AS I SEE THINGS: Let the games begin
For many decades, Cable and Wireless (now LIME) operated as the single provider of telecommunications services in the Caribbean and has undoubtedly transformed that vital industry with massive amounts of investment in required infrastructure and human resource development.
In addition, the company, to this day, continues to contribute significantly to the development of sports, culture and education in many of our relatively small economies.
With the passage of time and with most countries becoming members of the World Trade Organisation, it became inevitable that the monopoly position enjoyed by LIME had to be brought to an end.
Consequently, countries in the Caribbean moved in the direction of the liberalisation of telecommunications services, a move that saw the emergence of Digicel as another powerful service provider in this important industry.
Admittedly, the entrance of Digicel into local markets created a tremendous amount of challenges for LIME, forcing the latter to reconsider the way in which it has done business and to revamp its entire business model and strategies.
Later, FLOW joined the market, increasing the level of competition – a move that theoretically should have redound to the benefit of consumers in general and it did by increasing customers’ freedom of choice of service provider and price options.
After a relatively small period of competition among those three key services’ providers, we in the Caribbean are now greeted with the news of a proposed merger between LIME and FLOW.
Although not yet granted the required “green light” to proceed in Barbados and other regional economies, it would be rather surprising to me if this deal does not fully materialise in the not too distant future.
After all, both companies have rights to do whatever is in their best strategic and business interests and those rights should be respected by all and sundry.
From a business perspective, it is clear that LIME is once again seeking to re-establish itself as the dominant power in telecommunications in the region and nothing is wrong with that broad objective.
The merger with FLOW will clearly increase LIME’s market power and hence put the company in a much stronger position to compete more aggressively against Digicel. Since increasing competition stands at the core of liberalisation of telecommunications services, then, as the saying goes, “let the games begin.”
You see, from an economic perspective, competition among firms in an industry is supposed to generate greater efficiency in the use and allocation of resources, result in lower cost of production, and consequently better prices for consumers. If a firm enjoys monopoly status in an industry, the opposite effects would be felt. Therefore, for consumers of telecommunications services in Barbados and throughout the region, the main concern should be the effect of the proposed merger on prices and quality of services.
Given, for instance, the existence of the Fair Trading Commission here in Barbados and its mandate, I do not foresee any significant adverse effects for local consumers arising out of the proposed merger of LIME and FLOW. But in addition, Digicel must step up to the plate and continue to innovate to ensure that strong competition prevails in the industry in order to protect consumers’ surplus
Brian M. Francis, PhD, lecturer in the Department of Economics at the University of the West Indies Cave Hill Campus. Email: [email protected]