A discussion of factors that can contribute to Caribbean countries not retaining more than two players in their mobile/cellular markets.
Over the last two weeks or so, the Telecommunications Authority of Trinidad and Tobago (TATT) issued a Request for Proposal (RFP) for a new mobile/cellular operator. Currently, Digicel and LIME operate in Trinidad and Tobago, but the regulator, TATT, is hopeful that in introducing an additional telco, lower prices and improved service will result (Source: Trinidad and Tobago Guardian).
However, although countries are keen to ensure that consumers continue to secure a much benefit from their respective telecoms sector, there can be challenges to realising this. This post discusses why it can be difficult to increase the number of players in mobile/cellular markets in the Caribbean.
Two-party system; two telcos
In most Caribbean countries, duopolies exist in the mobile/cellular market, and typically comprise Digicel and LIME (see Table 1). Although some countries might be lucky to have three (or more) mobile/cellular service providers, similar to the political environment in the region, two providers tend to dominate the market. The remaining players frequently have limited clout or market share, and as such have little influence on the market as a whole. Further, although some countries might have started with more than two mobile/cellular providers, over time, and primarily due to mergers or acquisitions, two providers have remained.
However, it is important to highlight that frequently there is a comfortable dynamic among duopolies or two-player markets. Competition can be relatively sedate, and there is little evidence of market forces driving improvements or proactive behaviour in the sector.
Further, a key goal of liberalised environments is competition among players. Regulation is often necessary when competition is not well developed, and to varying degrees it can act as a proxy for competition until such time when it develops and regulators can forebear exercise of certain powers and allow market forces to prevail. According to the ICT Regulation Toolkit,
Competition is a desirable goal not for its own sake, but because of the benefits from competition. These benefits derive from the pressure competition places on firms to be efficient, innovative and customer focused in order to thrive and survive. They include lower prices, higher productivity, more service choices, and greater connectivity. Competition is held to be the most efficient mechanism available for organizing, operating, and disciplining economic markets.
Stumbling blocks to entry
When countries have created what should be an enabling environment for competition, especially with regard to policy, laws and regulation, it is with the expectation that the benefits of competition, as highlighted in the excerpt from the ICT Regulation Toolkit, are realised. In the past, some countries have enjoyed the results of having more than two players in their mobile/cellular markets. For those that wish to regain that dynamism, there are challenges that could hinder such an occurrence. A few are outlined below.
First, although competition and market forces in mobile/cellular markets across most Caribbean countries might be considered modest and worthy of new blood, these markets are not necessarily fledging, with limited access to and take up of service. As noted in our latest update on the state of telecoms in the Caribbean, mobile/cellular subscriber penetration ranged from as low as 64 subscriptions per 100 inhabitants in Belize, which has only one mobile/cellular operator, to as high as 205 subscriptions per 100 inhabitants in the British Virgin Islands, which as two operators (Figure 1). Across the region, the average subscriber penetration is approximately 135 mobile/cellular subscriptions per 100 inhabitants.
However, cognisant that for the most part telecoms investment in the Caribbean has been private sector driven, it is imperative for prospective telecos/investors to see potentially lucrative opportunities that can result in a favourable return on investment. In countries where, among other things: subscriber penetration is high; first-mover advantages would be limited; there are few underserved areas; or the underserved areas are expensive to service, companies might be unable to establish a viable business case to justify investment.
Second, bolstered by the significant sums that other countries worldwide have been able to secure from the auctioning of telecoms and spectrum licences, some Caribbean countries have been and plan to use that process to license additional telcos. In the past, countries had successful and fairly lucrative auctions, but recent experience worldwide, especially in what might be considered ‘more mature markets’, the response to the auctions could be considered ‘lukewarm’ at best. Potential investors are not prepared to pony up the considerable sums that are being anticipated through the typical auction process.
Many countries see licence auctions as a major generator of revenue for their governments, by in essence, securing upfront the best (typically the highest) purchase price from the winning bids. However the success of auctions, regardless of the product, depends on there being sufficient interest in and demand for the auction item, and bidders are prepared pay for it.
From a telecoms investment perspective, and as discussed in earlier paragraphs, for markets that appear to be saturated or are becoming saturated, developing viable commercially business cases to justify an investment, can be a challenge. This is likely to have been the Jamaica experience, where the country planned to auction frequencies in the 700 MHz band for “the provision of wireless broadband and emerging technologies” (Source: Spectrum Management Authority), but there was little interest and insufficient bids (if any) submitted for the auction to proceed.
Trinidad and Tobago, on the other hand, based on the information that is publicly available, appears not to be implementing an auction, but requires proposals to be submitted for evaluation. This process could result in some interest, along with proposals being submitted, provided that the financial risk is considered less onerous than that normally prescribed for an auction.
Finally, although countries can strive to increase the number of players operating in their telecoms sectors, it must be emphasised that mergers, acquisitions, along with companies going out of business, are all part of the free market environment. Hence there is no guarantee that efforts to increase the number of players in any given market, which may be successful at a particular point in time, will be retained permanently or indefinitely.
What other factors do you think make it difficult for new players to enter a market?
Image credit: Lascoo.co.nz