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Telstra’s PNG mobile monopoly is no cakewalk

Telstra_acquires_digicel_pacificKEITH JACKSON

NOOSA - On Monday 25 October, the giant Australian telecommunications corporation, Telstra, announced it was buying Digicel Pacific, the dominant mobile network operator in the region.

Digicel owns the biggest telcos in Papua New Guinea, Nauru, Samoa, Vanuatu and Tonga and the second biggest in Fiji.

On the surface it seems it has struck itself a good deal for itself, paying $270 million (K700 million) of the $1.6 billion (K4.2 billion) total.

The Australian government had stumped up the balance of K3.5 billion, and given Telstra 100% ownership.

“The deal is certainly an attractive one for Telstra,” writes Prof Stephen Howes, in DevPolicy Blog, “But does it make sense for Australia, and for the Pacific?”

Howes - director of the Development Policy Centre and a professor of economics at the Australian National University - is one of the leading experts globally on PNG affairs.

And his concern was that the sale of Digicel, the Irish company that had transformed telecommunications in the Pacific, has 92% of PNG’s mobile phone market, virtually a monopoly.

Telstra would inherit this huge market power, which Digicel Pacific had exploited to make it a highly profitable company.

Howes’ conclusion was brief and blunt: “The decision to buy Digicel Pacific should be reversed.”

And if that could not be done, in return for the $1.3 billion Australian taxpayers had lavished on Telstra to de-risk its purchase, the federal government should compel Telstra to both return the funds it was given and also reduce prices and end the rip-offs so as to benefit its PNG customers.

One of the rip-offs is the practice of Digicel lending phone credit to its customers which they pay back at their next top-up.

Sounds like a good deal, but the effective rate of interest Digicel charges for this arrangement is a 17% - a week. “Which is equivalent to an unbelievable 351,200% a year,” Howes added, calling it a “predatory loan scheme”.

“Is this really the way in which Australia want to engage in the Pacific,” Howes asked rhetorically, “owning an enterprise that keeps prices high for consumers, and rips them off when they are desperate to make a call?”

Howes advice to Australia was to back competitors to Digicel and so “push prices down and improve services, not buying out the dominant player.”

It triggered an interesting discussion in DevPolicy Blog.

Paul Barker, executive director of PNG’s independent policy think tank, the Institute of National Affairs, and a 40-plus year veteran of the country, posited some of the challenges ahead of Telstra.

He pointed out that Digicel had spent a lot of money opening the PNG domestic market and had made its return on capital “by fair means or perhaps foul”.

But, Barker asked, “how does one break even on servicing the remoter centres?”

“The other companies currently and invariably will focus on the more lucrative hubs,” he said. “But PNG needs to keep the rural centres connected; they’re so abandoned by all other public and private goods.”

The Coral Sea Cable System

Barker concludes that Telstra has bought itself “a very unrelated mobile system and technology”.

Digicel has never bought used the Coral Sea cable linking PNG, the Solomons and Sydney, preferring instead to use less costly satellite providers.

This cable was completed in December 2019 after Australia successfully ousted China’s Huawei from building its own version.

The cable was two-thirds funded by the Australian government with the PNG and Solomons governments picking up the rest.

In PNG it’s operated by Dataco, a government enterprise, and controls the international cable gateway and also domestic cables.

“(This) should be an amazing infrastructure except it’s broken in a couple of places going into Lae and its services remote provinces without much purchasing power to pay above minimum prices,” says Barker.

He raises the interesting prospect of what Telstra’s relationship might be with Dataco and the Coral Sea cable.

“Dataco should be making access to international connections widely accessible and affordable, as promised,” he said. “But (Dataco) has a whopping debt to service with China Exim bank for the Kumul domestic submarine cable.”

Which brings forward the fascinating issue of China, which – wherever Australia looks around the Pacific these days – it sees.

“That Australia has bought Digicel shows the extent to which the Pacific is now viewed through a China lens,” writes Howes. “That’s unfortunate.

“China is a massive economic power. Its companies will have increasing stakes in economies around the world. That is a fact we have to accept.

“The Australian government also needs to decide if its only goal is to counter China or if it still seeks to promote Pacific development….. Here we are in 2021, rather than supporting greater competition in the telecom sector, subsidising the purchase of the incumbent monopolist.”

Korak Kataro agreed that the Digicel purchase was “a move to counter China’s emerging dominance in the Pacific” but said “certain segments of its business, such as the towers, should be looked into for local acquisition”.

Joshua Peki, who works as a technician in Port Moresby, pointed out that maintaining communications towers in PNG’s rugged terrain “is an expensive exercise” and said that at “most sites, the equipment (for) power generation has reached maximum change-out hours since installation.”

Joshua’s fear was that when Telstra encounters their costly replacement, the burden will be placed on the PNG people.

John Manau said Howes’ call for fair competition “is just what is needed in PNG” and Wilson Pakalu thought that “Telstra will do a better job in reducing internet prices and provide better and improved coverage to rural PNG. That is what we want in PNG.”

Assoc Prof Shailendra B Singh, head of journalism at the University of the South Pacific in Suva, said the purchase of Digicel would be “a win-win situation if Telstra is visionary, with a long term-view, instead of tempted by quick profits.

“Operating Digicel for the benefit of Pacific Islanders will win customer trust and loyalty for the long term, while still raking in healthy profits.

“There is no need for predatory practices which made customers resent Digicel,” he said. “Vodafone Fiji is reviled for similar deceptive tactics, while the Consumer Council of Fiji naps.”


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