MOBILE phone customers are likely to be hurt by the approved merger of telecoms providers Digicel and Claro, says the Fair Trading Commission (FTC).

In a lawsuit filed with the Supreme Court last month to prevent the deal from being finalised, the FTC argued that the transaction would likely result in higher prices and a slowdown in technological advancements.

The FTC, mandated to encourage and maintain fair competition, claimed in its filing with the High Court that, if Government approved the transaction, prices would likely “return to the levels that pertained before Claro entered the market” in April 2007.

The administrative body said that its own assessment of the market before Claro’s entrance revealed that Digicel enjoyed a larger market share at the time than its primary competitor, Cable and Wireless Jamaica (now trading as LIME), despite having prices that were a fraction higher.

“Prior to Claro’s entry in 2007, Digicel expercised market power as LIME was not a significant competitor,” it said.

Specific figures relating to Digicel’s operations were blacked out in the suit accessed by the Business Observer. Digicel is not a publicly traded company.

According to the FTC, Claro’s arrival in the market led to Digicel’s promotions and value offerings to consumers increasing significantly and transaction prices falling dramatically.

“The price competition led to significant benefits to consumers, as talk time increased by 39 per cent while consumer expenditure decreased by two per cent,” said the FTC.

“Consumers were getting more for less,” added the body, which estimates that consumer benefits from competition in the mobile market exceeded $16.9 billion over the period April 2007 to March 2011, when the merger was announced.

On the other hand, the FTC claimed that a reversal of these price benefits would likely occur if the transaction is completed. The body specifically suggested that reciprocal calling rates between Claro and LIME would be eliminated thereby increasing the price paid by LIME’s subscribers to call former Claro subscribers.

“The effect of this is a reduction in consumer welfare,” argued the FTC.

The agency also suggested that the transaction would derail technological development within the industry because Digicel would have less incentive to innovate.

Claro improved to 3G technology within 15 months of entry — at that time, 3G was the most advanced wireless technology in Jamaica — to the benefit of consumers, with LIME following suit in June 2009, the FTC noted. Digicel introduced 4G technology in 2010.

Against that background, the FTC argued that the transaction should not be completed and that, should Claro exit the market anyway — as supporters of the transaction argue would have occured — then its licence, spectrum and customers should be returned to the market to allow existing players and new entrants the opportunity to compete for them.

In the event that the transaction is completed, the FTC recommended steps that should be taken to “protect the competitive environment”. The FTC proposed mandatory sharing of cell towers; reciprocal interconnection rates among all players; that Claro’s customers be released from any contractual obligations to Claro; and mechanisms to ensure that technological advancements be introduced into the market within a reasonable time.

A Digicel spokeswoman told the Business Observer, that the company had not received any documents pertaining to the lawsuit and so would not comment on the issue.

America Móvil (AMX) shocked the telecoms industry in March when it announced it would sell its local Claro operations to rival Digicel and, in return, acquire 100 per cent of Digicel’s operations in Honduras and El Salvador.

The deal — which was approved in August — allowed Digicel to further solidify its place atop the local mobile telecommunications sector where it already claims in excess of two million subscribers among the Jamaican population of 2.8 million.

The FTC is the second entity to take legal action against the deal. Its suit follows a failed attempt in the Supreme Court by telecoms provider LIME to have then Prime Minister Bruce Golding’s approval of the merger in August overturned. In a ruling against LIME, Justice Bryan Sykes, said that Golding’s approval was done in accordance with the respective regulation.

LIME had said that it would appeal Justice Sykes’ ruling, but it is not clear how the filing of the FTC lawsuit would affect that decision.

LIME had contended that the prime minister’s decision to approve the merger “is unlawful/and or was affected by an improper exercise of his power”.

Additionally, the then-Opposition People’s National Party had expressed concern that the deal would put Jamaica in danger of reverting to the highly undesirable situation of a monopoly provider of voice telecommunications services.

The PNP swept into power last week after delivering a crushing defeat to the ruling Jamaica Labour Party at the national polls.

Phillip Paulwell, the telecommunications minister under the previous PNP government, was said to be in a meeting and unable to comment up to press time yesterday.