In December 2023, Pakistan Telecommunication Company Ltd (PTCL) submitted a bid to acquire Telenor Pakistan. This proposed merger has since sparked debates about its implications for competition and consumer welfare in Pakistan’s telecommunications sector. With the Competition Commission of Pakistan (CCP) expected to rule on the matter by December 2024, the stakes are high.
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While conventional wisdom suggests that more market players mean better outcomes for consumers, this assumption oversimplifies the complex dynamics of highly capital-intensive industries like mobile telecommunications. A deeper analysis reveals that PTCL’s acquisition of Telenor Pakistan might actually benefit consumers by fostering a more balanced competitive environment.
Why the Telecommunications Market is Struggling: The Pakistani mobile telecom market is dominated by Jazz, which holds a disproportionate share of the market. Over the past decade, market competition has dwindled due to rising operational costs, fierce price wars, and the immense capital required to maintain and upgrade network infrastructure. Smaller players like Ufone and Telenor Pakistan have struggled to remain competitive, leading to reduced investment in quality and innovation.
The Case for Merging Ufone and Telenor: If PTCL acquires Telenor Pakistan, it will merge its mobile arm, Ufone, with Telenor. This consolidation would allow the combined entity to achieve economies of scale, making it a stronger competitor to Jazz. In an industry where size directly impacts the ability to invest in infrastructure and technology, this added heft could enhance service quality and affordability for consumers.
Lessons from the U.S. Market: For those skeptical of consolidation, the U.S. telecom market offers a compelling case study. When four major players consolidated into three, critics feared higher prices and reduced quality. Instead, the opposite occurred: increased competition among the remaining players drove improvements in network quality and innovative service offerings. Could Pakistan see a similar outcome?
Rethinking Competition Metrics: The CCP’s analysis must go beyond traditional metrics like the number of competitors or the Herfindahl-Hirschman Index. These tools, while useful, fail to capture the unique characteristics of capital-intensive industries. Instead, the focus should shift to market dynamics and the potential for mergers to drive competition through enhanced investment and innovation.
What’s at Stake?: The CCP’s decision on this merger will shape the future of Pakistan’s telecom sector. A ruling in favor of the acquisition could challenge Jazz’s dominance and reinvigorate competition. Conversely, blocking the merger might cement the status quo, leaving consumers to bear the brunt of limited choice and declining service quality.
As Pakistan awaits the CCP’s verdict, one thing is clear: this decision is about more than just numbers. It’s about crafting a telecom market that serves consumers, fosters competition, and invests in the country’s digital future. Will the CCP rise to the challenge? Only time will tell.