A discussion of some of the pros and cons of governments trying to protect locally-owned telecoms or tech businesses in markets that also have foreign-owned firms.


In the Caribbean telecoms space, much of the focus tends to be on the major telecoms carriers,  Digicel and Flow. We are preoccupied with their every move, and their plans and strategies in  individual countries and the region as a whole. However, it also means that to a considerable degree, the other players get little or no attention – by us, consumers, but also policymakers and regulators.

Further, many Caribbean countries pride themselves on having telecoms environments that aim to support competition; and when competition is considered inadequate, having systems in place that permit regulatory intervention. However, this open and competitive environment can mean that smaller players, which frequently are locally-owned, and not as well resourced as the major regional carriers, struggle to survive.

This conundrum, was the source of concern for the Leader of the Opposition in the British Virgin Islands (BVI), Andrew Fahie, who was of the view that the Government and the local telecoms regulator, the Telecommunications Regulatory Commission (TRC),

…should formulate regulations and legislation to protect local companies, adding that a special incentive should be provided to the only telecom company that is fully owned by locals”:..

…As a government, we have to continue to massage our regulations – massage our laws so that we can help our companies to get to be able to compete. That’s how this territory was built, in making sure that our people get a little hand up – not a hand out…

…I know that I am gonna get some lashing in the public as the Leader of the Opposition here battling for CCT. I am battling for my people, but not to give them an unfair advantage. But we have to find some incentive to help them. Flow could take up here now and go. Digicel could take up here now and go, but it’s not so easy for CCT to take up and go.”

(Source:  BVI News)

The statements made by Mr Fahie have been receiving wide debate in the BVI. However, whether or not locally-owned firms, generally, should (somehow) be protected, is an issue that has reared its head at one time or another not only in Caribbean countries, but also internationally. Below we examine a few of the arguments that can be raised on both sides of the issue.

First, and in many instances, the local firms were the pioneers: setting up shop in a particular industry or offering specific services, when no foreign investors were on the horizon. However, emboldened by the success of those local firms, many of those foreign investors eventually entered the market, and realised resounding success. However, it could be argued that the now changed playing field should not automatically mean that local players – the pioneers – ought to be pushed out, or allowed shut down, just because a higher stakes game now exists.

On the other hand, consumers tend to have a difficulty with the lower quality offerings and/or service, which is frequently the case with the local telecoms or tech firms, when compared with those from international firms. As a result, consumers, who are also taxpayers, they tend not be thrilled for their hard-earned dollars to be spent propping up firms that cannot deliver products or services to standards now expected.

Second, consistent with the point made by the Opposition Leader, the local-owned firms have roots in the country, which can provide some degree of stability and predictability. With foreign-owned firms, there is alway a fear that they will pull up stakes, thereby abandoning workers and consumers, and causing considerable disruption in the industries they serve, especially when they are the main or largest player. Hence in policymakers finding a way to support local businesses, they could be shoring up a potentially major collapse of a market if foreign-owned firms decide to leave.

However, can we as countries that strive to have open and competitive economies still want to keep protective measures, even if they are for locally-owned firms? Wouldn’t that not be the flipside of the same coin that led to us having protected monopolies in the first place? These monopolies, some of which were (and still are) state-owned, were inefficiently run, expensive to consumers, offered poor quality services, but still allowed to be profitable, or were guaranteed a specified return on investment. More importantly, those challenges in the telecoms sector were hindering country competitiveness, and economic growth, and were the impetus for the liberalisation process that occurred, for through which we are now enjoying lower rates, improved quality services, and in some instances, greater choice of providers and services, to name a few.

In summary, the above are just a few of the arguments both sides can raise, some of which – depending on which side you are on – may seem more compelling than the other. However, the above problem also speaks to a bigger issue: how can locally-owned businesses truly be successful in open and competitive markets? Further measures that seek to protect locally-owned businesses could be considered discriminatory, which could ultimately undermine investor confidence and much of the progress that have been made, thanks to competition.

 

Image credit:  OiMax (flickr)

________________