MEDIA
MONOPOLY OR COMPETITION? THE CASE OF FIJI TV

The Fiji Parliament was recently enlightened with a debate on whether Fiji TV’s monopoly status should be abolished or not. Government argued in support of Fiji TV promising the use of regulation to deliver what would otherwise be delivered by market forces. Is this possible? Should Fiji TV be allowed to maintain its monopoly status?

By Dr MAHENDRA REDDY in Suva*

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RECENTLY, the Fiji Parliament was enlightened with a debate on whether Fiji TV’s monopoly status should be abolished or not. Government argued in support of Fiji TV promising the use of regulation to deliver what would otherwise be delivered by market forces. Is this possible? Should Fiji TV be allowed to maintain its monopoly status?

Small developing countries have a large number of monopoly firms providing goods and services. This scenario arises primarily because of four key reasons. Firstly, in the early stages of development, the private sector does not have a large number of providers with the necessary capital to provide the same goods and services. Henceforth, the limited number of providers in the capitalist sphere tend to specialise their production and service activities. Secondly, the under-developed financial market, a typical characteristic of a small developing country, is also a constraint to potential borrowers to enter into a tight market. Third, the closed economy policies of developing countries placed a barrier to both, the foreign aid to bridge the domestic savings gap and also the entry of multinations to provide competition. Fourthly, those areas where public sector was involved, the move towards coporatisation and thus privatisation has led rise to more monopolies. These have been a common scene in small developing countries and Fiji is no exception.

Monopolies have certain implications which are against the fundamental norms of socialist governments. As such, these undesirable characteristics were brought to some degree of control by regulation. However, as part of the global moves towards deregulation of the financial, trade and public sector, an alternatives approach needs to be examined to minimise the negative social implications of monopoly markets. One approach is to deregulate the sector and open it up for competition. This was a move by the Fiji Government in 1999 when it issued directives towards breaking the monopoly of Fiji TV industry. Government argued that it was in the "public interest" that the monopoly status of Fiji TV be broken by withdrawing the exclusive licence. However, in response, the Fiji TV industry argued that "the decision to revoke the exclusive licence of Fiji TV Limited is unlikely to be in the public interest.

Let's first examine what do we really mean by competition, monopoly and public interest before we argue out the case for Fiji TV monopoly. Competition is a situation where more than one supplier supplies a particular good or service and thus battle with each other for market share. The Dictionary of Economics, written by J. Shim and G. H. Siegel (published by John Wiley & Sons of New York in1995) defines competition as "a market condition in which rival sellers try to increase their profits at another’s expense. Consumers buy from those businesses offering the best value in terms of price, quality, service, and so on. The most efficient manufacturers, dealers, retail stores and service businesses will have the advantage. The sellers of goods or services are striving to achieve the highest market share so as to maximise profit". Competition is at the cornerstone of economic efficiency. Right from the works of the father of Economics, Adam Smith (who wrote the classic The Wealth of Nations in 1776), to modern works, it is well recognised and scientifically proven that competition is the best resource allocation solution for any nation. There is no exception to this view.

When there are obstacles to competition then the government must intervene. Obstacles come in two main forms: First, this was recognised by Adam Smith as: "Exclusive privileges of corporations, statutes or apprenticeships, and all those laws which restrain, in particular employments, the competition to a smaller number than might otherwise go to them". The second is when the size of the market cannot sustain more than one producer. Monopoly: refers to a market form with a single seller as opposed to competition where several firms appear on the market. Irving Fisher (1923) defined monopoly simply as an "absence of competition". Harberger (1954) presented the most influential argument of how a monopolist destroys welfare by simply transferring the wealth from the consumers to the monopolist. This, he describes as a loss to society arising out of monopoly control.

By virtue of being the only supplier of a good or service, the monopolist commands total control and power over the market. It can set whatever price it wants to, and deliver whatever quality of service it wishes to. The public has no choice but to purchase the good or service. Choice is at the heart of modern economy. It is the ability of a person to choose a particular good over another – for reasons of price or quality – that defines how much of a good has to be produced, how should it be produced, and for whom should it be produced. In other words, choice of the consumer determines how resources in the society are to be allocated. In the absence of such choice, resource allocation cannot be optimal. The public will ultimately be forced to pay for the inefficiency through higher prices and poorer quality.

Public Interest: refers to the welfare of the public. Public includes the consumers and the producers. A society is made up of only these two entities. Every person is either a consumer or a producer.

Consumers’ basic objective is to get the best quality product for the lowest price. The producers’ basic objective is to sell the product at the highest possible price. These contradicting objectives can be resolved by either (a) the free market, or (b) the state intervening to establish the price to be charged, the quantity to be produced and the quality to be produced.

