Political cell-out

Government should have seen the Claro-Digicel fight was a penis-size contest from the get-go, and Jamaicans got screwed.

Gordon Robinson, Contributor

There's been lots of clueless claptrap bruited about regarding former Prime Minister Andrew Holness' decision to alter the terms of his predecessor's approval of the Digicel-Claro merger.

The most revolting development is that most commentators have ignored or trivialised the part played by Phillip 'NetServ' Paulwell in Young Andrew's decision, despite Paulwell admitting publicly that he was fully consulted and had no difficulty with the decision, which, in fact, he supported.

Jamaica seems forever enslaved by its obsession with a game called political football. Principle seems immaterial. Despite the apparent haste by party sycophants to blame Young Andrew, blame is irrelevant to the fundamental principles at play here.

First, when is a merger a merger? The Oxford Advanced Dictionary defines 'merger' as 'the act of joining two or more organisations or businesses into one'. If we accept this as a working definition, at least linguistically, the condition of separation imposed by Driva was an extraordinary condition. Further, a merger of two businesses so that they remain separate makes no commercial or common sense.

In the real commercial world, mergers are driven by the reduced costs and increased revenues expected from the symmetries of two formerly separate organisations. All mergers are acquisitions, but all acquisitions aren't mergers. A company may acquire another to be added to a group of companies if the acquired company brings something new to the group. But, where companies conduct identical business, keeping them separate defeats the purpose of acquisition.

This is confirmed by Business Link, a UK government agency formed to advise small businesses. On its website, the introduction to a section titled 'Mergers and Acquisitions' states: "Common ways to expand your business include making a strategic acquisition or merging with another business.

An acquisition is when you buy another business and end up controlling it.

A merger is when you integrate your business with another and share control of the combined businesses with the other owner(s)."

The problem people are having with the Holness-Paulwell amendment is that it appears to reduce competition. This brings us to the second fundamental principle, which is the need for strict, professional regulation of our telecoms sector. Why did Claro apply for a Jamaican licence in the first place? What due diligence was done before that licence was granted? Was the increased competition thereby 'created' but an illusion?

When The Telecommunications Act was passed, its objects, inter alia, were expressed as follows:

To promote and protect the interest of the public by (i)

promoting fair and open competition in the provision of services ... .

To promote universal access to telecommunications services for all persons in Jamaica.

The Office of Utilities Regulation (OUR) was appointed as putative regulator of the industry, but insofar as the issuing of telecommunications licences were concerned, the OUR's function was subservient to the political directorate as follows:

"4(1) ... The Office shall -

(b) receive and process applications for a licence under this act and make such recommendations to the minister in relation to the application as the Office considers necessary or desirable.

... (f) promote competition among carriers and service providers ... ."

The final decision to grant telecommunications licences is political (the minister), not regulatory (OUR).

Regarding what has loosely been called a 'merger', Section 17 of the act provides for the total exclusion of the OUR and the Fair Trading Commission (FTC) from such a process. It provides, in part:

"17(2) A licensee may, with the prior approval of the minister, assign its license or any rights thereunder or transfer control of its operations."

Obviously, Driva approved one of these mechanisms. The public has been told it was a 'merger'. Digicel already had a licence, so didn't need another one.

Commercial common sense dictates that Claro decided to 'transfer control of its operations', which would mean that Digicel still held only one licence, thus making Driva's condition impossible of rational performance.

In either case, what we as a people must look at is the process by which this 'competition' was created, and, within a brief time, destroyed. Was any long-term commitment pried out of Claro (formerly MiPhone) before its licence was issued by the Government? Did MiPhone (or Claro) pass due diligence as being likely to provide the necessary long-term competition? Did anybody perform any due diligence regarding the past relationship between Digicel and Claro to find out if there was some reason for Claro's application other than to provide "fair and open competition" or "universal access" to the Jamaican consumer?

