Makin’ Mas

30/03/2015

Grassroots Perspectives on the Caribbean Telecoms Landscape
By Gerard Best

If weaving dreams is a Caribbean past-time, selling them is more than a livelihood, it’s an industry. For many islands, fabricating fantasies to fetch foreigners’ dollars is institutionalised as a collective occupation, subsidised by the State under the umbrella of Tourism. For us, papering over the cracks is something of an extreme sport. The idea of putting on a show, or keeping up appearances in order to attract foreign investment is important even to our indigenous entrepreneurship, and central to the adventure of “making it” in the Caribbean.

The showmanship of traditional Carnival artforms like calypso, extempo, limbo and steelpan actually provide even deeper insight into how we use discernment, improvisation, negotiation and inventiveness to “make it” in the Caribbean, the late intellectual Lloyd Best used to say. Calypsonians watch over our world, and wield the powerful political weapons of wordplay, satire and ridicule with laser-like precision. The playful lyrical warfare of extempo, on the other hand, showcases our capacity for good humour, quick wit and raw ingenuity. Limbo dancers embody our seemingly infinite ability to negotiate difficult circumstances. And the invention of the steelpan, created from castoffs of a global hydrocarbon extraction industry, remains a remarkable testimony to Caribbean people’s talent to perceive unseen value and transform the worthless into the world-class.

And yet, while the Caribbean produces champions of calypso and masters of mamaguy, the region as a whole demonstrates strong susceptibility to corporate double-speak and weak resistance to political deception. Why is this? Are we so intent on attracting the foreign investment that we totally deactivate the watchdog instinct of our inner calypsonian, and lose the eternal skepticism of extempo? Are we so intimidated by multilaterals’ hurdles to development that we forget how to throw our heads back and limbo under them? Or have we so lost faith in our own ability to create that we need to look for ideas and validation from others?

Whatever the reason, we do seem to make ourselves easy targets for the thinly veiled exploits of multinational corporations. Telecommunications giants, for example, are allowed to bind and sadistically dominate our markets to devastating effect. As veteran Caribbean journalist Sunity Maharaj points out in a January 17 Sunday Express column titled Divided and Ruled, “Almost as if it were being passed down by genetic transference, the culture of divide-and-rule remains as alive today as it was in the 17th century.”

The backdrop to Maharaj’s comment was Jamaica’s decision in January 2015 to approve the local merger of the operations of providers Lime and Flow. In so doing, Jamaica became the first country in the region to do so. Two months before, Lime’s parent company Cable & Wireless Communications (CWC) had entered into a deal to acquire Flow’s parent company Columbus International for US$3 billion. The deal, signed at CWC’s London headquarters in November 2014, was approved a month later,in another London-based meeting in which CWC’s shareholders voted overwhelmingly in favour of the acquisition.

“This deal between CWC and Columbus may have been transacted in the UK and US, but the brunt of its impact will be felt by Caribbean stakeholders,” pointed out Mr. Bevil Wooding, an Internet Strategist with non-profit Packet Clearing House, in a November 6 Business Guardian article.

Understandably, news of the deal sparked widespread concern in the Caribbean because the prospect of reduced competition in the sector was regarded as a precursor to several negative region-wide impacts.

“The first time most regulators in the Caribbean heard of it was when it was announced on the London Stock Exchange,” Wooding pointed out in a December 4 Business Guardian column.

Although no approval was needed from sub-regional regulator Eastern Caribbean Telecommunications Authority (ECTEL) on behalf of Dominica, Grenada, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, the sub-regional regulatory body moved quickly to caution that consolidation could result in consumers suffering reduced choice of services and service providers.

The Caribbean Telecommunications Union (CTU) hastened to call for a special meeting of key stakeholders in Port-of-Spain in December. CTU Secretary General Ms. Bernadette Lewis said the meeting would try to forge region-wide consensus around the regulatory issues arising from the deal and advise Caricom heads of government on how to ensure that Caribbean consumers were protected.

Dr. Didacus Jules, Director General of the Organisation of Eastern Caribbean States (OECS) Commission threw his weight behind the Port-of-Spain forum.

“There is an inherent danger in governments and national regulators only entertaining bilateral talks with CWC and Columbus executives. The priority of individual governments to protect local national interests must be balanced against the need to simultaneously safeguard regional interests,” he said.

Yet, as the title of Ms. Maharaj’s column suggests, Jamaica’s approval of this deal seemed to amount to a breaking of ranks with its Caricom neighbours. The acquisition still requires regulatory approval in Trinidad and Tobago, and Barbados but the decision of Mr. Paulwell, the Jamaican Minister with responsibility for science and technology, has caused real concern.

