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“Elections Issues 13 Voters, costly monopolies and the Commerce Commission” 24 May 2014

24/05/2014

Elections Issues 13
Voters, costly monopolies and the Commerce Commission(also appeared in The Fiji Times, 24 May 2014)

 Most political parties and candidates quite rightly see the high cost of living as a major issue for voters. They will vote for any party which promises to bring down the cost of living.

Where higher prices are due to the exercise of monopoly power or “substantial market power”, then some governments have tried to use the Commerce Commission to reduce the prices and cost of living, by law, because of the failure of the free markets.

This is what Dr Mahendra Reddy (Chairman of the CC) has tried with hardware merchants, pharmacies, and even bakeries, even though there is quite a degree of competition in these areas, and price control can and do have all kinds of negative side effects (such as shortages and/or lower product quality).

This Elections Bulletin is about two industries displaying clear abuses of “substantial market power” which harms consumer interests, with the Commerce Commission seemingly powerless.

The first example is the exorbitant air fares charged by Fiji Airways on the domestic routes, in the process seriously undermining  development policies for the North.

The second example is the super profits squeezed from consumers by mobile companies through their pricing and other predatory practices.

Look North but don’t travel north?

There have been many reports by the Fiji Bureau of Statistics that point out the relatively higher rates of poverty is in the Northern division.

Many governments, including the Bainimarama Government, have correctly attempted to articulate “Look North” policies to accelerate northern development, to improve incomes and standards of living, and to reduce the tendency for migration to Viti Levu.

Thus in the last budget, there have also been large investments in northern division roads and other infrastructure. There have also been a number of new tourism investments.

BUT, undermining all these efforts by government and private investors are the incredibly high air fares to and from the northern division (and Rotuma and the outer islands), due to the exercise of monopoly power by Fiji Airways.

The Commerce Commission well knows that when there was competition on the domestic routes, the fares were considerably lower than they currently are, which at times can be as much as the return air fare to Auckland or Brisbane.

Effectively, the monopoly domestic fares have acted like an unfair “tax” on all air travellers who travel to and from the north, thereby reducing not just their personal welfare, but also constraining economic growth of businesses, including the discouragement of tourism.

Of course, Fiji Airways profits have been boosted and as a side effect, their loans from FNPF are repaid more easily.  But good economics will advise that the air travellers to the North and outer islands should NOT be cross-subsidizing Fiji Airways (or FNPF).

Despite many public protests, the Commerce Commission has not been able to control the domestic air fares, but knowing Dr Mahendra Reddy, he has probably tried.

Can Dr Reddy explain to the public if there been any government pressure preventing him from bringing down the domestic air fares?

For the forthcoming elections, all voters associated with the northern division, Rotuma and outer islands, can ask all political parties and candidates what would be their recommendation to the Commerce Commission for the regulation of domestic air fares.

Note that the voters in the Northern division and outer islands could easily decide the election of 8 members of parliament, and even more, if their numerous relatives on Viti Levu vote with them (the Nabua to Nausori corridor is virtually a colony of Vanua Levu).

Mobile charges

When someone physically steals 50 cents from you in the street, the police and the courts come down on you like a ton of bricks, while some one embezzling a hundred thousand dollars can also be justifiably jailed for a few years.

Yet monopolies, like Fiji’s mobile companies can use their “substantial market power” and through exorbitant charges, make extra millions of dollars in addition to their normal profits, and it is all legal.

All of us have had the frustration of making a call, barely being connected and not speaking a word, and seeing that you have been immediately charged 45 cents.  Or you might speak for a couple of minutes, and be charged $3, more than the cost of a call overseas.

Or if you charge up your mobile phone with $20 of pre-paid call (in other words you transfer your hard-earned money to the mobile company ahead of your planned usage), and you don’t use it up by a specified time (usually less than a month),  that money is simply taken away from you.

Virtually everyone in the  country, men women and children, are now using mobile phones, because of their great convenience.  It is usually the poorer people who use pre-paid.

The Fiji public, including children, now spend more money on mobiles than they spend on either education or health.

The mobile companies, and one in particular, are making phenomenal profits, possibly approaching the hundred million dollars mark by now.

They make so much super profits on their investments that they can afford to throw away a few millions in grandly advertised charity and sports sponsorships, as a sign of their “generosity”.

But the reality is that they are merely using a small proportion of the excessive profits they make through their substantial market power.

The great puzzle however,  is: why has the Commerce Commission not reduced by law the mobile phone charges to reasonable fair rates based on actual usage, which still give the company a reasonable profit on their investments?

Why has the Commerce Commission not demanded that mobile companies must not charge higher rates on users who call from networks other than their own?

Why has the Commerce Commission not demanded that mobile companies cannot appropriate the unused credit that consumers have already paid them for?

The public have been asking these questions for years, but the Commerce Commission Chairman (Dr Mahendra Reddy) is not answering.

Why a silent Commerce Commission?

The Commerce Commission has not explained to the public why he has not imposed price control on these two blatant examples of the exercise of “substantial market power”, by Fiji Airways and the mobile companies.

Of course, the public can see from the media reports (television, radio, newspapers, and coconut wireless) that there are very friendly relations between government ministers on the one hand, and the management of mobile phone companies and the domestic airline, with each giving the other much public prominence.

Have there been political pressures applied on the Commerce Commission to not act in these two areas, in the ways that he frequently, energetically and very publicly, intervenes in the hardware, pharmacy and select bakery areas?

Voters can ask all political parties and candidates for the forthcoming elections, that should they be elected and/or form government and they are able to influence the Commerce Commission:

 (a) what will be their policy on the regulation of mobile phone charges and practices;

 and

 (b) what will be their policy on the regulation of domestic air fares.

 I am sure some voters will also ask about milk product prices, deposit interest rates, house rentals, hire purchase interest rates, etc.

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