The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas has blasted the 23 percent hike in the Utilities Regulation and Competition Authority’s (URCA) 2023 budget as “an assault on the finances” of itself and other communications operators who will pay for it.

The BISX-listed communications provider, in its response to the regulator’s draft 2023 annual plan, proclaimed itself “astounded” by the magnitude of the $1.26m year-over-year increase and demanded that URCA slash this jump by more than 50 percent in percentage terms.

Urging URCA to instead opt for a 5-10 percent budget increase, Cable Bahamas and its Aliv mobile affiliate said the days of communications operators being “a ‘cash cow’” were long over yet itself and the likes of the Bahamas Telecommunications Company (BTC) are being expected to finance the rise via increased licence fees despite facing a variety of other cost and investment pressures.

Cable Bahamas suggested the situation also exposed the folly of amending the URCA Act, the regulator’s governing legislation, which previously allowed it to retain any excess licence fees above those used to finance its budgeted operations and apply them to costs incurred in future years.

However, the Act was reformed more than a decade ago, on July 1, 2013, to require that such sums instead be transferred to the Government’s Consolidated Fund to cover its general costs rather than being specifically used to finance communications industry regulation.

And the BISX-listed provider argued that the increased licence fees needed to finance URCA also threaten to undermine the Government’s policy of import tariff waivers on communications equipment designed to incentivise investment by itself and other operators in 5G (fifth generation) technology and Family Island networks.

It also pointed out that no progress has been made in seven years to develop a so-called Universal Service Fund to finance communications infrastructure build-out on the Family Islands and counter the low rates of return generated by these more sparsely-populated locations. And Cable Bahamas also urged URCA to give “serious consideration” to selling its Frederick House head office in downtown Nassau because of the maintenance costs being incurred.

“The group is astounded with the presentation of this year’s draft Budget figures/amounts, both the combined electronic communications sector and electricity sector draft budgets and the individual electronic communications sector budget,” Cable Bahamas said. “URCA’s significant increase in the budget amounts for 2023, in the absence of detailed explanations or justification, is a cause for great concern to licensees.

“The days of telcos being a ‘cash cow’ are decidedly over and the mantra of the industry today is fiscal restraint and the reduction of administrative and operating costs. There are increasing financial pressures to maintain existing networks, invest in expensive upgrades and provide new and more costly networks and services.

“Given the archipelagic nature of our country and the relatively small population, telecommunications is an expensive venture and with robust competition profits necessary for reinvestment are on the decline. URCA’s draft 2023 Budget reflects an ‘it is what it is’ approach with little consideration for the changing financial dynamics of the sector and the challenges faced by licensed operators.”

Cable Bahamas continued: “Given that this is a draft budget, and the fact that there can be no reasonable justification for a 23 percent overall increase in the combined operating budget, URCA is urged and encouraged to redraft the 2023 combined budget with the object of reducing the $7.959m total operation expenditure to be recovered from licensees, which is $1.26m over the prior year 2022 of $6.698m and bring it more in line with 2022’s budget with, at the very most, a minimal 5 percent to 10 percent increase year-over-year.

“Indeed, the excessive budget increases being imposed on licensees, combined with increasing attempts by URCA to impose fines which are disproportionate to the alleged matter for which the fine is being applied, amounts to an assault on the finances of licensed operators in the sector.”

Noting that premises and utilities costs are forecast to increase by 48 percent year-over-year, Cable Bahamas added: “Maintaining Frederick House is not sustainable and its sale must be on the table for serious consideration.... The group, in its response last year, urged URCA to sell the Frederick House building which has been an albatross around the finances of licensees who must pay for the original poor decision to purchase such an ancient building.

“The explanation that the expenditure is for the replacement of the elevator and generator and ‘smaller scale projects’, the latter having no details, is excessive in one year and must be spread over a three-year period. The ongoing failure to secure tenants for the building, a selling pitch to licensees, in all the years since purchase - resulting in the burden being assumed by licensees - is unacceptable particularly as the building will continue to require major maintenance.”

Continuing its attack, Cable Bahamas said: “URCA must be mindful that it cannot continue year after year with budget increases without consideration for the financial pressures imposed on licensees by other forms of taxation. The budget increases diminish the effectiveness of waivers in customs duties for telecommunications equipment in the national Budget.”

Turning to the URCA Act reforms, which prevent the regulator from retaining surplus licence fees, Cable Bahamas said: “This was a shortsighted amendment, not only because it constrained URCA financially but because it also deprived licensees of credit for fees paid in good faith towards the electronic communications sector’s regulation by URCA, which were in excess of what was estimated and therefore ought rightfully and legally to have been returned to licensees by way of credit or placed into a pot/bank account for direct benefit to the sector.

“A look at Trinidad and Tobago’s Universal Service Fund is instructive. The Fund in mid-2022 stood at $20m. The T&T 2001 Communications Act provided for all excess licence fees to be placed in said fund and, in addition, since 2015 licensees pay 1 percent on international gross revenue and half a percent on domestic gross revenue into said fund.

“To date, The Bahamas has no Universal Service Fund. Preparation work has started and stopped over the years and the data collected is now outdated. Excess licence fees and fines could have been deposited in such a fund to assist the electronic communications sector operators in the development and expansion of Family Island networks, which is of the utmost importance given the archipelagic nature of our Commonwealth,” Cable Bahamas added.

“Such forward thinking would have lessened the need for the Government to introduce duty waivers as a concession for expensive build-outs with low rates of return on investment.” URCA, in reply, pledged to investigate all the concerns and criticisms.

It said: “URCA remains committed to ensuring that the budget is fair and transparent, and that all our licensees are treated equitably. We will investigate all the suggestions and provide a detailed explanation for any increases in our budget. We also acknowledge the statement regarding the introduction of a Universal Service Fund and will analyse it further. Thank you for your input.”