s customers.
With regard to spectrum, mobile frequencies were assigned to the operators via auction, which means that an operator would have paid upfront for use of those frequencies for the period of time specified in the auction framework. Through the purchase, control of Claro’s frequencies will be transferred to Digicel. Although Digicel is expected to migrate all of Claro’s customers onto its network, depending on handsets and the frequencies being used, Digicel may need to continue running Claro’s network in the interim. It would therefore be difficult to return that spectrum, granted that Digicel could still be entitled to hold on to it depending on the terms of the auction. More importantly, the fact that a single mobile operator has access to spectrum that had been assigned to two separate operators could prevent or delay the introduction of other new entrants into Jamaica’s mobile market.
Ultimately the Government of Jamaica might have some difficulty with the purchase – the market and consumers could be adversely affected – but they may still be expected to approve the transaction. Hopefully, the select issues discussed above begin to highlight the fact that additional safeguards might be necessary to manage competition in the mobile market in Jamaica. Mergers and acquisitions in the telecoms industry are inevitable. Regulators must therefore be prepared to play a more active role to minimise the negative effects of those situations, and to simulate competition as appropriate through the powers with which they have been vested.
Do you think the sale is a good thing?