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RA: prices for internet, mobile ‘excessive’

The market dominance of Digicel and One Communications is leading to consumers paying “excessive” prices for internet and cell phone services and has created a telecommunications market with scope for “tacit coordination”, according to the industry's regulator.

The findings appear in the Regulatory Authority's latest market review, and the regulator has proposed measures aimed at protecting the interests of consumers.

Digicel and OneComm have filed appeals to the Supreme Court to dispute the RA's orders, each company confirmed yesterday.

The two carriers between them have a market share of more than 95 per cent in the broadband and mobile markets, the RA's review finds.

This had led to high retail prices compared to other, comparable jurisdictions and excessive profitability for the two companies, the RA concludes from its research.

Both Digicel and OneComm made submissions to the RA and argued that the regulator had overestimated their profitability for reasons including that the calculations were based on out-of-date numbers and that they did not take some costs into account.

The RA said it wants to address of risks of anticompetitive conduct by companies with “significant market power” (SMP) through the principle of “cost orientation”. To this end, the regulator intends to “monitor the market and assess over time whether the prices charged by SMP operators are reflective of the operators' costs of providing the services, including the cost of capital”.

Another concern of the regulator refers to wholesale accessibility and pricing. This refers to when smaller operators, who wish to provide retail telecoms services, buy access to the dominant players' networks.

The RA is insisting that this access should be given on “fair, reasonable and non-discriminatory” terms.

The RA wants to oblige the major players not to impose a “margin squeeze” and so will monitor the difference between retail prices and wholesale access costs, which the regulator says “must be large enough to cover retail costs plus a reasonable profit margin”.

Restriction to network access for competitors, or unfair wholesale pricing, can harm consumers by limiting the scope for competition, the RA argues.

To monitor these two areas of focus, the RA is demanding that Digicel and OneComm provide more detailed information on financials and the quality of service that consumers receive.

For example, broadband market remedies it lists include an obligation to offer broadband on a stand-alone, or unpackaged, basis; accounting separation, ensuring that prices are cost-oriented and an obligation to publish key performance indicators.

Such KPIs include the average achieved broadband download speed for each tariff and the number of customer complaints, categorised by topics such as reliability, speed, contractual terms, or overbilling.

The RA argues that publication of KPIs will give consumers information on quality of service and encourage competition on service quality grounds.

The RA said there had been much consolidation since its last electronic communications market review in 2013, and that Digicel and OneComm each had a market share of close to 50 per cent, as of late 2017.

In the review, the RA said: “A key concern is that in the absence of alternative competitors, players that hold a position of SMP in a market (or where two companies jointly have SMP) would be in position to set high prices and achieve excessive profits, to the detriment of consumers in Bermuda.”

It added that the dominance of the two major carriers had historically led to high retail prices relative to comparable countries, excessive profitability for the dominant companies, and difficulties for rival companies in gaining significant market share.

However, the regulator conceded that significant network upgrades had resulted in a better deal for some consumers, with many seeing much higher download speeds for the same price.

The RA added that network investments did not guarantee greater competitiveness and that it had “no conclusive evidence to suggest that Digicel Group and OneComm are now charging prices at acceptable levels relative to costs”.

The RA added: “The concern around joint SMP is not simply about individual instances of contestability but about the stability of a market structure that gives rise to the risk of tacit coordination.”

This did not imply that there was illegal collusion between the dominant players, the RA added. But the review highlighted identical pricing for similar fibre broadband packages at three different tariffs offered by the two carriers, suggesting a lack of genuine competition.

“Therefore, the RA continues to hold the view that while market outcomes may have improved in the last few years, there is currently significant evidence indicating that a number of markets, including broadband and mobile, are not effectively competitive,” the regulator added.

It detailed “excessive retail pricing” as a concern in the broadband, mobile, fixed-voice and high-speed business services outside Hamilton categories.

A Digicel representative said: “To be clear, we strongly disagree with the RA and have filed an appeal in that regard.

“Indeed The RA's 2017 review of the electronic-communications sector (paragraph 135, Figure 5.10) confirmed that fixed fibre broadband price in Bermuda was in the mid-range.

“This is despite the fact that Bermuda is recognised as one of the most expensive countries in the world to live in and its geographical location ­— in the middle of the Atlantic — contributes to a high cost of service provision and an overall increased cost of doing business.

“With the market highly competitive, Digicel prides itself on providing world-class network for mobile, broadband and entertainment services; our investment of $50 million in our LTE network and fibre roll out is testament to that commitment.”

A spokeswoman for OneComm also pointed to its infrastructure investments and the benefits for customers.

She said: “Significant investments in our networks, including our FibreWire infrastructure, has dramatically increased the speeds experienced by the end user, and decreased the cost of internet in Bermuda.

“In 2013, 25Mbps internet cost $240 per month, whereas in 2020, 25Mbps has now decreased by over 66 per cent with a cost of $80 per month.”

She cited an article in Wednesday's The Royal Gazette, which reported that a global survey had shown that “Bermuda has jumped up on the global rankings and is now listed as 17th for broadband speeds with a mean speed of 73.6Mbps, ahead of the US, Britain, Canada, and all but one of the Caribbean nations”.

The spokeswoman added: “We expect that competition and advances in technology will continue to moderate prices to the benefit of the consumer.”

The appeals filed by Digicel and OneComm are pursuant to the Regulatory Authority Act 2011, section 96, which permits anyone aggrieved by an RA decision to appeal to the Supreme Court.

See the full Regulatory Authority document under the heading of Related Media on this webpage

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Published September 25, 2020 at 9:00 am (Updated September 25, 2020 at 9:56 am)

RA: prices for internet, mobile ‘excessive’

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