Competition Act: Monopolies Everywhere

From this weekend’s news:

The Competition Act and Anti-Profiteering Act to change the way business is conducted

THE Competition Act 2010 and the Price Control and Anti-Profiteering Acts 2010 will completely change the way business is conducted in Malaysia if fully implemented as expected by next year as they help pave the way for greater innovation and service to consumers at competitive prices.

The Competition Act 2010 took over 15 years to be implemented in Malaysia due to legacy issues such as industrial policies and protectionism given to selected industries such as the construction and transportation.

iPhone 4 Winners and Losers

This article had me grinning – the last line is sooo full of irony:

iPhone 4 launched by Maxis, DiGi; but which has better plans for subscribers?

PETALING JAYA: Hundreds of buyers queued for hours to get their hands on the newly launched iPhone 4 when it was up for grabs last week. Both Maxis Bhd and DiGi.Com Bhd launched Apple’s latest iPhone 4 last week…

…Teo, a first-time iPhone user, said she had been waiting for the phone ever since it was launched in the United States in the middle of the year.

Teo said she was attracted more by the “cool” aura that iPhones conveyed than the technology itself.

Hidden Monopolies

I wrote a post last year about Maxis offering the iPhone on an exclusive basis, tied to long term contracts. I haven’t changed my mind about the potential problems this brings to consumer choice and what it means long term for competition in the telecommunications industry in Malaysia, even as the local asking price of the iPhone has dropped and with DiGi coming in as a second provider.

My thoughts on the matter bear repeating:

We Want Competition! Don’t We?

I’m in sunny Kota Bahru today for an academic conference, and these two articles in the Star caught my eye on the flight over (excerpts):

Promoting competition

THE Competition Bill 2010, which was passed last month and expected to be implemented by mid- or end of 2011, is aimed at creating a better business environment and to check against anti-competitive practices.

The bill, once gazetted, will be known as the Competition Act 2010.

The bill describes the “process of competition” as encouraging efficiency, innovation and entrepreneurship, which promotes competitive prices, improvement in the quality of products and services and wider choices for consumers.

“In order to achieve these benefits, it is the purpose of this legislation to prohibit anti-competitive conduct,” it says in the bill.

...which strongly contrasts with this one...

SMEs: Sugar ruling will hamper business

JOHOR BARU: Small and medium enterprises (SMEs) are equally bitter with a proposed ruling that requires them to buy sugar only from designated wholesalers.

The proposal by the Domestic Trade, Cooperatives and Consu-merism Ministry would create more bureaucracy and hamper business, said Malaysia SME Association deputy president Teh Kee Sin.

He said such a ruling would create more hassles, affect business and limit the supply of sugar for SMEs, especially those in the food manufacturing sector.

“I will not discount that SME businesses will resort to buying from the black market should the Government impose such a ruling,” he told The Star here yesterday.

The ministry’s proposal comes amidst an impending boycott by about 20,000 members of the Malaysian Federation of Sundry Goods Merchants’ Association over the licensing rule to sell sugar and other essential items.

On the one hand, we finally have a major piece of  legislation that mandates a level playing field in all business ventures (GLCs not excepted), and is also one of the keystones for the foundation of the New Economic Model.

Then, right at the same time, we have a major ministry proposing a non-price rationing mechanism (which is what licenses are), as well as sanctioning the creation of an monopolistic/oligopolistic cabal in sugar distribution.

I mean, what’s wrong with allowing the price mechanism to ration supply? Especially since Teh is as good as saying that SME sugar consumers are willing to pay higher for a steady supply.

The irony would be really funny, if it weren’t so infuriating.

Maxis, iPhone and competitive markets

I'm going slightly off topic with this post, but since it's something I feel strongly about, I think it's justified.

The Star reports that the Apple iPhone will be launched on March 17, and only available with 6 month/24 month contracts through Maxis. I have nothing against the iPhone per se - it's a nice piece of hardware and engineering - but I truly deplore the idea of lock-in contracts, subsidised hardware, and exclusivity. The cheapest plan requires a monthly commitment of RM100 for 24 months, on top of the phone price of RM1900/RM2290 (8GB and 16GB models), and this comes with 333 minutes talk time and 500MB of data (full details of rate plans here). If you are already a Value Plan subscriber the phone costs RM2,540 for the 8GB model and RM2,960 for the 16GB model.

My opposition to this is that the way this is structured constitutes monopoly behaviour and restricts consumer choice. All the telcos have shifted to this model for wireless broadband modems, so the business model itself is nothing new. But putting it into practice with handphones is in my view a dangerous precedent, because that takes the business model mass-market. Here's my take:

1. Lock-in contracts means customers can't leave a telco without paying a hefty penalty.
2. Subsidised hardware distorts the price signals for handsets. Check out the difference between the new customer prices and old customer prices.
3. Exclusivity is market distortionary as well - want the iPhone? You have to be a Maxis customer, and never mind their service level. I can't confirm the exclusivity aspect, but I suspect it's there as that has been Apple's standard practice in every market they've tried to enter.
4. As a result of all the above, both Maxis and Apple will gain monopoly profits.
5. The incentive for maintaining after-sales customer service is substantially reduced.
6. The pressure to compete on price and service as far as voice and data are concerned, is also substantially reduced.

My biggest fear is that the iPhone deal will force other handset makers to follow suit - want a Samsung Omnia? Go to this telco. Want a HTC Touch Pro 2? Go to this telco. Want the latest, greatest Nokia? Go to this telco. The market becomes defined not by who has the best or cheapest service, but rather who has the best subsidy and hardware. If consumers were fully rational in the economic sense and take into account the total cost of a contract, this business model would never get off the ground. But the lower upfront costs relative to unsubsidised hardware seriously colours consumer perceptions, and we contribute to reducing competitive pressures in the market.

This business practice is one American import I truly wish we didn't get. Look at the structure of the US telco market - choice of handsets are far more restricted; services and features are defined by what telcos want to offer, not what the hardware can handle; and the pace of innovation is slow. France did the right thing in forcing Orange to supply iPhones unlocked and unsubsidised - I wish we had done the same.

Update:

Hah! Someone agrees with me:

"I think American cellular customers, businesses especially but also individuals, are not well served by linking handsets and carriers so tightly. Is it going to change? Not likely. Unless consumers speak up, Americans will probably continue to get second-rate cellular forever."

and:

" I do not know how we end these subsidies. I do not expect the government to intervene, though I do wish the FCC would take a deep breath and show some gumption for a change...Hardware subsidies by wireless carriers are anti-customer and need to stop. Wireless hardware and services should be purchased separately, which will lead to enhanced competition in both areas and wider choice/lower prices for customers."

And this link goes to a study of the American cellular industry that supports the contentions in this post.