11 July 2024

A hot debate has been raging in Thailand since the recent announcement of the plan to merge True Corporation, a subsidiary of conglomerate Charoen Pokphand Group, and Total Access Communication (Dtac), a subsidiary of Norway’s Telenor.

The experience of developed countries with telecom mergers may shed some light on the impacts from the proposed share-swap arrangement between True and Dtac to create a new tech company.

A report, “Static and Dynamic Effects of Mergers: A Review of the Empirical Evidence in the Wireless Telecommunications Industry”, presented at the Global Forum on Competition hosted by the Organisation for Economic Cooperation and Development (OECD) last year, looked at various studies and said the impact on prices for consumers was not clear.

The review looked at 18 empirical studies that assessed the short-term effects on price and long-term effects on investment levels of changes in market concentration in the wireless telecommunications industry. They primarily looked at a scenario of four operators being reduced to three after the merger.

Of the 18 studies, eight analyzed changes in market concentration across multiple jurisdictions between 2000 and 2015, while 10 studies that analyzed specific mergers were divided in their conclusions. About half of the 10 studies that looked at specific mergers found short-term prices decreasing after a merger, while the same number of studies found that short-term prices increased, says the review.

Even different studies of the same merger found wildly different impacts on short-term prices, ranging from significant price decreases to significant price increases. “Thus, looking at these price effects alone, the studies are, collectively, inconclusive,” says the review.

The specific mergers considered in these studies were: T-Mobile/Orange in Netherlands in 2007; Hutchinson/Orange in Austria 2012; Hutchison/Telefonica in Ireland 2014; and Telefonica/KPN in Germany 2014.

Studies of 5-to-4 mergers were T-Mobile/tele.ring Austria in 2006 and T-Mobile/Orange UK in 2010.

Inconclusive but useful studies

The review concluded that: “Four-to-three mergers appear to generate net long-term benefits to consumer welfare in the form of increased investment.”

Despite the lack of definite conclusions on the impact on prices after a merger, the studies have been useful. The value is in the factors that the studies identify or that can be identified from the studies, says the review.

It points out that when taken as a whole, the review reveals a number of factors that should be considered when seeking to understand the likely welfare effects of a given merger.

These include:

■ whether the effects to be evaluated are limited to static price effects or also include qualitative measures, such as capital expenditures and other investment in the quality of service, suggesting dynamic, innovation effects;

■ the timeframe over which the effects are evaluated;

■ the effects on different tiers of service measured by hypothetical consumption profiles or baskets.

Other factors are the presence or entry of mobile virtual network operators; the effects of different geographic circumstances or regulatory regimes on a given firm, and the extent to which the effects of previous mergers may confound projected effects of the merger at hand.

Moreover, attention must be given to whether a transaction occurs during, or even as part of, a transition between different generations of technology such as during an upgrade from 3G to 4G networks, the review says.

Researchers in developed economies have studied 5-to-4 and 4-to-3 merger scenarios, while in Thailand, if the True-Dtac merger goes as planned, the number of mobile operators will reduce from three to two, AIS being the other. Each camp is likely to have half of the market share. Critics worry it will lead to less competition, harming consumer interest.

  Stop ‘gun jumping’

Opponents pointed to antitrust benchmarks in advanced economies, which take telecom competition seriously.

Kanoknai Thawonphanit, a lecturer at Thammasat University’s Faculty of Law, urged the regulators to take immediate action in order to prevent the potential merger parties from exchanging trade secrets that could adversely impact market competition.

Kanoknai urged the Trade Competition Commission and telecom watchdog the National Broadcasting and Telecommunications Commission to address the so-called “gun-jumping” practice, which usually happens in the pre-merger period.

According to the OECD, when merging parties fail to notify a merger to the competition authority, implement all or a part of the merger during a mandatory waiting period, or coordinate their competitive behavior before closing, it is commonly called “gun-jumping”.

As an example, Kanoknai said that an exchange of competitively sensitive information is labeled as “gun-jumping” and regulators in the European Union and Germany used to enforce this prohibition rule.

Merger reasons unconvincing

Pornthep Benyaapitkul, an economics lecturer at Thammasat University, said that he did not buy the reasons cited for the merger by True and Dtac executives, which are to increase efficiency and reduce cost.

“If such reasons were stated to European regulators, they would be rejected,” he asserted.

Thanathorn Juangroongruangkit, former leader of the disbanded Future Forward Party, argued that no developed country allows mergers among big players which would shrink the number of players to only two.

By Thai PBS World’s Business Desk