TWO YEARS after the EU-imposed liberalisation, the telecommunications market, despite the entry of other providers, essentially remains a CyTA monopoly. These two years have been marked by constant wrangling between the head of the Competition Commission, Christodoulos Tselepos, whose brief is to open up the market to other companies, and CyTA doggedly resisting all attempts aimed at loosening its stranglehold on the mobile and fixed telephony market. As part of this ongoing feud, the Commission imposed a £20 million fine on CyTA – overturned by the courts on appeal – while several warnings about the delays in opening up the market have been issued in the past by Brussels.
The latest instalment of the Tselepos-CyTA confrontation centred on the mobile telephony charges (pre-paid), which the authority reduced on April 1 from six cents per minute to 3.9 cents, wiping out the price advantage of its competitor, Areeba, which was charging 3.6 cents. Tselepos, justifiably, concluded this was an abuse of the authority’s dominant position and would prevent Areeba from gaining a reasonable market share. At present, CyTA has 96 per cent of the mobile telephony market, which is a monopoly, and the head of the Competition Commission reasoned that, with the lower rates it introduced, it was squeezing prices and nobody would have any incentive to switch to Areeba.
CyTA’s monopoly would thus be maintained and Areeba would eventually be forced out of the market, after investing millions of pounds to secure a share because free competition had been stifled. Faced with this prospect, Tselepos sought to investigate the authority’s pricing calculation, ignoring the fact that the Telecommunications Regulator was satisfied that the new rates were not below cost and aimed at undercutting the competition. Tselepos’ office consequently secured a court order against CyTA by which the authority was obliged to impose its old rates (6 cents per minute) until it could investigate the new rates. In a sense it was playing for time.
On Wednesday, as if to underline its bad faith, the CyTA board announced that it would ignore the court order and maintain the new competitive prices, because this “served the public interest”. An announcement, issued by the board to this effect, read more like a populist mission statement, as it promised to “administer the national wealth (its networks) ethically with responsibility and vision,” and to offer consumers “top quality services and competitive prices”. The board’s lawyers on Friday successfully appealed to the Supreme Court for the annulment of the interim court order and its suspension. Tselepos’ latest attempt to open up the market, by playing for time, was thwarted by CyTA.
CyTA has been comfortably winning its latest battle with Tselepos and its appeals to the public have worked very well. People are outraged that the Competition Commission is hell-bent on forcing CyTA to increase its mobile telephony rates when the current rates, are clearly to the benefit of the consumer. How are consumers, benefiting from competition, when the Commission is opposed to CyTA’s lower rates, is the question rightly being asked. Is it not a paradox that Commission is demanding higher rates? It is a paradox but the Commission has to take the longer term view. If CyTA keeps its lower rates, it will eventually drive Areeba out of business and there will be no competition. It will then be in a position to charge consumers any rates it chooses.
The assumption that CyTA will always behave like a benevolent monopoly, offering low rates does not stand up to rational scrutiny. In a couple years, with the competition wiped out, the government of the day may decide to privatise CyTA, and its shareholders could seek to exploit its monopolistic position in order to maximise profits. How would the consumers be protected, when there is no competition? A new board may also decide to maximise the Authority’s profits. But the existence of other providers, both in mobile and fixed telephony, would ensure against this happening. The CyTA board should bear this in mind, if it is so concerned about the interests of the consumers, instead of using its dominant position to stifle competition and maintain its monopoly. CyTA would lose very little by surrendering 20 per cent of its market share. Board and senior management are behaving as if maintaining 96 per cent of the market is a patriotic duty. They have even commissioned a study, jointly with Malta and Luxembourg, which concludes that in small states there cannot be real competition in the telecommunications market. This would be used to persuade the European Commission, which will prepare its 11th implementation report on Cyprus, that small markets cannot sustain more than one telecommunications provider.
It is a very dangerous game CyTA is playing and the government should consider the consequences of the Authority’s actions. The European Commission, which issued a highly critical implementation report in 2004, could be even more scathing this year, not to mention the possibility of huge fines being imposed on the government for its failure to open up the market to competition. Is it really worth Cyprus falling foul of the Commission and facing the prospect of paying millions of euros in fines (the taxpayer will foot the bill) so that CyTA can hold on to its 96 per cent share of the market? And do we really think we will convince Brussels that our authorities have opened up the telecommunications market to competition when the Authority’s monopoly remains intact?
