I recently had a chance to review America Movil/Comcel’s economic testimony used in their bid to avoid or mitigate Dominant Carrier Regulation in Colombia. As might be expected given the financial resources of the company, it was prepared by recognized economic experts who argued their points well. I have some technical quibbles with the statistical analysis by the Latin American group NERA but even then I’m not sure correcting these would have changed the conclusions.
Full Disclosure: I left Comcel as President in December of 2001 having spent 13 months working for America Movil. Since I left, I have on occasion provided advice to the group mostly in regulatory issues. I have advised principal competitor Telefonica through my association with Yankee Group.
I don’t think it worth discussing whether Comcel is in fact dominant or whether dominant carrier regulation is necessary. Regions as diverse in their economic policies as the United States and the European Union think it necessary to take action when one player has more than 60% market share in a multiplayer market. As well, the Colombia-US Free Trade Agreement requires both parties to have effective dominant carrier regulation. Comcel sticks out like a sore thumb with its above 65% Line Market Share.
The CRC has tried to address this by forcing a narrowing of on-Net/off-Net tariff differentials which are presumed to be the reason why Comcel has achieved and maintained its high market share.
My argument is that the CRC has been manifestly ineffective and their strategies might even make the presumed “problem” worse because they fail to attack the core reasons why Comcel has had the success that it has had.
The CRC has been ineffective:
The core reasons why Comcel has been so successful in terms of Line Share have to do with handsets, distribution and a fundamental aspect of consumer behavior – what I call the “Winner Effect”:
(I have a long – very long – version of this note that develops these ideas in greater detail. Contact me if you want to see it.)
Thus the CRC’s chosen tools are ineffective and repeated application can only continue to be ineffective. Madness is repeating the same action and expecting a different outcome.
At best they may achieve a transfer of wealth from Comcel’s shareholders to those of its rivals but so far that hasn’t happened either. Furthermore, I don’t believe any telecom regulator has the right or the obligation to directly impact shareholder outcomes: their only legal scope for action has to be on consumer outcomes.
To exert effective control over Colombian market outcomes – and again assuming that something must be done if only to maintain the countries obligations to the US – then action has to be taken in the DISTRIBUTION (including handsets) market, not in the market for voice services.
This is probably impossible. My contention that the naturally-evolved structure of the mobile handset market creates distortions in the market for telecom services would create a field-day for Colombia’s lawyers.
Besides, America Movil is about to do the CRC’s work for them. Retiring Colombia’s most valuable brand – Comcel – to introduce an essentially unknown brand – Claro – and merging it with a so-so brand like Telmex will do the company untold damage.
It might even get them below 60%.
Bottom-Line: Colombia at least will continue to experiment ineffectively with voice tariff interventions trying to “correct” a situation nearly impossible to correct – Comcel’s “north of 60%” Line Market Share. That “horse left the barn” a long time ago (nearly 10 years ago in fact) and there is little that can be done now. Intervention in the mobile handset market might have an impact but that is no doubt politically and legally impossible.No Comments »
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