Collusion And Price Fixing?

By Tony Pua

Recently the local telecommunications companies incurred the wrath of Malaysians by attempting to pass on the services tax to the prepaid users. The service tax which was increased by the Government from 5% to 6% this year was absorbed by these companies since 1998.

While the backlash from the public, and pressure from political parties have resulted in a temporary reprieve for the prepaid users, pending further consultations with the Malaysian Communications and Multimedia Commission (MCMC), the real issue at hand is the blatant and coordinated attempt by the telecommunication companies to raise prices concurrently, contemptuous of the competitive spirit.

Last Thursday, the companies said in a joint statement that purchases of prepaid reloads and prepaid starter/SIM packs would be charged a six percent service tax, effective Sept 15.

While the telecommunication providers had every right to decide as to whether to absorb or pass on the service tax to consumers, the fact that the statement was issued jointly meant these companies – Maxis, Digi, Celcom and U-Mobile were colluding to increasing the prices of their services concurrently, to increase the profits for all parties, without fear of any of the companies keeping lower prices to eat into the customer base of the others.

The Competition Act 2010 states that “the object of the Act is to promote economic development by protecting the process of competition, and thereby protecting the interest of consumers”. The Bill specifically bans anti-competitive agreements including price fixing, import cartel, bid rigging, territorial allocation, limiting production, market sharing.

The anti-competitive agreements will be subject to financial penalties of up to 10 per cent of the worldwide turnover of the enterprise over the period during which the infringement occurred.

There is no question that the joint statement and attempt by the four telecommunication companies to raise prices by the same percentage concurrently is illegal because they are colluding to form a cartel for the purposes of price-fixing.

While the Act has been passed in Parliament and gazette in June 2010, due to an 18 month grace period, it will only take full effect from 1 February 2012 onwards. However, regardless of the grace period, the Government, particularly, the Ministry of Domestic Trade and Consumer Affairs must take a stern position and warn the telecommunication companies in no uncertain terms that their anti-competitive behavior will not be tolerated.

The Government must act to prove that the Competition Act will have teeth to protect the ordinary consumers and not be trampled upon at will by the Malaysian corporate giants.