The decision by the government through the Ministry of Communications and the National Communications Authority (NCA) to take measures to enforce the provisions of the Electronic Communications (EC) Act 2008 and the National Telecommunications Policy to address glaring disparities in market and revenue share in the sector should be done based on evidence and best practice as it could potentially become counterproductive.
Whilst some Ghanaians including myself have become concerned about the Scancom MTN’s growing size in terms of market power and dominance, we must understand that the free and liberalized market rewards firms that innovate and invest. MTN has come all the way since 90’s when it entered the market as Spacefon and has now grown to become the largest share telecom company in terms of market size and industry revenue.
The duty of government in every free market economy is to provide the enabling environment for businesses to take advantage of. Before year 2000, there were three players in the industry in the order of Ghana Telecom, Millicom (Mobitel) and Scancom (MTN). The market dynamics have changed since then with MTN now becoming the largest firm in terms of size and profit.
The question we should ask: how did we get here? What has been the level of investment of these market players? Available data suggests that MTN faced with ex-ante risk in Ghana invested and expanded services across the country whilst other market players slowed their rate of expansion including the government of Ghana who is a minority shareholder in Vodafone Ghana.
This is one of the reasons why intellectual property right allow firms that innovate to be given patent or trademark or copyright of their work is to stimulate innovation.
Is it illegal to be dominant player?
Competition (antitrust) regimes all over the world see nothing wrong being a dominant or a monopoly. What is against the law is the abuse of dominant position in the market. In any case, with no competition law in place, is there enough competence in Ghana to investigate abuse of dominance?
The biggest question is whether MTN gained dominance through disadvantaging rivals or simply because rivals were inefficient. If competitors were inefficient, then the new measures are simply intended to bail out or reward inefficiencies. There are some services where it is efficient for it to be served by a monopoly than to have multiple firms competing due to the inherent sunk cost and natural monopoly conditions. Take for instance, whilst there are plenty power producers for the grid, the electricity retail market is monopolized by the Electricity Company of Ghana (ECG) for the whole country with exception of the northern and part of the Brong Ahafo which is served by the Northern Electricity Company (NEDCO).
Section 25 of Electronic Communications Act 775 of 2009
The Section 25 of the Electronic Communications Act of 2009 says: the NCA may establish price regulation regimes, which may include the setting, review and approval of prices by Regulation, where there is a sole network operator or service provider or a network operator or service provider with significant market power. As per the Act 775, MTN has reached the 40% threshold and for that reason, there must be some form of regulations to “ensure fair competition amongst licensees, operators of communications networks and service providers of public communication.”
The regulator needs to take full look at the whole industry and not just one player. Currently under the telecom tower market, there is a merger application between the top two players in the industry namely American Tower Corporation and Eaton Towers Ghana Limited. Should this merger application be approved the post-merger share of the merged firms would approach almost 80% of the market share. Competition law enforcements and regulators hardly ever approve a merger between firms which put competitive constraints on each other. Even in cases where they are approved, they come with measures to enhance competition like selling some of their assets and infrastructures to other competitors to help ensure that the merger does not cause any harm to businesses and consumers. Clearly, allowing American and Eaton merger to go through would impair heavily on downstream players in the industry and increase unmerited rent.
As a competition economist, finding answers to these questions would help us situate the conversation into the right context.
- Has MTN engaged in any activities that can be classified as anti-competitive? What does the NCA Act 769 say about such conducts?
- Did the firm grow by engaging in predatory pricing by sacrificing profits just to harm rivals?
- Does MTN have the ability to profitably raise its prices over marginal cost and sustain it over a long period?
- Is MTN engaging in refusal to supply its competitors or supply services under unfair contract terms or vertically foreclosing its rivals?
- Why are the rival firms not making the required investment? Are they being inefficient?
In conclusion, there is no question about the fact that MTN become dominant in the market which may deter new entrants into the market and its effect on effective competition. MTN is not only the problem but the regulator also needs to be blamed for waiting to get us here. The measures given by the Ministry to ameliorate and correct the market to optimal level should not be issued as orders but be treated as an opportunity to reform the market landscape through good faith, understanding and mutual trust. The regulator needs to undertake an in-depth market study of the industry. Any action taken by the regulator should be grounded with evidence and international best practice so that it does not send negative signals to investors. If it is not done well, it would discourage future capital investment by MTN which could go in a long way to make these orders counterproductive. Clearly the existing NCA Act is hamstrung in addressing these issues. They can best be addressed Competition/Antitrust laws. This is a reminder that the government and the Ministry of Trade and Industry should ensure that the Competition and Fair-Trade Practices Bill of 2019 gets to Parliament for consideration and its passage.