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Imagine if Comcast owned iHeartradio, the New York Times, and AT&T. And in many places, your only option for an Internet Service Provider is Comcast. Your news would be provided by Comcast. Your cable TV: Comcast. Your favorite radio stations: also Comcast. Scary, right? Yet, that is exactly what will happen in South America’s second largest economy, Argentina, if the proposed merger of Cablevision (the telecom branch of Grupo Clarín, Argentina’s largest media conglomerate) and Telecom (one of the two telecommunications companies resulting from the privatization of Argentina’s national monopoly in 1990) goes through.
Argentina’s path toward media and communications dominance is a cautionary tale for other countries, including the United States, that are facing or might face equivalent merger proposals in the future. Media and communications consolidation dynamics can easily become self-reinforcing, given the economic and political importance of media and communication companies. Consumer choice and innovation are the first casualties of these dynamics. Companies in a dominant position can easily rack up prices for consumers and stop entrepreneurs from entering a market.
Nationally, Grupo Clarín+Telecom would concentrate 42 percent of fixed telephone lines, 34 percent of cell phone lines, 56 percent of fixed broadband connections, 35 percent of mobile broadband, and 40 percent of pay TV. In Córdoba, Argentina’s second largest metropolitan area, fixed broadband consumers will be able to only choose between Cablevisión and Telecom. Similarly monopolic dynamics will play out across the country, especially in the northern half: one of the original clauses of the privatization agreement that created Telecom, now expired, guaranteed the company a monopoly in that geographical area.
In addition, thanks to Grupo Clarín, the new conglomerate will also be a content creation powerhouse. Grupo Clarín owns Argentina’s most popular newspaper (Diario Clarín), dozens of regional newspapers, leading radio stations (such as Radio Mitre, news AM, and La 100, music FM), a leading open-air TV channel (El Trece), dozens of local cable-tv channels, TV and movie production companies, and some web portals.
But how is this possible? Doesn’t Argentina have a telecommunications law and regulator, antitrust policies, and a reformist pro-market President that according to The Economist signalled the end of populism? Surprising no one in Argentina, below it's explained how President Mauricio Macri’s Government is the central supporter and enabler of this merger.
Until Macri, This Merger Was Illegal
The communications market at large has been one of the key priorities of President Macri since he took office in 2015. During the first weeks of his tenure, with a controversial legal move, President Macri eliminated by executive order the 2009 Broadcast Media Law that replaced a 1980 media law written by the last military government. He replaced the executive agencies created for its enforcement with a new regulator, ENACOM, that depends functionally and politically on the Ministry of Communications, and that has board members who serve at the will of the President. Four out of the seven ENACOM board members are directly appointed by the President, who can fire without justification all seven members, including those three nominated by Congress. Additionally, despite the U.S. Federal Communications Commission’s Memorandum of Understanding with ENACOM, ENACOM is not copying FCC practices. Out of concern, the Inter-American Commission on Human Rights (an Organization of American States body) held hearings about President Macri’s media reforms.
Eliminating the 2009 Broadcast Media Law was a necessary step for the merger of Grupo Clárin and Telecom. As explained by independent researchers Martìn Becerra and Guillermo Mastrini, the 2009 Broadcast Media Law media law “sets limits on concentration and market domination.” The law, the experts argue, was “a bold step forward” since “it connects the freedom of expression concept with that of human rights. It is respectful of the freedom of speech of all issuers, and in this it stands apart from other controversial chapters in Latin America, including legislation recently adopted by Venezuela and Ecuador.”
Becerra and Mastrini explain that “The Argentine law promotes federalism, in both content production and decision-making. And, for the first time in Argentina, both the regulatory authority and state-run media will not be fully controlled by the administration in power. This is a sign of positive checks-and-balances, and advocacy for political minorities, which is in keeping with a progressive regulatory tradition.” In addition, “the law reserves 33 percent of the telecommunications spectrum for the non-commercial private sector.”
Under the 2009 Broadcast Media Law not only could Grupo Clarín not have merged with Telecom, but it was already subject to the Law’s competition provisions. In response to a Grupo Clarín appeal against the antitrust provisions of the 2009 Broadcast Law, in 2013 the Argentine Supreme Court determined that the law was “aimed at favoring competitive and antitrust policies to preserve a fundamental right for life in democracy that is freedom of expression and information,” and was therefore Constitutional. Grupo Clarín had to comply with the media law and divest. And in fact, Grupo Clarín presented plans to divide and comply with the law. However, those plans were never accepted by the previous Government, who argued that the company was simply planning to cheat in its implementation.
President Macri’s Government Is Fully Supportive of the Operation
According to the Minister of Communications, the announced merger is “good news” for Argentina. In an interview, the Minister declared that the merger “gives the country rule of law, legal certainty, and an opportunity to compete. In addition [the merger] will bring investment.” Those statements are disputable, for three reasons.
First, President Macri’s government has delayed the presentation of a new Broadcast Media Bill repeatedly: there are simply no permanent rules or legal certainty in the regulatory media landscape of Argentina. As Becerra reminds us in an interview, the Government will probably have to modify the existing media executive orders to allow the new company to function. Second, the merger reduces competition in the communications market under any metric. And third, the merger discourages private investment by signalling (again) that the Government has a clear preference for a national giant, Grupo Clarín. Since President Macri took office, Clarín got its broadcasting licences renewed in a manner that bypassed established legal procedures, was allowed to buy small cellphone operator Nextel, and then was given 4G licences for virtually free (to the outrage of Spain’s Telefonica, now the only alternative to Clarín+Telecom on fixed broadband connections and copper lines).
Technically, the approval of ENACOM and the Committee to Defend Competition still lies ahead. Telefónica and Carlos Slim’s Claro, Telecom competitors, will try to convince regulators and legislators that the merger is a bad idea. But the Government is convinced otherwise. No decision is expected before the October 2017 mid-term elections, as the issue is politically toxic. But in case anyone has any doubts of where Macri stands, the Government has recently announced that the Ministry of Communications is being absorbed by the massive (and ineffectual) Ministry of Modernization. The move makes sense: no need to provide institutional hierarchy or money to independent regulators or specialized agencies for this kind of media and telecom policy.
What’s Next for Clarín? OTTs Beware.
As mentioned at the beginning of the this blog post, Clarín is mainly a content producing company. As such, it has been trying to enter the Over-The-Top content market. In 2016, Grupo Clarín launched its own streaming service, Flow. Flow now has only around 300,000 users even though it’s free for Cablevision’s more than three million subscribers. Will OTT companies be able to resist Clarín’s advancements into their markets?
Clarín, after all, will now have the fixed and mobile data pipes, the content, and the President’s ear. In what perhaps is just a coincidence, four days after Clarín and Telecom announced their merger, the Argentine tax collection authority revealed a new tax on various OTTs. The reason? “TV channels competing with [OTTs] are paying taxes. Why shouldn’t platforms?”