Mergers in small jurisdictions

The announcement of the proposed merger of Vodafone Malta and Melita has given rise to various comments and opinions.

It is important to look at mergers on a case-by-case basis. Each merger has different possible benefits and costs. The size of the jurisdiction is a major consideration, as is the sustainability of the singular or combined operation, the potential for future investment, the innovation prospects arising from the merger as well as the cost savings.

I have had the privilege of deciding on a similar telecom merger in a smaller island jurisdiction – Bermuda – and various lessons can be drawn.

The public interest has to be an important consideration. The following, in my experience, encapsulates what public interest considerations in this sector should include: (a) Ensure access to reliable and affordable electronic communications services (b) Enhance Malta’s competi

tiveness globally (c) Encourage development of the sector, consumer choice and innovation (d) Promote orderly development of the electronic communications sector (e) Encourage development and maintenance of resilient and fault-tolerant communications; and (h) Promote investment in the sector to stimulate the economy. Particular to small markets like Malta, one usually finds gains in efficiency improve customer benefits. For example, the more customers join a particular mobile network, the more valuable it becomes to those customers as they can contact more people for lower prices (on-net) in more locations as the network expands.

There also tends to be a more pronounced positive impact of mergers on small economies than in larger states.

However, there are naturally concerns about merging Melita and Vodafone, because of fears the loss of a mobile player could result in less choice alongside higher prices.

It is up to the authorities investigating the merger to put into place safeguards and remedies to avoid this happening.

In many countries where the number of mobile operators has come down, like Germany and Ireland, the remedies sought by regulators seek to make sure that prices will not go up postmerger.

Some have also pointed to the Austrian experience arguing that after the number of mobile players in the market came down, prices rose. However, others argue (and some from within the Austrian Regulatory Authority itself) that prices did go up but suggest that it had nothing to do with mergers and more to do with the auction of new spectrum by the Vienna authorities. Other studies found that not only were there no merger-related price increases in Austria, but that the merger led to more consumer benefits through the rapid roll out of 4G technology.

Malta’s authorities need to study the finances and business plans of both entities separately pinned down to ensure the customer also benefits from these savings.

As part of their deliberations, the authorities ought to consider new forms of telecoms competition, from over-the-top services like Facebook Messenger, WhatsApp, and the rising costs of premium video content, which is driving data usage among consumers.

Telecoms companies are also faced with the expensive prospect of rolling out 5G and Gigabit-capable broadband. The costs involved need to be looked at closely and assumptions made in the light of the proposed merger. Malta cannot be allowed to lag behind in technological innovation and its islandwide implementation.

Maltese authorities can also use this process to check that the market as a whole will continue to serve the interests of the island.

One hopes that the present international connectivity provided by both companies will not only be sustained but also enhanced.

This could also be an opportunity to initialize mast sharing, ensuring better connection for the whole population by eliminating any blank spots.

Fair allocation of spectrum is also key to maintaining a competitive market. In its paper on this merger published in its website, the Malta Communications Authority rightly states that a detailed stock-take needs to take place subsequent to a positive MCCAA ruling. In the interests of consumers, innovation and Malta’s competitiveness, a better scenario would have demanded this merger to be investigated by the technical authority MCA with competition powers like in many small jurisdictions or at least a joint MCA-MCCAA task force.

Malta is a small jurisdiction, which needs to ensure its telecoms operators have a sustainable future and are able to invest in the new technologies that will enhance the lives of Maltese consumers. This must be balanced with the requirement for long-term, healthy competition that will drive innovation.