Bangladesh: Beware market share greater than 20 percent (on a particular day in a particular year!)

Posted on August 17, 2011  /  0 Comments

Market share is never the final determinant of market power. It is used as a screen for further investigation and/or to shift the burden of proof. So, for example, an HHI (Herfindahl Hirschman Index) greater than 1700 or 1800 is triggers anti-trust investigations by the US government in the case of mergers and acquisitions. In the case of determining significant market power in telecom regulation (LIRNEasia is quite skeptical about the value of this approach in developing countries), market shares of around 35-45 percent shift the burden on the operator to prove that it does not have market power (the ability to set and maintain prices in simple language).

But in Bangladesh 20 percent market share is the magic number. And it’s not a rebuttable presumption; nor a screen. You go over 20 percent, you start paying more for the critical input of spectrum. This is the gist of the “Market Competition Factor,” I have described elsewhere as anti-consumer. The MCF for Citycell is 0.3, while it is 1.48 for Grameenphone. That means that Grameenphone pays five times the amount paid by Citycell for one MHz.

The Budget Telecom Network model requires operators to carry as many paid minutes as possible, even if from marginal customers who individually contribute very little revenue. This was the cause of Bangladesh’s spectacular mobile growth, even in the face of growth-retarding measures such as the SIM tax. The result of the illogical MCF is to direct operators away from serving large numbers of low-yield customers to small numbers of high-yield customers. It would not be surprising if those running the smaller operators put in place specific measures to prevent market share from increasing. Is the government actually, intentionally anti-poor? Or it is simply acting out of ignorance?

But that discussion assumes that spectrum charges will be adjusted periodically based on fluid market shares. That is not what the Ministry in its wisdom has recommended. What market share an operator had in June 2011 appears to set the price for spectrum for the next 15 years. So even if Citycell has 44.3 percent and Grameenphone has 2.23 percent of the market in 10 years, Citycell spectrum will still cost 1/5th that of Grameenphone!

This takes the cake for arbitrary and capricious administrative action! Is there an igNobel Prize that can be awarded to the MoPT?

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