Australia buys Digicel, PNG’s mobile monopoly

Written by Stephen Howes

Yesterday, Telstra announced that it was buying Digicel Pacific. Telstra itself is only paying $270 million, and the Australian government $1.33 billion. Yet, Telstra is obtaining 100% ownership. The deal is certainly an attractive one for Telstra. But does it make sense for Australia, and for the Pacific?

Digicel has had a transformational impact in the Pacific, but now has too much market power. As the Telstra release explains, it holds the dominant position in all the Pacific countries in which it operates, except for Fiji, where it is in second place.

In Papua New Guinea, which I know best, and which is by far Digicel’s biggest market, the company  has a 92% share of the mobile phone market. That makes Digicel effectively a monopoly in PNG. And that is why it is so profitable: like any monopolist, it exploits its market power.

Australian and PNG researchers have been tracking mobile internet prices in PNG since Australia gifted it a new underwater cable . Their conclusion is that since the completion of that cable in December 2019 to today there has been no decrease in mobile internet prices. The reason is simple: the lack of retail competition.

Michelle Nayahamui Rooney, Martin Davies and I last year exposed Digicel PNG’s predatory loan scheme. Digicel lends phone credit to its customers. They pay it back when they next top up. Our estimate is that Digicel made a 17% return from such loans every week, which is equivalent to an unbelievable 351200% a year.

Is this really the way in which Australia want to engages in the Pacific – owning an enterprise that keeps prices high for consumers, and rips them off when they are desperate to make a call?

Any monopolist is necessarily engaged in a battle between the consumer and their profits. At some point, Telstra will end up going toe-to-toe with the PNG telecom regulator, NICTA, as Digicel has done several times. It’s going to be awkward for both Telstra and the Australian government.

Many will welcome the investment as a sign of Australian commitment to the Pacific. However, if we want to invest in the telecom sector in the Pacific, we should be backing alternatives to Digicel, to push prices down and improve services, not buying out the dominant player. Amalgamated Telecom Holdings based in Fiji is the Pacific’s second biggest telecom provider. It is currently planning to enter the PNG mobile market with support from the Asian Development Bank. This is the sort of investment we should be financing.

That Australia has bought Digicel shows the extent to which the Pacific is now viewed through a China lens. That’s unfortunate. China is a massive economic power. Its companies will have increasing stakes in economies around the world. That is a fact we have to accept.

The Australian government also needs to decide if its only goal is to counter China or if it still seeks to promote Pacific development. When I was AusAID’s Chief Economist, Digicel was the new kid on the block in the Pacific, and it was successfully challenging state-owned telcos that until then had been dominant. In 2006, in Foreign Minister Alexander Downer’s flagship Pacific 2020 report, we wrote glowingly about the competition that various Pacific countries had recently started allowing in the mobile phone sector. Our analysis was right then, and remains relevant today. Yet here we are, in 2021, doing the opposite: rather than supporting greater competition in the telecom sector, subsidising the purchase of the incumbent monopolist.

The decision to buy Digicel Pacific should be reversed. If it is too late for that, the Australian government should at least – in return for all its cheap and risk-reducing finance – oblige Telstra to operate Digicel for the benefit of the people of the Pacific rather than solely for its shareholders through an agreement that makes it clear that the Australian company is not only expected to return the cheap loan it has been given, but also reduce prices, and end rip-offs.

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Stephen Howes

Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School.

12 Comments

  • IF Digicel PNG monopoly represents a significant component of the US$1.6 billion purchase of Digicel Pacific by the Australian Government and Telstra, then the PNG Government must stop the sale and ask Digicel and Telstra to come to a round table talk to consider PNG’s issues and how will this change benefit the PNG Government and the common people. I’m sure Digicel will be too happy to leave very quickly because they have already recovered and ripped the benefits and not wanting to remain and face China.

    Mr Stephen Howes said the Australian Government must not promote monopoly in the Pacific but to put an end to it by promoting good business relationships through fair competition. This is just what is needed in PNG.

    Some issues still on the PNG Government agenda are lower internet rates, control over pornography via internet, lower call rates, high interest on call credits, free access to TV broadcast, etc. Now is the time to talk.