It has been well recognised now by institutions like the World Bank and IMF that the market solution is the best solution. It is for this reason that the World Bank and other similar institutions have been proposing deregulation of the economy of Fiji in particular and the other nations in general. Deregulation means that the exclusive privileges of a corporation, whether it be a private corporation or a state-owned corporation, be eliminated.

If the exclusive privilege of a corporation were granted by law, then law has to be amended to given effect to this policy. Since the early 1980s, the World Bank has championed this cause throughout the world. Almost all governments of countries which are World Bank members have accepted the merit of this view.

It is granted that the corporation which has been given the exclusive privilege will object to deregulation. This is for the simple reason that no corporation wants to face competition and see the erosion of its market power. The individual corporation or businessman has one ultimate objective: to make as much money as possible from its/his outlay of capital. To do this, it always aims to have absolute market power, or absolute control of the market. It aims to be the only producer or supplier of the good or service. It aims to become the monopolist and to maintain this monopoly status. But as stated above, this very status is contrary to the public interest.

In 1993, the cabinet of the government of Fiji announced its decision to establish a television consortium in Fiji. The company, to provide both free-to-air television and pay television services, would consist of Fiji Development Bank (51% share), Television NZ (15% share), the public of Fiji (20% share) and Fijian business interest (14% share). In 1994, the company submitted a business plan requesting for exclusive licence on the grounds that the establishment of TV will require large specialised investment to provide sufficient investors to offer television services. The cabinet agreed to the issuance of a television licence to FijiTV for an initial term of 15 years with an exclusivity period of at minimum eight years and up to 12 years.

Television is a major source of information in developed countries and is gaining importance in developed countries increasingly. Currently, Fiji TV Ltd is the only provider of TV services in Fiji. The TV market in Fiji, thus, is classified as Monopoly while the Fiji TV Ltd is classified as a Monopolist.

The fact that Fiji Television Ltd is a monopolist means that, subject to government regulation, it has absolute power in the TV market. This power is over all aspects of the market for TV. What to broadcast, when to broadcast, how much to charge advertisers, the quality of programs, the mix of programs (local vs. foreign), etc. are all totally determined by one particular company. It follows, then, that neither the viewing public nor the advertisers have any control over the market for TV. The interests of the public cannot be best served by a monopoly TV producer/broadcaster.

Furthermore, given the established fact that TV affects the lives of the public in a number of ways, it should then be the right of the public to have a say on the contents, in particular the nature of programs and the accessibility to it. There are two ways in which this can be done: (a) the market for TV can be opened up, and (b) the government, as the representative and custodian of the public’s interest, will have to intervene with a price/quantity/quality policy. The established view of international institutions like the World Bank is that the former option is more desirable than the latter.

Apart from the welfare gains arising from resource allocation, competition in the TV market will result in other benefits as well.

Benefits from Competition in the Fiji TV Market:
Promotion of Business and Economic Activity in Fiji
The introduction of more companies into the TV market will lead to a decline of prices, in particular advertisement charges. Monopoly prices are always more than competitive prices. Therefore, any fall in prices (of advertisements or pay channels) will lead to an increase in advertisements. Existing advertisers will advertise more frequently or have longer advertisement and other firms, particularly small firms, who are not able to afford the current rates, will look at advertising their products and services through the TV medium. Since the TV medium is an extremely powerful medium of communication, both these outcomes will further increase business activity in Fiji.

Increase in advertisement has a positive causal relationship with total sales and thus profit. In the short run, the individual business will make more profit and government will incur more revenue via corporate taxes. In the longer run, the increased profit at the firm level can lead to increased investment and employment creation. At the national level, increased government revenue will imply government could make more operating and capital expenditure. All these will result in increased economic growth.

Choice to Consumer
A basic tenet of economic behaviour under capitalism is to provide choice to the consumer. It has now become undisputed that the greater the choice, the better the service to the consumers. Limiting the rights of the consumers by an exclusive license to one company limits consumer welfare. Allowing for entry of other firms will then give the consumers more alternatives to choose from rather than being coerced into watching what the TV producers want the public to watch. Two vivid examples are the public outcry against the screening of Shortland Street, as well as the outcry to reinstate the repeat of the local news before closing of the station for the day.

Education of Fiji’s Community
A crucial objective of any TV is to educate the general public. Introducing competition into the industry can improve the educational component of the TV in two ways. First, it will provide a wide range of educational programs for consumers to choose from. Second, with competition, it will lead to TV companies to provide a better balance between educational programs and non-educational programs.

Re-alignment of Government Policy
The move towards reducing distortions from the market by the government is in line with good policy of diversifying ownership of strategic industries like audio-visual medium.

