The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Bahamas Telecommunications Company’s (BTC) chief executive yesterday said the industry “rule of thumb” is that the second Bahamian mobile operator will seize 30 per cent of its market share.

Leon Williams, addressing a Bahamas Society of Engineers (BSE) luncheon, said that if this happened when the new mobile player enters the market in October/November this year, some $100 million will be slahed from BTC’s top-line revenues.

With mobile revenues accounting for near 75 per cent of BTC’s top-line, the impact would thus be severe and feed all the way down to the incumbent’s profitability and its two shareholders - Cable & Wireless Communications (CWC) and the Bahamian Government.

Mr Williams said this meant that the

liberalisation of the Bahamian’ mobile communications sector would ultimately “cannibalise” the Government’s share of dividends from BTC, adding: “The pie is only so big”.

 He described the company’s move to further reduce its workforce by up to 150 persons through a voluntary separation package (VSep) as neither a political or emotional decision, but a business one.

Mr Williams said at least two of BTC’s potential competitors - Digicel and Cable Bahamas - had already indicated their employee numbers would be far less than the 779 staff it currently employs, which would immediately allow them to undercut BTC on mobile rates through having a much lower cost base.

  Mr  Williams said: “Competition is coming and the Government receives $0.51 cents out of every dollar that BTC makes. Liberalisation of the market would cannibalise the Government’s dividends. It’s that simple. The pie is only so big.”

   According to the Cellular Liberalisation Task Force, while nine groups had obtained the Request for Proposal (RFP) document, just three came through with completed bids. The three contenders, one of whom will likely be BTC’s first mobile competitor before year’s end, are Digicel (Bahamas) Holdings Ltd; BISX-listed Cable Bahamas; and Virgin Mobile Bahamas.

      “The rule of thumb is that a new entrant into the market will take 30 per per per of the customers,” Mr Williams said. “A 30 per cent loss of customers will be 30 per cent loss of BTC’s revenue, so you look at the $320 and take $100 million off the balance sheet.”

He added that new entrants normally introduce lower rates than the incumbent, meaning that if BTC were to match those rates to remain competitive, it would also mean additional revenue losses.

    “In  Jamaica,  when Digicel came in, Cable and Wireless lost 80 per cent of the market. They lost  120,000 customers in 24 hours. If something similar where to happen to BTC, the shareholders would get no dividends, the Government would get no dividends and the investors would not get the money needed to fix the network,” said Mr Williams.

His comments appear to betray CWC’s nervousness that the fate its LIME business suffered in Jamiaca, where it has been overwhelmed by Digicel and been fighting a slow-going battle to regain market share ever since liberalisation, could be repeated in the Bahamas.

Rationalising the company’s decision to cut staff numbers at this time, Mr Williams said: “After we have looked at maximisation of the revenue streams, all the cost cutting, the new businesses that we’re going into, we are left with just a single option.

“One of the potential entrants [Digicel] stated in the press last week that they would create 1,300 jobs during the construction phase but, during the operations, they will only hire 300 people.

“Another company which is local to the Bahamas  said that they have 500 Bahamians employed presently. You don’t have to be a rocket scientist to figure that if I have 800 employees, and my competitor has 500 or 300, I could never match his rate to you.”

Mr Williams thus effectively confirmed what Tribune Business has been saying all along, namely that BTC is a glorified, bloated cellular operator that is totally reliant on its expiring monopoly for its profitability.

And, while CWC has stripped costs out of the business post-privatisation, it has failed to adequately prepare BTC for liberalisation by diversifying its revenue streams. Every market it is looking at is either dominated by Cable Bahamas, who may end up challenging it on mobile, or facing multiple competitores (fixed-line voice).

BTC’s figures for the six months to end-September 2014 show it has become ever-more reliant on its expiring cellular monopoly to deliver its profitability.

For that period, cellular/mobile revenues accounted for $126 million, or 73.68 per cent (nearly three-quarters) of its $171 million top-line revenues, confirming that despite privatisation and the CWC takeover, BTC has little else to its armoury.

Extrapolated out on an annual basis, BTC earns between $240-$260 million (between $20-$22 million per month) from its cellular/mobile monopoly, again dominating the annual $350-$360 million top-line.

The latter has stubbornly refused to grow since CWC acquired Board and management control in April 2011, and despite the company’s new efforts to get into pay-TV, the entry of a new mobile operator will likely have a major impact on its top and bottom lines.

Taking Cable Bahamas’ seizure of a 30 per cent fixed-line market share within two years as a guide of what the new mobile operator may do, some $80-$90 million of BTC’s annual mobile revenues might be in jeopardy.

This is slightly less than Mr Williams’ dollar valuation, but not only demonstrates how lucrative the second cellular licence is as a business/financial opportunity, but the potential consequences for a BTC net income that was $37 million in the six months to end-September 2014.

Mr Wiliams yesterday added: “This is business; this is not about emotions or politics. No bank, Atlantis or Baha Mar is going to run it  any differently. This is business that we have to run, and if we fold up the Bahamian  people lose $0.51 out of every $1 that BTC makes. The policymakers are canabalising what the Bahamian people could get.”

      The Bahamas Communications and Public   Officers Union (BCPOU) has blasted BTC for not acting in good faith over the abrupt way the voluntary separation packages have been offered.  According to the BCPOU, the deadline for the voluntary separation packages is March 6.