Will consumers suffer in the Celcom-Digi merger?

 

From Paul Selva Raj

Will Malaysian consumers suffer due to the merger of Celcom and Digi?

The merger between Celcom Axiata Bhd and Digi.com would be one of the biggest mergers in the Southeast Asian telecoms industry.

The new enlarged entity will control nearly 50% of the mobile subscriber market share.

The number of players in the industry following the merger would be reduced to three from four.

Celcom and Digi combined would have 48% of the market share. Maxis has a market share of 28% while U Mobile has a market share of 19%.

The merger clearly creates a “dominant player” in the industry.

Clearly free market competition benefits consumers through better quality and lower prices, as well as promotes innovation.

Market consolidation, especially through mergers, would result in higher pricing and lower levels of service quality due to decreasing competition.

Two of the objectives stated in the Guidelines on Substantial Lessening of Competition, administered by the Malaysian Communications and Multimedia Commission (MCMC), are “to promote consumer markets which offer choices, quality and affordability” and “to promote competition in all communication markets”.

A “dominant player” in the market can severely place the economic well-being of consumers at a disadvantage.

One major concern that emerges when telecommunication companies merge is the possibility that they capture such a great share of the market that they have the ability to determine prices for consumer products and services.

In cases of dominant control of the market, supply and demand plays less of a role in determining the prices consumers pay for goods and services. The dominant player has a greater say over what consumers will pay and are not driven by competition from other service providers.

Another major concern with telecommunication mergers and consolidation is that it can lead to technological stagnation in the long run if there is market domination.

While initially companies may strive for new technologies and invest in technologies to provide greater consumer value and experience to win over greater market share, once they achieve a substantial market share, they no longer have an incentive to develop new and better technologies.

The reluctance of consumers to switch from an established company to one less established also results in less incentive for technological development.

The Federation of Malaysians Consumers Associations (Fomca) strongly believes that firms should not be allowed to merge if they are able to use their merger to create alliances that otherwise would have been their natural competitor.

Thus, to protect consumers and enhance their well-being, Fomca urges MCMC not to approve the merger. - FMT

Paul Selva Raj is secretary-general of Fomca.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.