Other countries also provide protection to their consumers. Australia, for example, provides consumer protection through the Australian Broadcasting Authority (ABA) and Australian Competition and Consumer Commission (ACCC). The ABA passed the Broadcasting Services Act (BSA) in 1992 with key objective being the provision of diversity of ownership and control of broadcasting outlets. The ACCC passed the Competition Policy Reform Act in 1995 to ensure fair and competitive conduct in Australian Markets.

Competition and Market Size
Fiji TV, its Financial Status and Market Size
Fiji TV commenced operation in 1994 and in a very short spell of time, began to make profit. In the prospectus for Fiji TV Ltd, it was forecasted that the company would not be able to make positive profits until the operating year 2000/2001.

Actual performance, however, shows that the company started to make profit since 1997/98 financial year (Table 1). Profits rose from $105,916 in 1997/98 to $213,857 in year 1998/99 with a corresponding increase in the returns to shareholders equity from 1.8% to 3.5% during the same period. These positive returns has been made despite a sluggish economy. The GDP growth in Fiji for 1997 was -1.7% and for 1998 was –2.3%. These negative growths in the economy and the realisation of a profit by the TV company well before the target date indicates the market power which Fiji TV wields. During the year 1999/00, Fiji TV recorded a profit of $826,126.

Fiji TV’s performance, still, is better than what was forecast. This is a very clear indicator that the market is large enough to sustain the TV industry when the economy as a whole is not performing well. The company also does not have any significant long-term debt on the balance sheet. The early turnaround of the financial situation is an indication of the potential the market has.

Electricity, TV and Market
The healthy position of Fiji TV Ltd has been achieved despite the fact not all households have TV in Fiji. While there is no estimate on the exact number of households with TV, a ball-park estimate could be placed around 30-40%. Furthermore, currently, approximately 70% of the households in Fiji have electricity . This implies that once electricity expands to the rest of the households, there will be a significant increase in the potential TV viewer market. The government – through its rural electrification program (where it has allocated $3m in the 2000 budget with an expectation that the FEA will also spend $3m in rural electrification) – is now endeavouring to provide electricity to more households. This policy will continue. It will see rising number of Fiji households having electricity supply during the next few years. The potential TV market size is increasing.

Income Growth, Economy and Market Size
Fiji’s per Capita GDP in 1998 stood at F$3,442.6. In 1997 and 1998, the economy contracted in real terms, by 1.7% and 2.3% respectively. However, Fiji TV Ltd managed to do well financially. In fact, during these two periods, the "Pay-per View" TV was introduced and this brought in significant revenue for the company. In 1996/97, the Pay channels brought in F$292,716 which increased to F$1.2m and F$2.3m respectively in 1997/98 and 1998/99 (Table 2). This is a clear indication of how lucrative the market is. In 1999, the economy grew by 7.8% and it is forecasted that the economy will further grow by 4.3% in 2000.

These positive growth rates of the economy provide a clear signal about future increases in income and thus a direct demand for TV and increase in potential TV viewer-ship. Furthermore, increased income will provide a secondary-round effect through increases in consumption and thus economic activity. This will again boost business advertisement and thus increase the market size for TV business.

All in all, it is reasonable to be expected that there will be substantial increase in TV viewership and TV advertising need in Fiji.

Capital Investments and Recovery
The establishment of a top of the range TV company involves a large capital investment, particularly in plant and equipment. Positive returns from most investments are not achieved in the first year. Some investments take many years to achieve a positive return. As is evident from table 1, Fiji TV Ltd started to make a profit after its third year of operation.

Fiji TV Ltd has used, for shareholders information, a high rate of depreciation, between 10 to 20% on its plant and equipment to write of its assets. This has numerous advantages and one of the major advantages is that it could accumulate, in a very short period of time, funds to replace those assets. For example, as at June 30, 1999, it had written down the value of its investments by 39.75%. In other words, it had accumulated about 40% of all capital investment as at June 1999. The breaking up of monopolies is not new in Fiji. There are a number of other firms which enjoyed monopoply profits for long and eventually either voluntarily succumbed to competitive forces or were forced to be part of the competitive market. One of these industries is the Airline industry which was putting up similar arguments to prevent the breakup of Air Pacific’s hold on international routes. In light of the arguments presented above, the revocation of the exclusive licence of Fiji Television Ltd (Fiji TV Ltd) will be in the public interest and will be good for the economy as a whole, and will be financially sustainable.

* Dr Mahendra Reddy is a Senior Lecturer in Development Economics, University of the South Pacific. The views expressed in this article are his and do not represent that of his employers.