Friday, September 16, 2011

Telco Collusion: Multimedia & Communications Act 1998

I had issued a statement on 13th September that the mobile telecommunication companies should be warned by the Government for attempted collusion and price-fixing which is in breach of the Competition Act 2010. However concrete actions could not be taken as the Act has an 18-month grace period, and will take effect only from February 2012.

However, it has been pointed out to me that the telecommunication companies could be prosecuted for the same offence, which is provided under the Communications and Multimedia Act 1998.

Under Part IV (Economic Regulations), Chapter 2 (General Competition Practices) Clause 133, telecommunications operators are prohibited from “entering into collusive agreements”. It says that
A licensee shall not enter into any understanding, agreement or arrangement, whether legally enforceable or not, which provides for —
(a) rate fixing;
(b) market sharing;
(c) boycott of a supplier of apparatus; or
(d) boycott of another competitor.
The Act also specifies the penalty whereby a person who contravenes any prohibition under this Chapter commits an offence and shall, on conviction, be liable to a fine not exceeding five hundred thousand ringgit or to imprisonment for a term not exceeding five years or to both and shall also be liable to a further fine of one thousand ringgit for every day or part of a day during which the offence is continued after conviction.

Last week these companies had said in a joint statement that purchases of prepaid reloads and prepaid starter/SIM packs the 6% service tax which has been absorbed by the companies since 1998 will be passed on to the consumers effective September 15th.

While the telecommunication providers had every right to decide as to whether to absorb or pass on the service tax to consumers, the fact that the statement was issued jointly meant these companies – Maxis, Digi, Celcom and U-Mobile were colluding to increasing the prices of their services concurrently, to increase the profits for all parties, without fear of any of the companies keeping lower prices to eat into the customer base of the others.

There is no question that the joint statement and attempt by the four telecommunication companies to raise prices by the same percentage concurrently is illegal because they are colluding to form a cartel for the purposes of price-fixing. If the companies are not allowed to collude, due to the competitive nature of the industry, it will be highly likely that the prices will not be increased by any of these companies, for fear of losing market share to the other companies.

Hence it is clear that while the Competition Act 2010 may not yet be in force, the Government can enforce the Communications and Multimedia Act 1998 and throw the book at relevant telecommunication licensees. The regulator Malaysian Communications and Multimedia Commissionn (MCMC) must act to demonstrate that it acts in the interest of Malaysian consumers and is not sleeping with the enemy.
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