5 consequences when telecoms competition is suppressed

In Guyana, the incumbent telecoms provider blocked Internet Cafés from accessing VoIP. This post highlights five consequences when monopolies are encouraged.

http://www.thewestindiannews.com/In the newspapers in Guyana late last week, there have been widespread reports that the incumbent telecoms provider, the Guyana Telephone & Telegraph Company (GT&T) had barred Internet Cafés across the country from accessing  its Voice over Internet Protocol (VoIP) service. The reason given by GT&T for the blockage was that Internet Cafés were buying cheaper international calling minutes from other sources and bypassing its servers, thus “short-changing” the company (Source: Demerara Waves).

To date, Guyana has partially liberalized its telecoms sector. Domestic (or national) services, such as local and trunk calling, are open to competition, but for international-bound services, such as international voice calling, GT&T has a monopoly, by having the only authorized international gateway.

As expected, GT&T’s move to block VoIP use by local Internet Cafés has resulted in considerable uproar, since the Cafés have been able to increase access to telecoms services and offer more competitive pricing. However, the situation also highlights a more serious issue caused by maintaining GT&T’s monopoly in Guyana’s telecoms sector. This post outlines 5 key consequences when monopoly environments, and not competition, are encouraged.

1.  Complacency is fostered in the incumbent

In the absence of a fully liberalized environment and in the segments for which an incumbent still enjoys a monopoly, it has no incentive to improve efficiencies, or to become more innovative in its service offerings or operation in the market. In the telecoms market, long distance and international calling are some of the most lucrative segments, and are often used to offset losses in the local calling segment.

In having a monopoly for international calls, the GT&T does not have to aggressively position itself in that market segment. Basically, the company dictates the rates at which all other players can access its gateway, which means that its competitors are acting as agents, by reselling its services.

2.  An uneven playing field is created

http://www.freedigitalphotos.net/images/agree-terms.php?id=10059010When there are constraints in a market that serve to protect an incumbent and its revenue streams, an uneven playing field is fostered to the detriment of new and other players in that market. In most industries, one of the key initiatives undertaken when liberalizing a sector and encouraging competition, is to lower the barriers to entry for new players and to manage existing entities that could be considered as having significant market power in the market.

According to the ICT Regulation Toolkit, significant market power is defined as when an entity,

either individually or jointly with other firms, it has a position that allows it to behave in a way that is appreciably independent of its competitors and customers.

As the only entity with an authorised international gateway, GT&T controls an essential facility in the sector. Hence, it can control international access by its competitors and their customers, which is what occurred when it blocked VoIP service to the Internet Cafés.

3.  Consumers get the short end of the stick

In the absence of competition – or regulation, which aims to mimic competitive forces when it is deficient in a particular market – consumers do not enjoy the benefits that competition typically offers, specifically, lower prices and greater choice of services. In some of the news reports on GT&T barring VoIP, the Internet Interest Holders Group, an umbrella body for Internet phone call providers, stated,

… GT&T is on average selling its talk-time “way too high” at GUY $8.00 per minute to the United States compared to between GUY $1.00 and GUY $8.00 from other providers… (Source: Demerara Waves)

In a similar vein and as reflected in our Snapshot series, retail prices for mobile/cellular and Internet broadband services in Guyana are still relatively high when compared with those from across the Caribbean. More importantly, when the monthly income of the average consumer is considered, he/she is not able to afford basic Internet broadband service (i.e. a 2 Mbps plan), and might only be able to comfortably afford very modest mobile/cellular use.

4.  An artificial environment is created

When the above points are considered, it should be evident that a truly vibrant and dynamic sector is not created. A key goal of telecoms sector liberalization is to achieve sustainable competition. In an environment where one or more entities is protected from competitive forces, or is not regulated when they possess significant market power, the sector is not operating optimally, which ultimately short-changes not only the other players in market, but also the population at large.

5.  Environment is less attractive to prospective investors

Finally, in sectors where private commercial entities predominate, investors tend to expect a reasonable return on their investment. To that end, there is typically an expectation of a fair, transparent and competitive environment, and any unfair advantage or instances of significant market power that an incumbent entity might have, is regulated. When such an enabling environment does not exist, countries that consider themselves as having a liberalized sector may still experience difficulty attracting new players to the market, ultimately limiting its development and the benefits that can be realised.


Image credits:  The West Indian News;  digitalart (FreeDigitalPhotos.net)