  • Maintaining COMMS tower in a rugged terrain country is an expensive exercise in terms of ferrying of fuel by road, shipping, long line airlift and tracking. Together with Genset power, solar system maintenance and land rents, Telstra may consider true value of cost and charges in PNG. Most sites, the equipment on power generation has reached maximum change out hours by now since installation, and Telstra may run into an expensive exercise paid by the people of PNG.

  • All that matters for Australian government is that the deal prevents another Chinese company operating in PNG. All that matters for Telstra is that it has taken over a monopoly paid for largely by the government, with a possibility to make some profit. Consideration for PNG people is secondary, or perhaps none.

    And all that matters for most PNGeans is a hope that Telstra doesn’t rip them off like Digicel does.

  • I agree that the purchase is merely a move to counter China’s emerging dominance in the Pacific. However, certain segments of its business such as the towers should be looked into for local acquisition

  • It’s an interesting scenario, as I don’t think Digicel even really use the coral sea cable as the cost to use it has remained too high for many of the retail ISPs, as it’s controlled by the other monopoly, namely Dataco that controls the international cable gateway and the domestic cables. Digicel and some of the other Internet providers have committed to satellite providers. Dataco should be making access to international connections widely accessible and affordable, as promised with the largely grant funded Coral sea cable, but have a whopping debt to service with China Exim bank for the Kumul domestic submarine cable, which should be an amazing infrastructure, except its broken in a couple of places going into Lae, and its services remote provinces without much market, or rather much purchasing power to pay above minimum prices… Telstra is, of course a player in the Coral Sea cable, so it will be interesting how it plays its cards, as at the moment it’s gained a very unrelated mobile system and technology. Digicel has spent a lot of money opening up the domestic market, today and regain a return on capital by fair means or perhaps foul, but then how does one break even on servicing the remoter centres. The other companies currently and invariably will focus on the more lucrative hubs. But PNG needs to keep the rural centres connected, they’re so abandoned by all other public and private goods… but 2 disconnected monopoly type arrangements isn’t the outcome needs, especially if both are teetering for various reasons. We had a 3rd company entering in 2007 (Greencom) but they promptly ran off when they saw how Digicel were flooding the place. VODAPHONE (version3)-Fiji Telekom will need to be v nimble to make a real mark, while Telstra will have to be very adept if they’re to operate effectively in this new field… but I agree that various conditions – public service obligations – should at least be linked to this loan/grant…

  • Thought it would be cheaper. Digicel keep showing that they are not making any money. Too the problem with Digicel in PNG is that it is too expensive compare to other pacific nations like Fiji. But when asked, they say PNG is too mountainous, no roads, etc. Digicel makes no sense when compared to countries with similar environment to PNG.

  • I hope poor network of digicel will improve in rural areas, its tough because quality service of mobile. ALL the best DIGICEL.

  • It’s a win-win situation if Telstra is visionary, with a long term-view, instead of tempted by quick profits. Operating Digicel for the benefit of Pacific Islanders will win customer trust+loyalty for the long term, while still raking in healthy profits. There is no need for predatory practices which made customers resent Digicel. Vodafone Fiji is reviled for similar deceptive tactics, while the Consumer Council of Fiji naps. A study on how much Vodafone Fiji profits from this underhand practice is long overdue.

  • Indeed! Telephony is a dying industry as communication moves online so on the face of it a 1bn grant to a dying industry seems strange. If, as you suggest, the Government could leverage this investment to expand and subsidize the ICT infrastructure within the region it could then serve the dual purpose of being beneficial to the people of the region as well as relieving security concerns in Canberra. If, however, the company is left to its own devices this will be seen as a highly inefficient subsidy and might even have deeper legal ramifications in terms of international trade agreements – whilst doing little to alleviate the speed at which other nations are rapidly taking control of the regional ICT infrastructure.

  • I disagree with your opinion Stephen.
    I’m sure Telstra will do a better job in reducing internet prices and provide better and improved coverage to rural PNG. That is what we want in PNG.

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