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The ATH Monopoly and the illusion of “choices” [The Fiji Times, 7 July 2004]

28/03/2012

 The public have long complained of the high call charges imposed by the monopoly monsters- Telecom, FINTEL and Vodaphone.

But beware two more subtle monsters in the making, hiding behind the illusion of “choices” being offered to the consumers, if government approves.

First is the evil of the monopolies themselves offering choices which are limited and in their own self-interest, and not choices at all.

Second is the evil of Government being asked to make a decision on the monopolists’ offer of choices- when such decisions should not be made by government, which can only make decisions on the basis of current costs of the monopolies.   If any decision has to be made, it should only be made by a regulatory commission, and only if it is not possible to have real choices provided by a competitive market.

And CEOs who once used to help govern the monopolies in the public interest or that of the FNPF, unfortunately now have personal vested interests (for instance, one has some 280,000 shares in ATH), which throws a different light on their public role.

The generous monopolies?

  The CEOs of the monopolists ATH and Telecom seem so reasonable, even generous, don’t they?

They kindly offer choices between combinations of “lower charges” and higher line rentals. The consumer can choose A: a 46% reduction in call charges if he agrees to pay a $40 line rental; or B: a 23% reduction in call charges, with a line rental of $11.25;  or C: the consumer can choose no change in line rentals, but also with no change in call charges.

And ATH and Telecom announce that they have applied to the Commerce Commission, the Prices and Incomes Board, and the Minister for Communications for approval.

It all sounds so reasonable and proper doesn’t it?   Hah. Hah. Hah.  What a laugh.

Note how the limited “choices” in fact protect the monopolies’ revenues, and also protect them against future competition.

Note the monopolies’ daily publicity that they are properly asking Government for approval.

And note that Vodaphone and FINTEL are keeping very quiet and not talking of competition at all.

The illusory choices

  The daily reference to the word “choices” almost fools consumers into thinking that they are being offered genuine alternatives, as would be the case in a true competitive market.

But the reality is that it is the monopolies themselves (ATH and Telecom) who are offering the choices (not some regulatory commission or competitive market), and the choices are limited, and totally in their self-interest.

Take choice A: 46% decrease in call charges but a huge increase in line rental to $40 per month.  A poor consumer who accepts the massive increase in line rentals and does not make too many calls, will end up paying a much higher annual bill then currently. The richer consumers who call more, will pay less in total, despite the higher line rentals.

Which is why the business classes in our society have kept quiet about these so-called “choices” and some have even come out in support of this “tariff rebalancing”.

But why should the monopolists be blackmailing the consumers into accepting higher line rentals?

For most consumers who have been using telephones for decades, they have already paid off the costs of the capital equipment they use- both the connecting lines and the phones.  Why should their line rentals go up to the exorbitant levels being proposed- $480 per year-  when their personal infrastructure requires minimal maintenance costs.

What is not mentioned by the monopolies is that the new “choices”  will help to protect Telecom from competition in the future.

Helpless consumers who are hooked into their telephone lines, will pay through their noses for the line rentals, even if they don’t make a single call.  And Telecom’s control of Vodaphone prices (keeping them high) will ensure that people don’t switch to mobiles, even though they are more convenient.

And should Telecom call charges be forced down by future competition, Telecom will still make a large part of its profits through the higher line rentals.

It will be daylight robbery just like the pre-paid phone cards, whereby consumers give money to the company up front- an interest-free loan.  But if you don’t use your credit by a certain date, you “lose the credit”.   How much do the monopoly companies steal from us using this cunning device?   Yet if an ordinary thief robs us of $20, he is sent to jail by our legal system.  Where are the consumers’ protection organisations?

Not for government to decide

  And why is Government being asked to approve choices offered by the monopolists?  Government should not decide, as it is an interested party, in several ways.

Government receives a share of the profits from Telecom and ATH, and therefore has a vested interest in keeping Telecom and ATH profits high.  Government is also a major borrower from FNPF which has a major shareholding in ATH: borrowers don’t get on the wrong side of the lenders.

And Government is unfortunately also asking Telecom to provide better communications to the rural areas, which Telecom is willing to do, as long as Government agrees to their tariff rebalancing “offers”.

Why is theFijipublic being locked into major telecommunications infrastructure developments with monopoly companies doing deals behind closed doors, with a captive government?  Why are Government’s social objectives for rural communications not being put up to competitive tender?

Perhaps there are more cost effective schemes available through other providers, such as Vodaphone, FINTEL, or new entrants to the market?

But the public sees no hint of Vodaphone or FINTEL competing with Telecom’s expensive proposals. Are they all sitting in their comfort zones, having been promised protection of their narrow monopolistic interests by the umbrella monopoly monster, ATH?

Competitive market or regulatory commission

  Government also should not decide on the “choices” because any decision can only be on the basis of the existing cost structure of Telecom, which should not be used as a reference point.

By all studies, the current staffing and infrastructure is excessive, having grown up on the basis of monopoly pricing and revenues.

Of course, Telecom and ATH will want to keep covering the high levels of recurrent expenditure (staffing and infrastructure) necessary to maintain the huge sunk investment costs of the past.  But both these elements would be heavily discounted in a competitive market.

And sunk investment costs, in an industry which has been rapidly innovating for decades, and will continue to innovate, must also be heavily discounted, for economically efficient pricing.

In a harsh competitive market, Telecom would be forced to shed staff and dump inefficient technology, whether they liked it or not.

However socially unpalatable the adjustments may be, harsh competition offers the best protection for consumers in the long run. Real choice requires competing suppliers, competing products, and competing prices.

 

Difficult as it may be, Government needs to open up the telecommunications industry to competition.

 

Failing that, Government should use a properly constituted regulatory commission, to set prices which mimic a competitive environment, as far as possible.

 

The monopolists themselves should be the last people allowed to offer “choices” to the public or government.

 

If the public does not wake up and oppose these fundamentally wrong processes which are going on behind closed doors, it will be too late.

 

Just as the public did not wake up when the ATH monopoly monster was created in the first place (despite the opposition in Parliament).

 

Public apathy is what has landed us in this telecommunications mess now.

 

Can the public demand real competitive choices in telecommunications?  Or will our apathy continue?

 

 

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