“Clearly, what has happened in Kingston is that the Jamaican government’s commitment to CWC’s agenda and timeline for this deal has trumped its own commitment to the regional agenda,” Maharaj writes. “What assurances and commitments from C&W would Paulwell have lost if he had held out until a common position had been worked out among Jamaica, Barbados and T&T on this merger?”

The Jamaican government had months before joined the rest of Caricom in endorsing the establishment of a Caribbean Single ICT Space. And Mr. Paulwell is the President of the CTU, the intergovernmental body charged with spearheading efforts to make the Caribbean Single ICT Space a reality! The CTU marked its quarter-century with a five-day 25th Anniversary ICT Week held from February 2nd to 6th in Port-of-Spain. Several speakers, including Grenadian Prime Minister Dr Keith Mitchell, the CARICOM head of government with the regional portfolio of science and technology, outlined a vision for the development of a Caribbean Single ICT Space.

For his part, Paulwell was reported by the January 16 Jamaica Gleaner to have said, “What I have sought to do is to go beyond the law and to extract certain conditions, which I’m pleased that the company has accepted fulsomely, because I wanted to ensure that we would preserve competition as much as possible and protect the interest of the consumer.”

Where’s a sharp-tongued calypsonian when you need one?

“Signs of a potential union were first seen last May when the two companies announced a joint venture to share an undersea cable network connecting 42 countries and spanning more than 42,000 kilometers,” Wooding wrote in a May 2013 CircleID post titled Joint Venture Promises Broadband Benefits with Potential Risks for Latin American, Caribbean Markets.

“The agreement created an entity with control of almost ninety percent of the region’s subsea cable infrastructure and raised the first red flag to regulators across the region.”

So the question now is, who is going to emerge as a Regional Calypsonian, a watchdog to safeguard regional, national and public interests by holding elected and appointed officials to account? Hopefully, it will not be too long before the answers emerge.

In the meantime, we’ll all just have to extempo.

Limbo: Dancing with Fire

These considolation of players in the telecoms market presents several challenges for telecommunications regulation and competition generally in the region. Several key areas of concern arise as a direct result of the consolidation taking place in the markets.

Competition

There is a risk that the dominant position of CWC in wholesale broadband or Digicel in mobile can led to monopoly-like behavior in their markets of operation. The provision of converged services and associated bundled products presents a real potential for abuse of a dominant position, particularly through anticompetitive pricing and margin squeeze. The potential for monopoly behavior is compounded by the absence of competition regulation in several countries and lack of any effective regional body to regulate competition. Nevertheless, none of these countries, individually, has the leverage to effectively impact a multinational provider by way of regulation on their own.

Employment

Generally, consolidation of the telecom space can trigger layoffs and related employee unrest. In the case of the CWC acquisition of Columbus, the deal would bring the more than 3,000 Columbus employees into the CWC fold, almost doubling CWC’s current staff. It is possible that this staff count will be reduced upon completion of the acquisition. If this were to occur in the region, particularly in the more vulnerable economies of the Eastern Caribbean, the negative ripple effect could impact the wider Caribbean.

Innovation and Economic Development

Loss of smaller, entrepreneurial players in the region’s telecom sector could stymie growth and curtail innovation. Assimilation of small or niche players into larger conglomerates is a typical growth strategy in many industries. However, in small markets, such as those that characterise the Caribbean, niche players are particularly important catalysts to market innovation, competitive pressure and growth. Industry acquisitions have to counter-balance by increased incentives for new entrants to ensure that innovation, competition and consumer choice is encouraged and not suppressed.

Business Continuity and Disaster Mitigation

Affordable options for telecommunications services is a factor used to assess the competitiveness and investment-worthiness of any market. On completion of the CWC acquisition of Columbus, several markets in the region will immediately lose the benefit of an alternate supplier for critical network services. The reduced or outright loss of options for network connectivity will be a major risk to communications services redundancy, business continuity, disaster mitigation, particularly in territories prone to natural disasters.

Consumer Choice

TV viewers and Internet users depend on choice, competition, and diversity. The acquisitions can threaten these important market enablers, giving dominant providers the power to extract rents at vital chokepoints in the multi-play value chain. Consolidation may also lead to more vertical integration of service and content providers. This raises discrimination concerns if operators have incentives to deny access to other non-affiliated service providers.

In the case of CWC, which will wield a dominant position for cable TV in several Caribbean territories, its business interests would almost exclusively determine what Internet services, programming bundles, and devices people can access and use. The current competitive state of the broadband and cable markets is hardly ideal, but after consolidation could be dire.

Investments

It is uncertain whether the region will continue to benefit from the same level of infrastructure investment and all of its follow-on economic benefits or see it lost as the major players consolidate their portfolios. For example, countries that were expecting direct funding for infrastructure modernisation, access expansion and new service and technology deployment, may not see those promises realised any time soon. CWC has already communicated to its investors that its priority will be on first realising the synergies it expects from its investment in Columbus.

