Public policy concerns re mergers and acquisitions

Posted on September 10, 2015  /  1 Comments

Yesterday, there was a significant announcement in Bangladesh: Robi and Airtel announced they were discussing a merger that could result in the creation of two more or less equal sized competitors to the market leader, Grameenphone. Here is my full response:

This is what I said in response to a question about the number of operators in a market four years back.

The market should determine the number of suppliers in a market, not government officials. This requires two things: (1) an orderly policy on market exit, whereby, for example, suppliers have clear rules on what can be done about the assigned spectrum, existing customers, and so on; and (2) transparent license and renewal procedures that allow for as many licenses to be issued as possible within the constraints of spectrum.

These principles are as valid today as they were then. Most of our countries do not do either of the two things well. Obviously, government must look at increases in market concentration and the effects on consumers. But in intensely competitive telecom markets such as those found in South Asia, the first acquisition or merger should not raise big red flags, since even with the reduction of one player, the concentration levels should still be lower than in most developed-country markets.

In a merger, there is no reason to worry about what happens to the customers. They will be looked after by the merged entity. What requires attention is spectrum, especially in light of the convoluted rules that were applied in giving operators spectrum at various times.

The other thing is that whatever decisions are to be taken and whatever approvals have to be given, they should be done quickly and cleanly. It is not good for the companies and for the industry to have uncertainty.

Obviously, not all of it could be carried. Some elements were included in the Daily Star report.


1 Comment

  1. It appears that spectrum is not the only limiting factor to determine the number of licenses to be issued. It’s about the utilization of passive infrastructure such as transmission and towers, which have significant implications on economies of scale strongly affecting the cost, should be given due consideration in determine optimum number of operators. Without the development of competitive market of backbone network and towers, profitable competition among multiple cellular operators is almost impossible to sustain. The guiding principle of determining number of operators appears to be establishing balance between loss of economy of scale caused by the presence of multiple operators and deadweight loss caused by monopoly.

    The main problem of competition of Bangladesh’s cellular operation appears to be price setting market power of GP–at a rate where GP makes high profit and others are forced to take lower price to incur loss. Such market power cannot be addressed through merger between Robi and Airtel. Through this merger, Robi will likely fail to retain AirTel’s 8 m customers. Because, Robi’s freedom to make the price attractive to these 8m customers is very limited by likely loss on infra marginal units.

    It appears that upon this meager, Robi will weaker than before to compete. In business as usual situation, it appears that none of the loss making cellular operators in Bangladesh will reach to profit. As a result, the whole market may consolidate around only one operator– which may end market led reform to transfer state monopoly of Telecom to private ownership.

    look forward to sharing views…