The Dhiraagu, Ooredoo duopoly

Two years, six months, and 11 days into office, the Solih Administration on 27 May 2021 announced changes to broadband internet prices. The freshly appointed Minister of Environment, Climate Change & Technology Aminath Shauna announced that a “whopping” 30 percent reduction in prices for fixed broadband would go into effect starting 1 July 2021, and that there would be a 20 percent reduction in mobile broadband services effective 01 October 2021. 

The Maldives, with 717,708 mobile subscriptions as at December 2020, and an almost 130 percent mobile penetration rate, has been lagging behind other countries in the region on the technology front due to the high cost of fixed broadband services and relatively slow speed of internet connections. While there are 315,694 internet subscriptions, only 20 percent are fixed broadband subscribers. This is much lower than the average for upper middle income countries, as highlighted by an April 2021 World Bank Report — which also highlights that competitive constraints in the telecom industry in the Maldives may have led to lack of affordable services.

While telecommunication services account for about 5.6 percent of GDP, the industry is dominated by the Dhiraagu and Ooredoo duopoly. Both companies are subject to the Maldives Telecommunications Act and the Communications Authority of Maldives Act. As per Section Two of the Maldives Telecommunications Act, telecom services need to be accessible to all citizens in the country at an economically appropriate price. Under the Communications Authority of Maldives Act, the Communications Authority of Maldives (CAM) is required to ensure a competitive environment in the industry acceptable at international standards — the agency has the legal mandate to regulate, and control, the prices of telecom services. 

Dhiraagu, listed as a public limited company on the Maldives Stock Exchange, is 52 percent owned by Bahrain Telecommunication Company (Batelco), with 41.8 percent and 6.2 percent held by the Government of Maldives and the public, respectively. The company was incorporated in 1988 as a joint venture between the Government (55 percent) and Cable & Wireless (45 percent) from Britain. Dhiraagu enjoyed the benefits of a monopoly position for a staggering 17 years until 2005. 

Published financial records for Dhiraagu show over MVR2.8 billion in revenue in 2019 and an after-tax net profit of MVR942 million. The Government received MVR320.8 million as dividends from Dhiraagu, MVR170 million as taxes, and MVR120 million as license fees. In total, in 2019, the Government received MVR610.8 million from Dhiraagu. 

Ooredoo kicked off operations in February 2005 as Wataniya Telecom Maldives, later rebranding, in April 2014, to Ooredoo Maldives (Ooredoo). Ooredoo’s total revenue in 2019 was almost similar to Dhiraagu’s, with MVR2.03 billion with an after tax profit of MVR598 million. In 2019 Ooredoo contributed over MVR111 million as taxes and over MVR100 million as license fees to the Government's coffers.

Herein lies the dilemma; much like with other companies where the Government has full or majority ownership — where higher profits mean higher inflows to the state or where industries contribute an exorbitantly high portion of revenues to the state, regulators and other agencies, in terms of taxes and other fees — administrations are reluctant to “rock the boat” for fear of perceived negative impacts on their bottom line. The high prices the companies charge translate to high state inflow as well; and should prices be reduced, with costs of delivery remaining the same, the Government potentially has a “lot” to lose.

This is perhaps the reason why, when the administration announced price reductions, contrary to other UN environmental and global development standards they are happy to laud and commit to, it failed to meet the key UN standard when it comes to internet access costs. The UN recommends spending on internet access, as a percentage of per capita income, be at the two percent mark, whereas currently it remains much higher although it is set to eventually drop to 2.6 percent when the recently announced cuts go live during this year.

The administration has been quick to position the reduction as the dawn of a new digital age where the Digital Divide is narrower. This, however, is far from the case. The reduction is a band-aid in so far as they are not uniform across the nation — some islands will not see reductions at all, thus increasing the gap instead of closing it. Furthermore, the concessions the administration has made to the service providers as also unclear.

What is clear, however, is that in 2019 alone, both telcos combined paid the state over MVR832 million (USD54 million). Should the administration see fit they could reinvest a sliver of this revenue on developing programs and infrastructure that could lower operational costs for the telcos. This will allow for even more reasonable grounds for regulators and the state to insist on lower prices. They could invest on programs for e-commerce and Fintech to drive growth.

While there are positive correlations between use of technology and business growth, affordable high speed internet in the Maldives could have significant growth in total factor productivity and growth in businesses. With lower and high speed connectivity and innovation, the private sector firms can make better use of data to fuel platform-based business models that stimulate economic activity and trade in services. Similarly, individuals, with affordable and better connectivity, will be better empowered to make more informed decisions.

There are a multitude of considerations that the administration can make in the spirit of tangible advancements on this issue. At this stage meaningful leaps in progress can only be achieved by being a real heavyweight when it comes to implementing fresher ideas. Government should stop kowtowing to the incumbents, at least when it comes to behind the scenes negotiations, and ensure that the regulators bare their teeth ever so often.