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Urca Proposes Up To 90% Cut In Call Terminate Fees

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Regulators are proposing up to 90 percent “interim” cuts to a selection of call termination charges levied by the major Bahamian communications carriers, it was revealed yesterday.

The Utilities Regulation and Competition Authority (URCA), unveiling proposed changes to the mobile and fixed-line call termination rates levied by the likes of Aliv, Cable Bahamas and the Bahamas Telecommunications Company (BTC), said its suggestions would only apply until itself and the industry agreed more “cost-oriented” charges.

Four different services will be impacted by the URCA-proposed changes to call termination charges, which are fees levied by communications carriers for accepting calls originating on a rival’s network that are made to their own customers and terminate on their own system. The cuts are to be phased in over a three-year period.

Same-island fixed-line call termination fees will be reduced from the current 0.75 cents per minute to 0.53 cents in the first year, a 30 percent reduction, with URCA proposing that they ultimately fall to 0.08 cents per minute in the third year - a 90 percent cut.

Domestic mobile call termination fees, which presently stand at 2.48 cents per minute, would drop by 24 percent to 1.89 cents per minute in the first year, eventually falling to 0.72 cents in the third year.

The latter figure represents a 71 percent reduction on the present tariff, and URCA has similar proposals for SMS text messaging and inbound international mobile call terminations. It is proposing that these tariffs, which are currently 1.4 cents and 4.61 cents per minute, be cut by 39 percent and 71 percent, respectively, by year three.

URCA explained that it was imposing the interim termination rates due to “the time elapsed” between when they were last reviewed, “and the likelihood that prevailing rates are unlikely to be representative of the current and forward-looking costs of providing termination services”.

It added that both Aliv and Cable Bahamas, which owns the controlling 48.25 percent stake in the mobile operator, had urged URCA last year to review call termination rates “to ensure they reflect efficiently-incurred costs” - and the regulator is now obliging.

URCA, in its consultation document, says the call termination charges levied by BTC, Aliv/Cable Bahamas and Internet Protocol Services International (IPSI), should be based on the Long Run Incremental Cost (LRIC) of providing these services.

“This is the forward-looking cost that operators incur in order to provide the services,” URCA said. “Cost-reflective rates are desirable as they ensure that operators can recover the costs involved with the provision of the service, but not over-recover costs.

“Over-recovery of costs would likely lead to higher prices for consumers on other networks as competitors increase their retail prices to cover the increased net cost of termination, whereas under-recovery of costs may undermine incentives to invest. It could further result in competitive distortions.”

Unveiling a “benchmarking” exercise it has conducted to compare call termination costs in The Bahamas with other nations, URCA said those for same-island fixed line calls were higher than for all countries in the sample with the exception of the Cayman Islands.

“It is clear that the prevailing intra-island rate in The Bahamas is significantly higher than all other jurisdictions within the sample, with the exception of the Cayman Islands, with the current rate in The Bahamas exceeding all three sample averages by 44 percent to 90 percent,” the regulator charged.

“Similarly, mobile call termination rates in The Bahamas are also relatively high at around three times the average pure LRIC-based rate in the sample.” It acknowledged, though, that “the picture is less clear” for SMS text messaging, although “it is clear that rates in The Bahamas are above those in several other jurisdictions within the benchmarking sample”.

Still, URCA concluded that there was a case for its intervention, stating: “Despite this variance in SMS termination rates, it is clear that, overall, across the three services the prevailing fixed and mobile termination rates in The Bahamas are above those observed, on average, across the benchmarking sample.

“This suggests that, unless there are exogenous factors which would reasonably cause LRIC for these services to be significantly higher in The Bahamas than in the other benchmark countries, termination rates in The Bahamas are likely, currently, to be above the incremental costs of providing such services in The Bahamas.”

Emphasising that its proposed rates were intended to “start the transition” to cost-efficient rates, the regulator added: “In the absence of URCA making an interim adjustment to rates, the difference between LRIC-based rates and existing rates in The Bahamas is likely to grow.

“URCA considers that this is problematic because setting rates above incremental costs is inefficient, and these costs are also likely to be passed on to consumers in the form of higher retail prices.”

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