True & Dtac Merger : A Game of Monopoly?

True & Dtac Merger : A Game of Monopoly?

True & Dtac Merger : A Game of Monopoly?

Major mobile operators Total Access Communication PLc (DTAC) and True Corporation Plc caused quite a stir when they announced a merger.

The merger plan was approved by the companies’ respective executive boards and submitted to the Stock Exchange on Monday.

The merger will create a new telecom and tech entity, which signals the operators’ plans to move into new advanced technology from digital media solutions to space technology.

It immediately raised an alarm amongst the public on whether the merger would result in a monopoly.

 A monopoly is typically characterized by the absence of competition, which can lead to high costs for consumers, inferior products and services and corrupt business practices. 

Digital Economy and Society (DES) Minister Chaiwat Thanakamanusorn dismissed speculation that the merger would result in a monopoly.

Is he right?

Minister Chaiwat’s reasoning is that there is competition in this industry and therefore the merger cannot be classified as a monopoly.

Prior to the merger there are 3 main Mobile Network Operators in Thailand which holds about 97% of market share, True Move, DTAC and AIS (Advanced Info Service) with the latter holding 44%. The merger will benefit the new entity with roughly about 53% of the market share.

Although the new entity will possess more than 50% of the market , the merger does not define it as a monopoly due to the presence of another major player AIS.

However, it does fall under the category of a duopoly.

The definition of a duopoly is a situation where two companies together own all, or nearly all, of the market.
There are two sides of a duopoly.
Companies in a duopoly tend to compete against one another, reducing the chance of monopolistic market power. 

AIS has already started a major campaign to urge people to switch to AIS.

However, the merger was completed with the intention to reduce costs, increase return on investment and benefitting from economies of scale.
True Move have a high debt burden and need this merger to increase income and decrease overheads.
The burden of interest debt the three company carry as of the moment is as follows:
True Move 14,000 million baht per year, DTAC 4,000 million baht per year and AIS 2,000 million baht per year. 

Would AIS be able to compete effectively and stay in as a major player?
Or would we see a monopoly situation in the future? 

On the other hand, a duopoly can have the same impact on the market as a monopoly if the two players collude on prices or output over time. One disadvantage of duopolies are that consumers have little choice in products while another disadvantage of duopolies are that the two players may collude and increase prices for the consumer.

The end result for consumers may not be so different, whether the merger causes a monopoly or duopoly unless the regulators are vigilant about protecting consumers.
Policy makers and regulators need to keep in mind that a monopoly situation may arise later and put rules and regulations in place to stop the duopoly from turning into a monopolistic situation.

Written By TBB.