The mobile telecom market can be usually approximated by an oligopoly. In an oligopoly exogenous shocks can create market disruption and generally reduce the overall market share of the existing players. Government laws that are recklessly introduced without taking into account these exogenous factors can inadvertently form entry barriers to local mobile telecom operators, in favor or “out of town” players, and result in business disruption that hurts the local market as well as the government’s objectives; and revenue.
This case study addresses a particular situation where a government needs to pass two laws affecting the local mobile telecommunciation market, which operates as an oligopoly : The first law raises the marginal tax rate for mobile calls hoping to help fill government coffers, while the second law outlaws the use of anonymous prepaid phones in an attempt to curb civil strife.
Local GSM Market Attributes
In the concerned market, prepaid users had the privilege of anonymity since there were no requirements for a particular prepaid subscriber to register his identification information when purchasing a prepaid card. Mobile operator administration costs were reduced considerably passing the cost savings to the subscribers.
Because of the low cost of prepaid cards and the privilege of anonymity, these calling plans were preferred by low income groups, immigrants and those that for whatever reason valued discretion. The country has about 13.5 million prepaid phones currently in operation making it a sizable and financially lucrative market segment.
Government Erected Entry Barriers for Local Mobile Operators
So through its policies the government created an entry barrier for local mobile operators prohibiting them from offering anonymous service while at the same time effectively raising the cost of mobile service. In other words the imposed legislation resulted in leaving a substantial portion of the market with an unsatisfied need: To have high quality cheap mobile voice communication with the option of anonymity.
Before the newly arrived legislation this segment was efficiently addressed by the local mobile players who had even created a company to specifically cater to this need. This company implemented the first national roaming function in the GSM world in order to allow its low cost anonymous prepaid subscribers to cheaply roam into other national – and international – networks.
International Mobile Operator Grabs Opportunity Offered by Local Market
As a response to such an opportunity, an international mobile player teamed up with a local retail chain and begun offering internationally numbered SIM cards which when mounted on the local mobiles would allow anonymity and communication albeit via roaming. Since this was a foreign player with international roaming agreements, the SIM number would adhere to the numbering plan of the country of origin of this foreign competitor implying that all calls would be roaming calls. But since EU legislation has decreased substantially the cost of roaming calls, it would be a small price to pay for those requiring anonymity, and would suit the business traveler in the same way as any local number would.
Market Disruption by Local Entrepreneur and Global Mobile Operator
All this is done legally and the local retail chain is a legal operation abiding with local business and tax laws, and within the EU open market competition and anti monopoly rules. One could order the mobile phone through the web and purchase the SIM card through any of the supporting retail stores. Since the SIM card belongs to a foreign operator the subscriber has no obligation to register any information with this operator.
The End of a Local Mobile Operator Oligopoly
Of course the big losers in this market disruption are the local mobile telecom operators who cannot –because of local legislation- anymore address this market segment.
This is a classic “shooting one’s self in the foot” situation that can occur when lawmakers fail to see the big picture.
Antonis Hontzeas - Antonis Hontzeas has been in the forefront of the Telecommunications industry for over twenty years. Tenures include positions ranging ...
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