Where Is the Consumer in all This

29^th September 2006
The Malta Independent - Friday Wisdom

Between Maltacom and Melita Cable there was never any love lost. This week, however, they accused and counter-accused each other in the public eye in a way which is not meritorious of two of the major corporate organisations that prize being well regarded by the general public. The obvious question is where does the consumer fit in this evolving saga.

The consumers’ interests are supposedly being safeguarded by the regulator of telecommunications who has this week imposed a hefty one-off fine of Lm10,000 on Maltacom and accruing a fine of Lm200 per day for delaying to conclude with Melita an interconnection agreement giving telephony customers of both organisations the possibility to phone across the exchanges in a wholly transparent manner.

Maltacom announced that they would appeal the fine while Melita commented that the fine was not punitive enough to force Maltacom to accede to grant them interconnection facilities. They announced that they would be taking up the matter with the EU directorate that guards true competition on EU markets.

One marvels why this is happening so soon after the privatisation of Maltacom. Surely government should have cleaned up the stables before privatising, ensuring that the new private owners know exactly what rights and obligations they were buying. Without such clarity, the price obtained would generally be discounted due to the uncertainty of the business model being acquired.

Until such time as Maltacom was a government-controlled entity, official or de facto monopolies could be condoned on the basis that what the consumers were suffering due to lack of competition was being returned to them through corporate profits which flowed back to the government as major shareholder.

However privatisation changes all that. While public monopolies can be tolerated, and often accepted as a matter of fact given the lack of economies of scale on our miniscule market, private monopolies become a dangerous species.

How the government privatises Maltacom and leaves behind in private hands a de facto monopoly in fixed line and broadband communications which has to be challenged by other operators through legal disputes in different fora, cannot be easily understood.

Indeed it is turning out that Maltacom’s privatisation was a long-drawn out affair which has left behind great uncertainties as to what rights and obligations have been passed on to the new owners.

We had the case of the real estate that Maltacom do not use for its core telephony business. After criticism that this property should have been lifted off Maltacom prior to privatisation with fair compensation to the company which would have increased the share price value and consequently the privatisation price, the minister announced in parliament that there was an agreement for this to happen in the post-privatisation stage as a package deal against granting of full title to some other property which Maltacom rents or leases from the government.

Nothing has been heard of this again and it is unlikely for the exchange of property rights indicated to sail through plainly, as in agreeing to such exchange the Board of Maltacom could be compromising the interest of its shareholders, especially the private ones that were not involved in the privatisation negotiations with government.

Then we were told that the new owners would invest Lm30 million in new technology. Again nothing has been heard since other than whispers that these investments would be financed from the company’s own cash resources and future cash flows rather through share capital investments by the new owners.

So basically, Maltacom would be investing its own money, something which it could have done without necessarily being privatised.

Now we find out that the new owners of Maltacom are permitted to drag their feet to the opening up of competition rather than have it imposed on them through the privatisation contract that they have to let go of their monopoly without delay to ensure that the consumer benefits from true and fair competition. If this dragging of feet is related to the condition not to enforce redundancies for a period of three years, then it means that the consumer will be footing the bill for the company’s over-manning for another three years.

What the consumer was expecting was that rather than Maltacom freezing itself during the long-drawn out privatisation process amassing cash resources and postponing investments, it should have carried out promptly the mission given to it in the days when I was a director under the chairmanship of Maurice Zarb Adami, for Maltacom to invest in a media division which would give some real competition to Melita in its core business which was theoretically liberalised before the liberalisation of fixed telephony.

The landscape of telecom companies is changing rapidly.

The period where mobile operators were growth leaders over fixed line operators seems to have run its course with mobile diffusion reaching saturation levels and with uncertainty over whether the consumer is willing to pay for media facilities over the mobile through expensive 3G technology.

Growth leadership is now shifting to the convergence of fixed line and media where the fixed line business rather than dwindling to a natural death as it gets replaced by mobile communication, is re-inventing itself to become the carrier of media offering competition to the pure cable companies which to survive have to offer fixed telephony and data transmission on their cable network in their client package.

All this increased competition is working to the advantage of the consumer all over the world. But over here my cable TV bills and telephone bills keep eroding a larger portion of my disposable income. Why should we be different?