Power and privilege - How the FCA lost its teeth, and the FTC, its spine

Darron Thomas, Guest Columnist

Historically, were the average citizen to benefit as much as large companies and interest groups from the policing arrangements which apply, then Jamaican society would be a tightly knit and nicely woven fabric. In principle, the police's obligation to the law-abiding citizen is to protect and to serve. The Jamaican Government, as the police of large companies and interest groups, has discharged this responsibility in the most pristine fashion.

Prior to the deregulation episodes and reforms of the 1980s and 1990s, price-fixing and limited competition, and/or policies to limit competition, were commonplace. They were so commonplace that even consumers, at first glance, rebelled against the notion that firms would be free to operate with (set) market-determined prices. The deregulation episodes of the 1980s and 1990s, and the eventual passing into law of the Fair Competition Act (FCA) in 1993 and establishment of the Fair Trading Commission (FTC), threatened the comforts that large interest groups and companies previously enjoyed. The FCA was originally canvassed in proposed form in 1991, and immediately attracted the attention of particular interests groups.

Self-interest

Without delay, the legal profession and other professional groups lobbied against the proposed FCA's provisions to regulate the way these professional groups conduct their business. Similarly, large companies hastened to block the merger provisions of the proposed act and were successful in their pursuits. The business and academic elite attended to their interests by striking down the 'Interlocking Directorates' provision in the proposed legislation.

Against this background, we now raise the question of whether Digicel and/or Claro can be consi-dered a powerful 'lobby group'. Almost 20 years later, one can put things into perspective by asking whether billionaires Carlos Slim and Denis O'Brien can navigate the new regulatory environment and get what they desire because it poses no threat, or through sufficient lobbying.

In The Sunday Gleaner dated March 27, Dr Densil Williams correctly articulated that should the merger between Digicel and Claro be successful, the post-merger environment would be, in essence, a contestable monopoly; quite a different situation from the pre-deregulation environment in the wireless telecommunications industry. Those who, however, read Dr Williams' article as suggesting that there is no cause for concerns as would arise out of the abuse of power from a monopoly may want to give this situation a bit more thought.

Essentially, the non-existence of a structural barrier to entry, such as a licence, does not automatically imply that dominant firms/monopolies will be forced to act as though they exist in a competitive environment. Evidence of this can be found in the many predatory pricing and other competition policy/antitrust cases brought each year in various jurisdictions across the world.

Interestingly enough, after more than 10 years, the United States (US) brought its first monopolisation case since 1999 in February 2011. While any such provision is a long stretch in the rather unique FCA of Jamaica, the case in the US earlier this year parallels some of the realities in Jamaica's wireless telephony industry. In the US, a Texas-based health-care firm (hospital), United Regional, was found to be abusing its market dominance.

Additional charges

It is worth noting that international best practices normally interpret market shares of 50 per cent or more as a position of dominance. United Regional holds approximately 65 per cent market share and opted to disqualify insurance providers who contracted with other health-care firms from discounts it (United Regional) routinely offered. As such, affiliates of disqualified insurance companies paid a higher price than their counterparts. It is this practice that was interpreted as an unfair practice aimed at impeding competition and injuring consumer welfare.

By the accounts given, cross-network call-termination rates are somewhere in the range of 13-20 per cent ($1.30 to $2) of Digicel's standard rate (Digicel to Digicel) for prepaid customers of approximately $8-$10 per minute. Under these circumstances, Digicel ought to be charging $9.30-$12 for cross-network calls. Interestingly, both LIME and Claro charge exactly $12 for cross-network calls. Considering that Digicel owns approximately 70 percent market share and that it charges somewhere in the range of $15.80 to $17.70 for cross-network calls per minute, it seems that Digicel is imposing additional cost of more than $5 on customers who choose to call persons on an alternative network.

To put things into perspective, note that these additional charges levied by Digicel are almost always above 50 per cent of the rates that should apply if only termination fees were being tacked on. Was a dominant position in the market already being abused even before the proposed merger? Especially if the answer is in the affirmative to this question, another naturally follows. Will Jamaican consumers be subjected to further abuses once the merger is consummated?

The Fair Trading Commission (FTC), as governed by the current FCA, has been left spineless by court rulings which suggest that cases the FTC brought before the courts were in breach of natural justice, and that it has no jurisdiction over sections of the economy such as financial services. It is also a widely held view, as indicated by proposals from the commissioners of the FTC and the 2005 Competition Policy Peer Review carried out by the United Nations Conference on Trade and Development, that the existing FCA is confusing and must be amended to include merger policy and monopolisation provisions, as these are cornerstones of almost all legislation supporting competition policy outside the Caribbean. Of course, Section 2 of the Sherman Act, the US law, is a case in point.

Market power abuse

If, notwithstanding its contestable current dominant firm/monopoly status, Digicel can abuse market power, and with a spineless FTC, what will prevent Digicel from committing further abuses post merger? While other operating licences exist, failure to implement policies regarding number portability; seamless data transfer for customers switching networks; and the elimination of excessive cross-network calling rates will leave the Jamaican consumer at the mercy of Digicel, the giant.

Could the regulators hastily step in to analyse the proposed merger? An amendment of the FCA is also in order to change the environment. This is so as in a similar environment, faced with a similar set of facts; courts are almost obligated to follow precedent. The changes in the FCA should include provisions on mergers, monopolisation and nullify the breaches of natural justice identified by the courts. Such amendments should also give the FTC jurisdiction over all industries and trades except where it is the protection of intellectual property rights and research and development or similar entities that are under consideration.

In my article 'Is Digicel on the mad march to monopoly?', published in The Sunday Gleaner on March 13, the Flow Entertainment Systems Limited merger was mentioned. A commentator on that article reminded us of the merger which resulted in the over 65 per cent market share for Sagicor. No doubt, companies like Sagicor sit pretty in the marketplace. It is clear the interest of the powerful have been protected and served. Isn't it high time the average citizen be protected and served as well? It would be a step in the right direction, even if the protection and service to the average citizen only recognise him/her as an economic unit, the consumer. Amend the FCA!

Darron Thomas is a lecturer in the School of Business Administration at the University of Technology, Jamaica. Email feedback to columns@gleanerjm.com and darron.thomas@gmail.com.