The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas believes mobile penetration could increase by up to 33 percentage points when it finally breaks the Bahamas Telecommunications Company’s (BTC) long-standing monopoly, as it slammed the “inherent dissatisfaction” with the latter’s services.

The BISX-listed communications operator’s offering document for its forthcoming $30.818 million rights issue, which is set to launch on March 4, argues that there is “very large room for growth” within the Bahamian mobile market.

The document, obtained by Tribune Business, uses the mobile liberalisation experience of other Caribbean markets to predict that the second operator’s entry could grow Bahamian market penetration by between 29-33 percentage points.

Cable Bahamas added that new entrants into liberalised mobile markets typically seized an average 42 per cent share within three years.

And data from Trinidad & Tobago showed that total mobile revenues increased by 82 per cent in the first year post-liberalisation, and by another 20 per cent in the following year.

It also pointed out that the Bahamas’ current mobile penetration rate of 82 per cent, under BTC’s monopoly, was “significantly below” the Caribbean average when it was tied to GDP-per capita- an area where this nation scores well in comparison to the region.

Acknowledging that its entry into the Bahamian cellular market, as a 48.25 per cent shareholder in the second operator, currently called ‘NewCo’, will “require significant investment”, Cable Bahamas said it represented the last major, untapped opportunity in the communications industry.

Not missing an opportunity to take a ‘shot’ at its main rival, BTC, the BISX-listed company told its shareholders: “Cable Bahamas expects that the new mobile company can gain a significant market share over the long term.

“This is a reasonable expectation given the inherent dissatisfaction with the current mobile provider [BTC], and the plans by Cable Bahamas to deliver a high- quality service at competitive costs.

“It is apparent from other markets in the Latin America and Caribbean region, which have seen a second operator enter the market in the past decade, that three years after service launch the new entrants had achieved a market share of 42 per cent on average.”

Cable Bahamas added that BTC’s 314,000 mobile subscribers at year-end 2014 corresponded to a population penetration rate of about 82 per cent, a figure that was “significantly below all countries in the region” when tied to the Bahamas’ GDP-per-capita indicator.

“The Ericsson Mobility Report for Latin America and Caribbean suggests that the average mobile penetration in the region is approximately 115 per cent,” Cable Bahamas’ offering document told shareholders.

“This leaves very large room for growth within the Bahamian market, which is presently a monopoly. Evidence from markets liberalised after 2004 in the Latin American and Caribbean region shows that license awards to second mobile operators, and subsequent market entry, coincide with an average penetration increase of 29 percentage points.”

Cable Bahamas then cited Trinidad & Tobago’s experience to show how market liberalisation boosted value for mobile subscribers, adding: “In the year in which the second operator entered the market, gross revenue for the entire market grew by 82 per cent compared to the previous years. A year later, the market had grown by another 20 per cent in value.”

The rights issue, in which shareholders can subscribe for one extra share for every eight they already hold at a $6 price, is intended to raise $30.8 million that will help to finance the build-out of NewCo’s mobile network infrastructure and “further expansion in both the Bahamian and US market”.

Cable Bahamas shareholders, though, may be surprised that there are no projections for NewCo’s likely financial performance contained in the offering document, or estimates of the likely returns and profits that will accrue to the company and themselves via the 48.25 per cent equity holding.

While Cable Bahamas executives had been particularly quiet on the ‘NewCo’ process, sources close to the situation have told Tribune Business that the company has been placed in “a difficult position” over the rights offering.

Although named as the successful bidder for the second mobile licence, with a winning $62.5 million spectrum bid, Cable Bahamas and NewCo have yet to be ratified as BTC’s first mobile competitor by the Christie administration.

The complex requirements imposed on the winning bidder in the original mobile Request for Proposal (RFP), which require a majority 51 per cent equity stake in NewCo to be held for Bahamian investors by another entity, ‘HoldingCo’, have also created issues.

With HoldingCo yet to be capitalised and created, Cable Bahamas is unable to formalise Shareholder’s Agreements and other important legal formalities that will govern their relationship,and how NewCo operates.

In the absence of these agreements, and with a Newco business plan still being developed, Cable Bahamas is unable to share any financial projections relating to its new mobile venture with shareholders - even though this is the basis for soliciting their rights offering investments.

“It’s a difficult position for Cable Bahamas,” one industry observer told Tribune Business.

They added that one unresolved issue related to the management and other services that Cable Bahamas will provide to NewCo, and the fees the BISX-listed provider will likely charge for doing so.

Such fees are nothing new, as Cable & Wireless Communications (CWC) extracts similar fees for services provided to BTC, but the source added: “The key issue at the moment is resolving how Cable Bahamas works with NewCo, and the services provided from Cable.

“It will provider certain benefits and charge certain fees. The Government wants to make sure that Cable treats the other shareholders in NewCo fairly.”

Cable Bahamas’ offering document made clear its intentions here, saying: “In the context of a two-player market, the new mobile company will be set up as an independent company.

“Cable Bahamas, as the key operating partner, is prepared to provide access to its infrastructure and support services at all stages of its development. This will allow the business to take advantage of the extensive experience and investments already made by Cable Bahamas in the Bahamas.”

Gowon Bowe, the PricewaterhouseCoopers (PwC) partner, who is advising the Government and its Cellular Liberalisation Task Force, told Tribune Business that they were working with Cable Bahamas to finalise NewCo’s strategic business plan and the financial projections that would be binding on the company.

Its completion, and sign-off by the NewCo Board, would then enable the issuance of a private placement document to the institutional investors already pitched on ‘HoldingCo’.

Mr Bowe said these investors will “not take a dart throw in the dark” when investing, hence the need to complete NewCo’s business plan first.

“It’s not a complicated process, but it’s complex because it has a lot of moving parts,” he told Tribune Business.

“A lot of persons are anxious because of the end goal of getting a competitive [mobile] environment, but there is expectation that due diligence has been done so that when the switch is flipped on, it is not flipped off shortly thereafter.”

The second mobile licence’s award is already six weeks behind the originally announced schedule, which suggested it would be completed by 2015 year-end.

In the meantime, BTC looks set to enjoy a mobile monopoly that extends beyond five years post-privatisation.