Cable and Wireless and Columbus Communications Merger Should be Allowed

Monopolies are generally created in two ways: a) by government and b) by the market.

In the case of a government sponsored monopoly, a company is granted the rights to engage in a particular business to the exclusion of all other businesses. An example would be APUA.

A monopoly created by the market, achieves that position when consumers generally show an overwhelming preference for that company’s goods and services to the extent that it makes it extremely difficult for other businesses to challenge that dominant company. An example of this would be Facebook.

This second form of monopoly is generally seen by the public as benign and non-threatening. In most cases that company enjoys a lot of goodwill. However, the real danger of this type of monopoly is that such a company can clandestinely exploit its position of dominance to eliminate its competitors and thereby giving itself virtual exclusivity to its market. An example of this was the web browser war between Microsoft and Netscape which is well documented.

In the context of the merger of Cable and Wireless and Columbus, both companies as far as I am aware are not government sponsored monopolies and by themselves, do not technically have market dominance in the areas that matter.

Whereas in the past Cable and Wireless enjoyed a government sponsored monopoly,  the truth is that today’s Cable and Wireless does not enjoy that monopoly position anymore. Some may still consider Cable and Wireless a monopoly by virtue of it owning the fixed telephone network. However, if you examine the performance of this business, you will observe that this line of business is in decline, suffering major attrition from consumers moving to mobile communications. To me, the mobile communications industry is gradually making fixed line voice telecommunication business insignificant.

With the so-called liberalization of our Caribbean telecommunications market, the determination of a monopoly is a lot more subtle than before.  Contrary to most people’s perception, Digicel is the de facto dominant telecom services provider in the region.  From all indication, Digicel is more favourably poised to exploit its dominant position which if not kept in check by a worthy contender, would see them emerging as the new regional telecom monopoly with all of the attendant risks to consumers.

In my opinion, the fear and fear-mongering about Cable and Wireless/Columbus merger is unfounded and have no factual basis. Many commentators are responding emotionally to a former colonial perception of Cable and Wireless and have not looked at the facts of what is actually happening on the ground today.

Digicel has a great deal of goodwill in the market and to some extent it enjoys the perception of a liberator saving the hapless Caribbean consumer from the ravenous tendencies of Cable and Wireless. Even if that negative perception of Cable and Wireless were justified in the past, today it has no basis.

Let us look at the facts. In 2012, Digicel announced to the world that it achieved revenues of US$2.54bn. Then, it boasted around 13 million customers. In 2013 it acquired the undersea cable assets of Caribbean Fiber Holdings and some significant other cable interest. Digicel now has a presence in the Caribbean, Central America and the Pacific. In the last 13 years Digicel has grown into a large multinational company by Caribbean standards. I applaud them for that level of success and I believe that Digicel is important to the future of the Caribbean. Kudos to them!

By contrast, Cable and Wireless Plc  was only able to achieve revenues of US$1.9bn at the end of March 2014. The company has been constantly downsizing and re-adjusting to respond the competitive pressures put on it by Digicel. The company is seriously hemorrhaging and had it not been for its reserves and investment assets, Cable and Wireless could find itself out of business in the medium term.  From 2010 to 2013, Cable and Wireless Ltd suffered loses of US$344m, US$184m, US$117m, US$144m respectively.  In fact, the company has been divesting itself of telecom assets in the Pacific in order to finance its comeback efforts in this region. It recently sold its entire interest in Fiji and Vanuatu telecommunications operations. Even its interest in Monaco Telecom has been sold.

If we look at Columbus, their issue is that political and regulatory impediments have prevented them from expanding their business. These impediments are putting pressures on this Barbados IBC company. It is likely that this company will fold if something drastic is not done.

The marriage of Cable and Wireless and Columbus Communications is the only way both companies can survive in the current environment. For a company like Columbus Communications, whose implicit mission when it started in 2004 was to become an alternative to Cable and Wireless, to join forces with Cable and Wireless, is a tacit admission to the dominance of Digicel. For both companies, this proposed merger is like the last straw for a chance at survival.

I believe in free markets and therefore I believe that regulators need to keep out of the matter and let the competition between C&W/Columbus and Digicel  take its natural course.  In my opinion, the consumer will benefit from a better telecom infrastructure and better prices. Once governments get involved, the market gets distorted and new monopolies are spawned.

My basic thesis is this: for the Caribbean people to enjoy a modern and affordable telecom infrastructure, it is important to have at least two major competitors who almost match each other in resources.  Any attempt to deliberately weaken Cable and Wireless or even Digicel would not be good for consumers. As it stands now, Cable and Wireless is very weak by comparison and needs to be given the chance to remain Digicel’s nemesis.

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