By NEIL HARTNELL
Tribune Business Editor
Regulators are proposing to ease the Bahamas Telecommunications Company’s (BTC) regulatory burden after its mobile revenue share suffered annual double-digit declines in each of the five years after Aliv entered the market.
The Utilities Regulation and Competition Authority (URCA), in a mobile market assessment that argued competition has delivered better pricing and choice for Bahamians, disclosed that BTC’s top-line market share declined by an annual average compound rate of 12.58 percent over the period between 2016 and 2020.
Aliv ended BTC’s long-standing monopoly when it launched services in November 2016, and URCA’s just-released analysis disclosed that the incumbent’s market share based on mobile connections also dropped by an annual double-digit average of 10.45 percent.
And, with annual revenue per subscriber (ARPU) dropping by 28.29 percent in real terms between 2015 and 2020, the communications industry regulator said the effects from the competition posed by Aliv - with both operators enjoying similar market shares - meant BTC no longer needs to be treated as having significant market power (SMP) in mobile services.
As a result, URCA plans to relax reporting, accounting and price regulation requirements that were imposed on BTC during and immediately after the end of its mobile monopoly. Justifying its decision, URCA said: “Aliv has captured a considerable share of the market in terms of mobile connections and retail mobile revenue.
“Indeed, between 2016 and 2020, BTC’s shares by mobile connections and retail mobile revenue decreased at an average annual compound rate of 10.45 percent and 12.58 percent, respectively.... This suggests there has been a consistent and considerable erosion in BTC’s market power in the retail mobile market.
“Based on market share figures alone, the market is almost evenly split between the two existing mobile network operators (MNOs). In URCA’s view, this does not warrant a finding of single dominance in the examined market.... Indeed, based upon the available evidence there has been a 28.29 percent drop in total monthly ARPU for mobile services between 2015 and 2020.”
ARPU, which measures per subscriber yields, is a key benchmark of communications industry performance as it indicates whether operators have been able to extract more pricing power with their services. URCA said that, while BTC’s ARPU has been declining ever since it entered the market, Aliv’s has been increasing with both converging towards a similar level or market average.
“It is worth noting that a 20 percent decline occurred around the time of Aliv’s entry in 2016. This suggests to URCA that the sheer threat of entry from a second MNO might have resulted in the incumbent reducing prices during the years leading up to the market entry,” URCA said of the drop-off in ARPU.
“Meanwhile, total monthly ARPU continued to fall until 2019, but then increased by 9 percent in 2020 (which could be a link to the COVID-19 pandemic increasing the demand for voice and data communications services).... URCA attributes the declining monthly ARPU trends to competitive dynamics in the retail mobile market.
“This view is supported by the fact that mobile usage in terms of average call minutes and mobile data usage has not declined, but increased during that period. With call and data usage increasing during the period, arguably the declining monthly ARPU trends are underestimating the extent of the drop in effective unit prices to end-users,” the regulator added.
“Crucially, price competition has generated benefits for consumers in terms of increased take-up/usage and growth of traditional mobile telephony and data, and is supported by survey evidence. For example, the respondents to the URCA-PD (Public Domain) survey said Aliv’s entry has resulted in lower pricing and greater data allowance (45 percent/43 percent) as well as greater call SMS allowance (23 percent).”
URCA, pointing to a further indicator of how Aliv has eroded BTC’s customer base, said: “While Aliv has been able to attract new customers, it has also gained subscribers at the expense of BTC. This is reflected in data on ported mobile numbers, which shows that the volume of mobile numbers ported from BTC to Aliv represented 78.65 percent (or 76,661) of total successful ports (97,469) between 2017 and 2020....
“According to available information, Aliv has not earned a positive return since entering the market in 2016, despite capturing mobile connections and retail mobile revenue. In its submission in relation to profitability, Aliv reported negative EBITDA (earnings before interest, taxation, depreciation and amortisation) from 2016 to 2019 and projected a positive EBITDA for 2020.
“Based on BTC’s regulated accounts, BTC has managed to sustain a level of profitability on its retail mobile activities beyond its regulated cost of capital (11.71 percent) even though profits have fallen between 2016 and 2020. This does not necessarily imply that BTC holds a dominant position in the market, especially on a forward-looking basis as its profitability has fallen significantly in recent years, in line with its market shares.
“This, in line with Aliv’s profitability trends, would suggest that overall the market is trending towards profitability levels more common in competitive markets. Clearly, the assessment of profitability criterion is not suggestive of single firm dominance on the part of either BTC or Aliv.”