Business / Companies
'Econet new tariffs likely to create monopoly'
27 Aug 2013 at 04:29hrs | Views
THE decision by Econet Wireless to slash its tariffs by 60 percent may threaten the growth of the country's mobile phone industry by creating a monopoly, economists have said.Econet Wireless, Zimbabwe's largest mobile phone operator, reduced the cost of its calls to other networks by 60 percent.
The firm said the new tariff was unconditional and effective on all packages at all times of the day. However, the Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) has ordered the firm to reverse its decision.
The regulator argued that mobile phone operators must seek its approval first before implementing any promotions which have an impact on tariffs.
It said Econet had not been granted permission to offer the promotion in line with the laws governing the sector which demanded that mobile operators seek permission first before implementing any such moves.
In separate interviews on Friday, economists said Potraz was trying to create an even playing field for players in the telecommunications sector.
"We should appreciate that internationally, the telecommunications sector is being practised in terms of competition and regulation by authorities.
"In Zimbabwe it is not something new to have the telecommunications regulated.
"When you have a huge company like Econet allowed the freedom to reduce its tariffs, we have to question what impact that decision will have on the economy.
"However, I cannot deduce from afar the motive behind the move by Econet. But I think this is a mere strategy by the operator to protect its market share against rising competition and foster its dominance on the market through a sensitive selfish business motive," said an economist Dr Davison Gomo.
"It is a very normal practice for the regulator to look at why a huge company like Econet would want to reduce tariffs by 60 percent.
"And if Potraz believes it is not in the best interest of the economy, the decision has to be reversed because obviously it wards off other players through unfair competition creating a monopoly in local telecommunications industry," he said.
He said a monopoly works against the interest of the public and the economy. Dr Gomo said monopoly kills competition to some extent resulting in high pricing of goods and services as well as poor quality products on the market.
"Monopoly also destroys innovativeness by service providers or companies. With competition existing, companies become more innovative and strive to provide the best. Without monopoly, there is also a huge benefit of employment creation in the economy," he said.
Another economist Mr Kipson Gundani said Econet was doing predatory pricing which may end up creating a monopoly in the telecommunications industry.
"Potraz is very right because there is a predatory pricing mechanism that is being created which will lead to a monopoly as other companies in the sector would be forced to shut down.
"It is critical to consider that the country's mobile industry is an oligopoly market, making it very easy for a big company to drive off other companies out of business," he said.
An oligopoly market is an industry dominated by a few large suppliers. The spiral of predatory pricing, he said, causes price distortions in a particular industry.
An economic commentator, Mr Peter Mhaka, said from a layman's point of view there was nothing wrong with the slashing of rates by such a margin.
Meanwhile, Econet said in a statement on Friday that it would not back down over the reduction of tariffs. The mobile phone operator said it had written through its lawyers to Potraz that the decision to reduce the tariffs was within the laws and regulations of the country.
It accused Potraz of "overreaching its powers to operational issues" and that the regulator was trying to protect an unnamed operator.
Econet also said the regulator appears to have built up a record of bias.
"The country's largest operator is particularly unhappy over what it sees as Potraz attempts to stop it offering benefits to its customers.
"The refusal by Econet to stop giving the discounts to its customers above 50 percent is being taken on the basis of what smaller operators can afford rather than what is good for Econet customers. Econet argues that this is not for Potraz to decide," it said.
The firm said the new tariff was unconditional and effective on all packages at all times of the day. However, the Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) has ordered the firm to reverse its decision.
The regulator argued that mobile phone operators must seek its approval first before implementing any promotions which have an impact on tariffs.
It said Econet had not been granted permission to offer the promotion in line with the laws governing the sector which demanded that mobile operators seek permission first before implementing any such moves.
In separate interviews on Friday, economists said Potraz was trying to create an even playing field for players in the telecommunications sector.
"We should appreciate that internationally, the telecommunications sector is being practised in terms of competition and regulation by authorities.
"In Zimbabwe it is not something new to have the telecommunications regulated.
"When you have a huge company like Econet allowed the freedom to reduce its tariffs, we have to question what impact that decision will have on the economy.
"However, I cannot deduce from afar the motive behind the move by Econet. But I think this is a mere strategy by the operator to protect its market share against rising competition and foster its dominance on the market through a sensitive selfish business motive," said an economist Dr Davison Gomo.
"It is a very normal practice for the regulator to look at why a huge company like Econet would want to reduce tariffs by 60 percent.
"And if Potraz believes it is not in the best interest of the economy, the decision has to be reversed because obviously it wards off other players through unfair competition creating a monopoly in local telecommunications industry," he said.
"Monopoly also destroys innovativeness by service providers or companies. With competition existing, companies become more innovative and strive to provide the best. Without monopoly, there is also a huge benefit of employment creation in the economy," he said.
Another economist Mr Kipson Gundani said Econet was doing predatory pricing which may end up creating a monopoly in the telecommunications industry.
"Potraz is very right because there is a predatory pricing mechanism that is being created which will lead to a monopoly as other companies in the sector would be forced to shut down.
"It is critical to consider that the country's mobile industry is an oligopoly market, making it very easy for a big company to drive off other companies out of business," he said.
An oligopoly market is an industry dominated by a few large suppliers. The spiral of predatory pricing, he said, causes price distortions in a particular industry.
An economic commentator, Mr Peter Mhaka, said from a layman's point of view there was nothing wrong with the slashing of rates by such a margin.
Meanwhile, Econet said in a statement on Friday that it would not back down over the reduction of tariffs. The mobile phone operator said it had written through its lawyers to Potraz that the decision to reduce the tariffs was within the laws and regulations of the country.
It accused Potraz of "overreaching its powers to operational issues" and that the regulator was trying to protect an unnamed operator.
Econet also said the regulator appears to have built up a record of bias.
"The country's largest operator is particularly unhappy over what it sees as Potraz attempts to stop it offering benefits to its customers.
"The refusal by Econet to stop giving the discounts to its customers above 50 percent is being taken on the basis of what smaller operators can afford rather than what is good for Econet customers. Econet argues that this is not for Potraz to decide," it said.
Source - chronicle
