A discussion of some of the reasons why telecoms rates have been increasing in the Caribbean.
While most of us are still trying to find our groove for 2017, some telecoms carriers and service providers have already announced rate increases for some of their services (see our latest news roundup). More are likely to come before this year ends. In Caribbean countries, where exclusive monopolies no longer exist, and there is competition and regulation, there might be a sense of betrayal regarding those price hikes by consumers and policymakers alike.

One of the major selling points made to countries for them to abandon exclusive monopolies in favour of open competition and regulation, is that competition drives down prices, and regulation can provide safeguards in circumstances when there is inadequate competition. However, based on the rate increases that have been occurring across the Caribbean, some of us might be wondering whether the reported benefits of competition and regulation are indeed true. Here, we discuss a few of the reasons why we have been experiencing rate increases for some telecoms services in the region.

It all starts with the legal and regulatory framework

Ideally, when there is effective competition in a market, there is no need for regulation. Market forces will drive the behaviour of the players – to the benefit of the market itself and consumers. Traditionally, some telecoms market segments, such as mobile//cellular services, are immediately attractive to investors, and have competition through multiple players. Others, such as fixed-line telephony, were likely to remain the domain of the incumbent carrier. As a result, many countries adopted the position that in segments where competition was expected, there would be limited regulatory intervention and market forces would decide. On the other hand, in segments where there would be little or no competition, they would be under considerable oversight.

However, when one or more player in a competitive market – or in market that is under limited regulatory oversight, such as Internet service – decides to increase their prices, regulators may not have the authority, under the law, to require justification or mandate lower rates. Hence, when such situations occur ,and policymakers are denouncing those rate increases in the media, or scrambling to use moral suasion to convince the telco to change its mind, and those efforts do not work, the law may actually be on the side of the telco.

“Competitive prices” does not automatically mean low prices

In setting a price for a particular good or service, the seller is expected to be able to recover the cost of supplying that good and service, along with securing a reasonable return on its investment (ROI). In a competitive environment, generally, the dynamics of the market tends to drive players to optimise their systems and processes, which can result in lower prices for consumers. However, what is sometimes overlooked is the fact that the cost of doing business can increase over time.

Many factors tend to contribute to the cost of doing business, including but not limited to, inflation, the value of the local currency, and the cost of inputs .It therefore means that with increased operating costs, even when the same ROI factor is maintained, the price payable by consumers will increase.

Although some players might have more wiggle room than others with respect to their cost of providing a service and the prices they set, ultimately, they all are affected by changes in the cost of doing business. Hence, it may only be a matter of time before those costs are passed on to consumers.

In summary, although the technology costs may be decreasing over time, that may not be enough to offset the rising cost of doing business in a country, which then results in increasing rates for telecoms services. Further, the legal and regulatory framework may permit those price changes, which may necessary for the business to be sustainable, and for the environment to remain attractive to investors.

 

Image credit:  Quinn Dombrowski (flickr)

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