Friday, September 16, 2011

Batelco and Viva Received Notices by Bahrain’s T.R.A.


September 16, 2011

On Monday, September 5, 2011 the Telecom Regulatory Authority of the Kingdom of Bahrain (T.R.A.) said that it had issued notice to the Bahrain Telecommunication Company (Batelco) and the Saudi Telecom Company of Bahrain (Viva). This notice followed the implementation by the two companies of anticompetitive prices for international calls. For the T.R.A., these prices harmed consumers' interest. The third Bahraini mobile operator, Zain Bahrain did not receive any notice. Batelco and Viva compete in the market for international calls with Zain Bahrain and more than a dozen of other companies selling prepaid cards.

The T.R.A. said that it had concluded investigations about some complaints received from a group of licensed operators. The complaints affirmed that Batelco and Viva had launched anticompetitive pricing for mobile-originated calls towards Bahrain’s Zone 2 of the international calls market. Of the four international calls regions, Zone 2 is by far the most lucrative because it comprises Bangladesh, Sri Lanka, the Philippines, Pakistan and India. The reason is quite simple: According to Bahrain Census in 2010 the population accounted for 1.234 million of which 54 percent (666,172) was made up of non-nationals coming mainly from South Asia (in 2008 there were 290,000 Indian nationals, the largest expatriate group in the country).

The table above and the picture below give a very clear idea of the different relevance of the four international calls zones for Bahrain’s telecom operators.

The latest available data from the T.R.A. cover the period from 2005 to 2009, but given the nationalities of non-nationals in Bahrain, it’s quite probable that the trend has been the same also for the following years. And, as a matter of fact, during the considered timeframe, Zone 2 had experienced an 86 percent C.A.G.R., that was by far more than the double of the second best minute-consuming zone, which is Zone 4.
According to T.R.A.’s estimates in 2009 the overall value of telecommunications revenues was 338 billion Bahraini dinars ($896.7 million at the September 2009’s exchange rate)  of which more than one quarter was linked to international calls (26.1 percent) for an approximate value of 88.218 million Bahraini dinars ($260.24 million). Within the international calls markets, the lion’s share of the consumed minutes comes from Zone 2.

On August 23, 2011, under the Bahrain’s Telecommunications Law, the T.R.A. issued notices to Batelco and Viva. For the T.R.A., the two operators’ conduct engendered an abuse of dominance in the international mobile telecoms market not guaranteeing a competitive level playing field as it’s instead requested by the Bahrain’s Telecommunications Law.
The T.R.A. is scared that this pricing policy could really wipe out a free and fair telecom market and it opposes any reduction of the competition level in the telecommunications market.  Following the Telecommunications Law, when the T.R.A. detects anticompetitive practices it has to step in to protect consumers’ interest with the preservation of a fair and competitive market. Now, before issuing its final decision, the T.R.A. is waiting for Batelco's and Viva’s replies to the notices. Abdulelah Abdulla, the T.R.A. spokesman, said that the two companies had until October 13 to respond to the T.R.A. notice. If the complaint is upheld the two telecom operators will probable face some fines.
Immediately, on September 6, the two companies released a communiqué commenting the notice. “We look forward to the opportunity to outline our case to the T.R.A. and we are confident we will receive a fair hearing” affirmed Rashid Abdulla, Batelco’s C.E.O. in an emailed statement. Viva’s declaration acknowledged that "Viva Bahrain is collaborating with Bahrain’s T.R.A. on its investigation regarding alleged anti-competitive conduct and will provide its position to the T.R.A. in due course. Viva Bahrain believes that it acted within the limits of the telecommunication law and in the best interest of the Bahraini consumer."
In this regard it’s necessary to remember that as soon as last year, in February 2010, the T.R.A. introduced a new competition-based framework for the regulation of retail tariff. This framework paved the way for the deregulation of Batelco’s mobile tariffs and calls to certain international destination. On that occasion, Dr. Mohamed Al Amer, T.R.A.’s chairman and acting general director expressly said that “As competition develops, there is a point at which aggressive competitive behavior may damage the normal operation of market forces and may be detrimental to consumers. The competition guidelines launched recently are an essential instrument that offers guidance on where and how T.R.A. may draw the line between anticompetitive and pro-competitive behaviors and how we will deal with anti-competitive complaints.”
On July 29, 2010, the T.R.A. released the Order no. 3 of 2010 (Batelco’s Retail Tariffs of International Calls to India and Bangladesh) aimed at Batelco’s anticompetitive behavior in the international calls market towards India and Bangladesh. The telecom authority had received complaints from other licensed operators (O.L.O.s), which alleged that their revenues and traffic minute volumes for calls to India and Bangladesh had declined dramatically since April 2010. The added cause for this decline was, according to the concerned O.L.O.s, that Batelco’s retail tariffs were below cost. For the O.L.O.s, these tariffs created a margin squeeze and/or a predatory pricing. After some investigations, the T.R.A., in order to prevent the likelihood of irreversible and irreparable harm to competition in the telecommunications market, ordered "Batelco to immediately  increase its Effective Retail Tariffs to the Relevant Routes to be less than the Retail Price floor for the Relevant Routes until such time as the Authority notifies Batelco".
This time, it’s possible to assume that probably the regulator’s decision won’t be severe. But it’s likely to think of having both Batelco and Viva obliged to increase their prices. This will have an impact on their market share, but in the end a price increase could help them to boost margins.