Issue link: https://maltatoday.uberflip.com/i/852418
maltatoday, SUNDAY, 23 JULY 2017 10 News MATTHEW VELLA THE Malta Communications Authority has been clear about its position on the merger: its preliminary position is that there are un- pleasant risks when it comes to competition and consumer welfare, unless the competi- tion authority obtains guarantees that ben- efits will be won by clients. Over the last two years, there have been a number of acquisitions affecting Melita and GO. In July 2015, GO's majority shareholder Emirates International Telecommunica- tions Malta (EITML) announced it would dispose of its shareholding. In December 2015, Melita was sold by owners GMT Com- munications to Apax Partners of France and Fortino Capital of Belgium. Six months later, Tunisie Telecom's subsidiary TTML acquired 65.4% of GO's share capital. This wave of acquisitions did not dent the competition between the two players, and it is only the Melita-Vodafone merger that has now given rise to what the MCA calls a new "mega-entity", because it brings two long-established operators combining their resources to directly compete with GO. Such a transaction would see the combina- tion of two full-fledged mobile network op- erators, reducing the number of such service providers. The Consumers Association has been the most virulent on the effects of the deal, describing Malta's oligopolistic com- munications sector as one that charges high prices and offers "the same shoddy service". "Local consumers not only do not have a real choice but to add insult to injury have got to pay very high prices when compared with the prices other consumers have to pay in other EU countries… the normal rate for a local mobile phone call is 50c per minute while the new rate which will soon be en- forced for roaming is 3c per minute," the CA's spokesperson, Benny Borg Bonello told the MCCAA in a letter of objection. The CA also wants Vodafone clients to be granted the right to opt out of their con- tracts should the MCCAA approve the deal, since ultimately their contracts would be taken on by Melita, which is retaining Voda- fone as a brand name. Additionally, the merger will mean a con- vergence of a fixed network (Melita) and a mobile network (Vodafone) with the general understanding that Vodafone will now be- come a player in the quad-play market. The ensuing oligopoly, which already ex- ists to a certain extent, would result in a "new duopolistic scenario in Malta that may not be conducive to higher competition lev- els in the medium to long term," according to the MCA. Whether the duopoly could give rise to an abusive market dominance remains to be seen, with the MCA saying it should be sub- ject to detailed studies. "Certainly, however, a Melita-Vodafone concentration would translate into the elimination of an impor- tant competitive constraint that these two merging parties previously exerted upon each other and separately on GO." Impact on mobile telephone market One glaring concern for the mobile te- lephony market would be the loss of one of the only three networks operating in Malta. The new entity would have a market share of 60.5% – Vodafone has 44.1% and Melita has 17%, while GO has 27.2% of the market (the smaller Redtouchfone caters for just 1.7%). In itself, this concentration would be simi- lar to that which GO enjoys in the fixed te- lephony market (65%), having inherited the fixed line infrastructure of its state-owned predecessor Maltacom. But the MCA also says that a new market entry and a larger presence of market play- ers is beneficial to competition. For exam- ple, in 2006 Melita's entry into the mobile market immediately resulted in increased competitive pressure on the two largest ser- vice providers, namely Vodafone and GO. The swift process for number portability enabled thousands of customers to switch to Mel- ita. Other consumers adopted both a second Melita number as well as their original GO and Vodafone connection. Melita's entry also brought improved prices with declines over the last few years in the 'per minute rate' for mobile telephony. Between 2006 and 2008, retail tariffs for GO and Vodafone were nearly identi- cal, but by 2008 the sheer threat of competition moved the two operators to lower the tariffs. Then in 2009 Melita joined the market with lower than aver- age tariffs, pushing Vodafone to match its prices, before being again undercut by Melita. After 2012, the substantial de- cline stabilised. But the MCA says that since the merger will now see the loss of one of the MNOs (mobile network operators), this competitive pressure on GO would be reduced. "[It] would effectively translate into the elimination of an impor- tant competitive force that previously posed a direct price constraint on GO and Voda- fone Malta. The 'dilution' of competition forces raises the risk of a halt in the decline of the per minute rate in mobile communi- cations, or even a reversal in trends." The MCA also fears that any pricing impli- cations could also spill into mobile data ser- vices, which is becoming more popular but where prices have not been reduced as yet. "What happens to competition following a 3-to-2 player scenario... remains to be seen. However, various studies show that mobile market consolidation in the form of mergers or acquisitions tends to have a significant impact on prices, with call rates adjusting upwards in the medium- to long-term fol- lowing the transaction," the MCA said. A case in point was a study by the Austrian regulator on the Hutchison-Orange merger in 2013, which saw smartphone prices rise by 50% on average. It was only years later that rates started falling when new entrant Ventocom came into the market. Even the European Commission has warned that a reduction of MNOs can lead to higher prices without even translating into a higher investment for subscribers. It could be argued that consolidation would see less duplication on network and non-network costs, if those savings do get passed on to the consumer. The MCA says that is "far from a foregone conclusion… the crux of the argument here is to what extent the parties could provide commitments that such efficiencies would offset the disadvan- tages of concentration and ultimately result in clear benefits to the consumer." Effects on other markets With Melita and Vodafone joining forc- es, the latter company will be able to add its mobile data services to Melita's strong fixed-line, internet and cable TV offering, in direct competition to GO's own quad-play offering. Vodafone is offering a high 30Mbps speed that already poses a limited competitive constraint on GO's and Melita's pricing on fixed broadband, which tend to be offered in bundles with other mobile telephony and television services. The merger would therefore 'eliminate' the prospect of broadband competitors emerging in the near future. Additionally, the MCA says that GO and the new Melita-Vodafone merger may end up using their market shares as a 'focal point' to slow down promotional efforts for stand- alone fixed broadband and pay TV products, and instead give customers no choice but to take on bundled subscriptions. "Based on the information gathered during the investigative stage, any competitive ap- praisal of the notified concentration would have to determine whether the relevant transaction effectively translates into lower prices for end-users and, ultimately, more investment," the MCA said, noting the pos- sibility of "several downside risks" to com- petition. However, the MCCAA – the office for competition – will be in a position to de- mand safeguards that would mitigate any shortcomings. Vodafone Malta is selling off to Melita: would a duopoly make consumers' lives better? Rival competitor GO claims mobile phone prices will rise, and the MCA is equally wary Changes in ownership of telcos 2000 2006/7 2015 Legacy Acquisition Acquisition owners Legacy Acquisition Acquisition owners Maltese goverment (60%) and general public 40% UPC and the Gasan Group GO plc stake (20%) renounced in 2002 Tecom Investements LZ LLC (60%) GMT Communications Partners Vodafone (no change) Tunisie Telecom (60%) Apax Partners & Fortino Capital Vodafone (no change) owners Market shares Fixed Mobile Pay TV Fixed telephony telephony broadband GO 64.8% 37.2% 48.2% 49.7% Merged entity 34.8% 61.1% 51.8% 49.9% Melita 34% 17% 51.8% 47.2% Vodafone 0.8% 44.1% - 2.7% Market share by operator Melita-Vodafone merger: What's in it for you? SUNDAY, 23 JULY 2017