A hint can be found in an excellent research paper produced by University of Technology's Paul Golding, Terry-Ann Virtue and Vanessa Tennant (also of the University of Canterbury, New Zealand) titled 'Telecommunications in Jamaica: Monopoly to Liberalised Competition to Monopoly (2000 - 2011) in which they trace the development of our telecoms market, over that crucial decade or so. It'll be clear to all who take the time to read this paper that the 'problem' of the Digicel-Claro merger was on the cards long before Young Andrew, with Paulwell's full support, made the much-maligned adjustment. This merger was born in the origins of our liberalised market; the way in which 'competition' developed; and the short-sighted way in which licences were issued.

lacklustre appearance

According to the research paper, MiPhone (formerly 'Claro') was always 100 per cent owned by a company called Oceanic Digital Communications (ODC), which had been a 49 per cent owner of Claro. The 2002 rebranding to MiPhone came about after the 51 per cent shareholder handed over its shares to ODC. Initially, MiPhone's operations in Jamaica appeared lacklustre, focused as it was on metropolitan areas alone. It appeared anxious to distinguish itself from Claro and it lagged behind Digicel's islandwide coverage. But, in 2007, Claro entered Jamaica with a purpose via the sale of MiPhone to Claro's parent, Amearica Movil, and the muscling in on Digicel's markets not only in Jamaica but elsewhere, was suddenly very much on the front burner.

At Claro's Jamaican launch, The Gleaner reported: "Claro Jamaica CEO, Alejandro Gutierrez, indicated that Jamaica would be the launch pad for the United States and the United Kingdom. According to Gutierrez, the company planned to be number one in the Jamaican market within three years."

Why the sudden interest in Jamaica, the US and the UK?

According to Golding, Virtue and Tennant, "Claro's entry into the Jamaican market was much anticipated with an expected racheting up of competition. While America Movil wouldn't comment, industry sources indicate that the company's entrance into Jamaica was in response to Digicel's entry into El Salvador and Honduras."

Was this much-ballyhooed Claro competition in Jamaica nothing more than a penis-measuring contest between two corporate giants? Since you won't stay out of my yard, I'll come play in yours? What did Driva do to protect the Jamaican consumer from being mere pawns in this muscle-flexing contest?

Golding, Virtue and Tennant went on: "Claro wasted no time in undertaking a massive network expansion plan ... to take on Digicel and LIME ... . Claro brought a new confrontational ... style of advertisement to the Jamaican market, a style ... more typical of a USA general election campaign ... . Prior to Claro's entry... , this belligerent style was unheard of in Jamaica. Jamaican advertising is typically British, polite and conservative. Claro ... made clear reference to Digicel in its advertising. Claro painted Digicel as old, misleading and overpriced in its call charges to customers."

Remember 'Swaggerific'? It took Claro less than three years of these tactics before a deal was struck for each to leave the other's yard. Why didn't our Government see this coming? What was Driva thinking when he insisted that Digicel keep the Claro brand? Surely, by then, he knew the history and the game that was being played out right before his eyes? If not, he's Jamaica's most inept prime minister.

Worse, in my opinion, Driva had no power to impose such a condition. Under Section 17(3) of the act, the minister is required to grant approval to a Section 17(2) application (see above) once satisfied that the transferee (Digicel) meets certain requirements of the act.

"17(3) An application for approval of an assignment or transfer under this section shall be made in writing to the minister, who shall grant such approval if he is satisfied that the assignee satisfies the requirements of Section 11(1) (a) to (b) as regards the obligations imposed on a licensee by this act or the licence."

Section (11) (1) (a) requires that Digicel undertake to comply with the provisions of the act relating to the lawful operations of licences held pursuant to the act, including network expansion.

Section 11(1) (b) requires that Digicel is not disqualified from being granted a licence under the act by reason of any legal impediment.

geographic penetration

Since Digicel already holds a valid telecommunications licence, it had already passed these tests and, in relation to network expansion, has more than 95 per cent geographic penetration for the benefit of users throughout Jamaica. Digicel holds valid carrier, service and spectrum licences under the act.

Apart from the foregoing, there are no other provisions under the act requiring the minister to consult with the FTC or OUR in relation to a licensee's assignment of licence or transfer of control of operations.

So, there's NOTHING IN THE ACT giving Driva any authority to impose any obligation on any transferee (in this case, Digicel), save and except an obligation relating to that already imposed in Digicel's licence. Why did he impose this silly, impossible condition? What was he trying to achieve? And what took him so long? Did the identity of Claro's legal representative, with whom he was having a personal legal contention at the time, factor at all? I hope not, because then he'd go down as Jamaica's most petty prime minister.

When the matter was brought before Young Andrew, he had no choice but to act as he did, and Phillip Paulwell unhesitatingly gave his support. Why then are we barking at Andrew Holness for simply accepting the inevitable? We should be aiming our ire at a regulatory system that puts politics over professionalism and insisting that a proper system be set up, removing the grant of telecoms licences from the political directorate. Any bets as to whether this new government will make any change?

Peace and love.

Gordon Robinson is an attorney-at-law. Email feedback to columns@gleanerjm.com.