8/14/2019 How Reckless Laws Can Damage Business

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This is a classic case study of the market damage that short sighted legislation cancause.

Last summer, a certain government decided to impose two laws that will prove tohave long term effects for the local mobile communications market:

The first law related to a substantial tax increase by including a marginal component;this means that one could pay up to 37% percent tax on mobile phone usage. Thesecond law made it illegal to anonymously possess a prepaid phone.

Prepaid users who up to now had the privilege of anonymity, had to register their identification information before being allowed access to any prepaid services.The first law related to the government’s frantic search for revenue in order to check the economic demise while the second law was a response to the civil strife whichresulted, amongst other things, from this economic demise.

Market research indicated that there are about 13.5M prepaid phones in the countryconcerned, where a substantial portion of the mobile user population wants a) tomaintain their anonymity for various reasons, and b) pay less money especially inthese economic times.

If we take into account these two attributes coupled with EU regulatory measureswhich decreased substantially roaming charges then we are describing a marketthat wants a guaranteed high quality, cheap, anonymous mobile service. By imposingthe above laws, the government automatically created an entry barrier for localmobile telecom providers to such a market, leaving this market open to foreigncompetition. What became also evident is that even though the government preachedthe benefits of an open global economy, its executive actions with respect to this issuereflected a lack of understanding as to what globalization truly means.

As a response to such an opportunity, a well known Eastern European company via alocal reseller offered SIM cards that can be used in any local mobile phone.Purchase of this SIM card allows the subscriber regular or GPRS communication withnormal roaming charges.

Since this is a prepaid service, if the subscriber wishes to remain anonymous she canorder the phone from the Eastern European country and purchase the SIM card locally(there are over 150 recognized and authorized outlets that offer the SIM card). Allthis is done legally and the local retail chain is a legal operation abiding with local

business and tax laws, and within the EU open market competition and anti monopolyrules. It should also be noted that both countries are members of the EU.

Since the Eastern European service provider has a strong network of internationalroaming agreements, a business traveler can use the phone while abroad andexperience cost savings, and an anonymous user can use the phone locally and of course abroad, and not compromise his identity. The local user will pay a little more

due to the roaming charges, but the cost outweighs the benefit for those that highlyvalue their anonymity (and it seems there are many).

8/14/2019 How Reckless Laws Can Damage Business

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The big losers in this are the local mobile telecom service providers who may loose astrong portion of their market share both on the service and retail domains as well asthe government in the revenue and macro economic domain. Again because of locallegislation, these local mobile telecom companies have no way of addressing thismarket. They are effectively locked out of their own market leaving this segment wide

open to foreign competition.

Of course if this situation is viewed from another angle, legislation created anopportunity for market disruption, and entrepreneurship efficiently and quickly movedin to satisfy to satisfy this need and fill the void.