Source: The Organisation of Eastern Caribbean States Commission Draft Paper on Advancing Telecommunications Policy and Regulation in the OECS

Steelpan: Music from the Fire

From a service provider perspective, there is an obvious attraction of combining network infrastructure to access products (fixed and mobile broadband), to access devices (mobile, landlines, television, computers), to IP-based content and services (such as television and video on demand). This value chain allows service providers to realise several times the revenue of a basic internet access service. Such so-called quad-play plans allow service providers is to lock in more customers by tying them into more services, making it more difficult for them to churn. For example, operators can promise consumers that the cost of four separate services combined into one bundle is cheaper than buying all four separately.

Cutting price to craft an attractive bundle can cost operators in the short-term, however, getting customers to commit to bundled service packages helps to mitigate churn, ensure longer lock-in and potentially drive up average-revenue per-user over time. It also helps keep out smaller operators who may not be able to effectively compete on such a scale for customers.

In the Caribbean, consolidation promises several benefits to the dominant providers:

Mobile

CWC can now leverage Columbus’ extensive network to enhance its mobile services, leveraging improved resilience and capacity to better support customers’ growing appetite for digital content. Similarly, by acquiring subsea cable assets, Digicel is able to bolster its broadband services portfolio and expand its mobile and fixed line Internet services offerings. For both providers, securing broadband infrastructure also better monetize consumer appetite for digital content delivery, particularly via mobile devices. Globally, mobile data traffic is expected to increase 11-fold between 2013 and 2018 and is expected to exceed traffic from wired devices by 2018. Consolidating broadband infrastructure assets with strong mobile business divisions, better positions them both for this mobile-data future.

Converged Services

The acquisition will allow for convergence of fixed-line, mobile, broadband, cable TV and other IP services. The possibility for more bundles can mean more service and content choices for consumers. Offering cross-service discounting, loyalty benefits and other perks is a complementary way to get subscribers on board, retain them, and ideally, keep them satisfied

Cable TV

The acquisition will increase the scale of pay TV offerings in the region, streamlining five cable TV markets. This could enable the company to leverage its broadened channel portfolio; strengthen its bargaining position with content providers; and accelerate the rollout of IP TV services to consumers in all of its markets.

Business and Government Services

CWC’s ownership of the most extensive terrestrial and subsea cable network in the region, provides it with greater network resilience and route diversity. Its customers can benefit from a strengthened product and service portfolio for business and government customers.

Source: The Organisation of Eastern Caribbean States Commission Draft Paper on Advancing Telecommunications Policy and Regulation in the OECS

Cable & Wireless Communications

CWC is a US$1.69 billion revenue telecom services provider, based in Coral Gables, Florida and operating in 17 countries throughout the Caribbean, Latin America and the Seychelles. Publicly traded on the London Stock Exchange, CWC now makes US$1.12 billion in revenue each year from the Caribbean, or about US$48 per customer per month. The firm now serves two million customers in thirteen Caribbean countries with fixed telephony, broadband, cable TV, and mobile services. CWC also provides established and growing business-to-business and government telecom services in its regions, with an integrated portfolio from core telephony and connectivity (fixed and mobile), to managed network services, data center hosting, and custom IT solutions and integration.

About Columbus

Columbus is a privately-owned telecommunications and technology services company, registered in Barbados, with its operations coordinated out of Ft. Lauderdale, Florida. In the Caribbean, Columbus is one of the leading providers of triple-play cable TV and broadband enabled services. It also provides corporate data center services and managed networking services throughout the Caribbean and Latin America. Columbus controls more than 75% of the region’s subsea fiber networks and provides backhaul connectivity to 42 countries in the region. For the six months ended 30 June 2014, Columbus had revenue of US$284m with EBITDA of US$118m and total operating profit of US$48m.

About Digicel

Digicel is a mobile phone network provider operating in 31 markets across the Caribbean, Central America, and Oceania regions. The company is owned by Irishman Denis O’Brien, incorporated in Bermuda, and based in Jamaica. It has about 13 million wireless users.

In the Caribbean, Digicel’s markets include: Anguilla, Antigua and Barbuda, Aruba, Barbados, Bermuda, Belize, Bonaire, the British Virgin Islands, the Cayman Islands, Curaçao, Dominica, French Guiana, Grenada, Guadeloupe, Guyana, Haiti, Jamaica, Martinique, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad & Tobago, and Turks and Caicos.

Digicel has also been pursuing an aggressive acquisition strategy in the region and in each of the markets in which it operates. In addition they are acquiring regional fiber systems with connections to Miami. Digicel is broadening its services portfolio to compete in the quadplay market: cable TV, fixed line telephone service, mobile Internet and mobile cellular service.

Source: The Organisation of Eastern Caribbean States Commission Draft Paper on Advancing Telecommunications Policy and Regulation in the OECS