The Communication monopoly monsters at work [The Fiji Times, 21 May 2004]

ThroughoutFiji, poverty is worsening and babies are dying unnecessarily- helped along by our monopoly monsters.

Is this an exaggeration?    Hardly.

Economists know that monopolies allow prices and costs to remain high;  the economy grows less; fewer jobs are created; poor people’s incomes are constrained; poverty and crime worsens; government taxes and expenditure (including on health) are constrained; and babies die unnecessarily.

The telecommunications monopolies (ATH, FINTEL, Telecom and Vodaphone) illustrate the arguments well.

And they also highlight the terrible dilemmas faced by Government, because of mistakes by previous governments.

The public needs to remember how these monopolies were created; who keeps them alive and well today; and who has to act to resolve the mess, in the public interest.

Effects of monopoly monsters

  The suffering public complain daily, about the evil effects of monopoly in telecommunications.

High charges for local and international telecommunications, raise business costs and slow down economic growth, the creation of jobs and incomes.

This is directly obvious in industries involving call centres and data-processing, which are constrained by high international charges. The economy is deprived of  tens of thousands of jobs, especially for our young people who have good English language and data entry skills, and little else besides.

Very directly, businesses are not able take full advantage of the internet, which is a powerful tool for advertising internationally.  This is proven in tourism, but applies to most export industries.

Thousands of school children, are not able to take full advantage of the Internet, reducing their learning opportunities, and ultimately placing them at a competitive disadvantage relative to people elsewhere in the world.

And our population is deprived of the use of one powerful mechanism which could help to make us more competitive globally, an absolute necessity, if our people are to cope with the harsh forces of globalisation.

The monopolies response?

  In the meantime, the monopoly communications companies daily continue their wasteful advertising of gimmick after gimmick, allegedly giving savings to consumers, but the high prices and profits are always maintained, all at the expense of consumers.

Smiling chief executives (giving each other  millions in dividend cheques) tell the public that public tax payers must pay if government brings in competition- even if the monopolies were wrongly granted in the first place.

Smiling chief executives blackmail the government that competition must not be brought in, otherwise they will stop serving the rural areas.  Yet economic policy has long been clear that government should pay transparently for any social service they require from the private sector, and not ask other users to cross-subsidise.

Smiling chief executives blandly claim that call rates can be brought down, as long as the companies can raise the rental charges (i.e. make their profits elsewhere by shifting the financial burden to the thousands of low density consumers).  And the monopolies will decide, not a competitive market.

Who created the monsters?

  FINTEL and Telecom (and implicitly Vodaphone) had most unwisely been granted monopolies by variousFiji governments prior to 1998.

The super monopoly ATH  (consisting of government’s shares in FINTEL, Telecom and Vodaphone) was most unwisely created in 1998 by the SVT Minister of Finance (James Ah Koy)- in order to obtain the grossly inflated price of $250 millions (needed to cover the NBF disaster).  And this was unwisely and strangely bid and paid by FNPF.

The parliamentary Opposition then (myself as Shadow Minister of Finance, supported by the Leader of the FLP) strongly opposed the creation of ATH for reasons explained in my previous article “The ATHL monopoly: between the devil and the deep blue sea”. (The Fiji Times, 6 March 2002).  Well, we are now well and truly there.

We face the horrible dilemma that FNPF, to protect the pension fund forFiji’s workers, has to maximise ATH dividends, and thus has to defend the monopolies of FINTEL, Telecom and Vodaphone.

Even if the same monopolies rip off theFijipublic and squeeze theFijieconomy.  Even if FNPF is itself harmed in the long term, because FNPF is the largest single investor in the economy (including theFijigovernment’s loans).

Private companies laughing

  Of course, the private companies are laughing all the way to the bank.

Cable and Wireless (who control FINTEL) and VodaphoneUK(who control VodaphoneFiji) must find it hilarious that theFijiworkers’ pension fund (FNPF) daily defends their monopoly interests.

The same FNPF whose board is chaired by the current PS Finance and Economic Planning, who is supposed to foster competition in the economy.

They must laugh that the FNPF (through the ATH) ensures that FINTEL, Telecom and Vodaphone do not compete with each other (as well they can, on a number of fronts), in case prices and overall ATH profits are reduced.

They must laugh that ATH is monopolistically going to encourage “teleparks” only on their own sites (where they can make more money).  Not where ever and when ever the investors want to have their offices- for example in the job-scarce West where the labour force may be cheaper and more plentiful.

The multinationals must find it hilarious that the Governor of the Reserve Bank ofFijicontinues as the Chairman of the Board of private monopoly FINTEL as well as of the other boards. (And unfortunately, the same individual had been the Permanent Secretary of Finance when the ATH was created by Finance, and its shares sold to FNPF, whose Board he then also chaired).

The multinational companies, must find it hilarious that the Government’s “regulator” of telecommunications, is not only a toothless tiger, but often points to the monopolies as explaining his powerlessness, instead of fighting them in the courts tooth and nail.

Which is where the battle must be urgently taken.

How get out of the mess?

  Surely, there are strong legal grounds for thinking that the compensation can be minimised, with the support of the best international legal advice.

Competition is internationally accepted as the pillar of the worlds’ economies and trading relationships.  This is explicit in the founding principles of the all powerful World Trade Organisation, which fights for open competition throughout the world’s economies and trade.  Likewise, powerful organisations like the IMF, the World Bank and the ADB support competition.

Surely, there is a strong legal case for arguing that no government should be allowed, whether well-meaning, incompetent or corrupt, to mortgage entire future generations’ well-being, through the unreasonable grant or continued protection of monopoly rights.

Of course, where it can be proven that private economic interests would be unfairly harmed by the cancellation of the monopoly rights, fair compensation can and must be paid by government.  This may be relevant for FNPF, which, rightly or wrongly, bought ATH shares from Government on the explicit guarantee of continuing monopoly rights.  And especially if the courts are told that FNPF had hundreds of millions lying around idle precisely because of Government’s own restrictions on foreign investments.

And are the courts likely to recommend generous compensation to Cable and Wireless which historically has made huge profits out of itsFijiinvestments?  Of course, the recent investment in the Southern Cross cable can be considered separately.

And what would  be the size of the compensation to VodaphoneUKwhich has made and continues to make phenomenal profits (even more than TelecomFijiwith ten times the investment)?

What would be the compensation to TelecomFiji, which is largely owned by the taxpayers anyway?

Unfortunately, there are no easy answers now.  Competition must be brought in and tax-payers will have to pay compensation.

ATH must be dissolved into its various components, which must be encouraged to compete.

FNPF must get out of ATH and the current dilemma, that for short term gain, it has to defend monopoly monsters, thereby crippling long term economic growth and its own long term interests.

If jobs and incomes are to be created and poverty reduced, the current Government and major Opposition parties must urgently cooperate to fight these evil monsters, at whatever legal cost.

Our top bureaucrats must get themselves out of inherent conflicts of interest, to protect their personal integrity.

And perhaps we can also tackle the other evil monopolies?