BTC hails end to Cable Bahamas 'subsidisation'


Tribune Business Editor


The Bahamas Telecommunications Company (BTC) yesterday hailed plans to establish a ‘level playing field’ in fixed-line voice call termination fees, arguing that this would stop it and its clients “subsidising Cable Bahamas”.

Marlon Johnson, BTC’s senior vice-president, in a written response to Tribune Business’s inquiries, said the incumbent carrier “agrees completely” with the Utilities Regulation and Competition Authority’s (URCA) plans to create “symmetry” in wholesale call determination rates.

He added: “BTC notes that at present, for on-island calls, Cable Bahamas charges BTC more than twice as much for a BTC customer to call a Cable Bahamas number (1.98 cents per minute) than BTC charges Cable Bahamas for the latter’s customer to make a call to a BTC number (0.93 cents per minute).

“BTC notes that there exists no justification for the asymmetry, and it essentially has meant that BTC and - ultimately its customers - have been subsidising the operations of Cable Bahamas.”

Mr Johnson said that requiring all market operators to charge the same call termination rates “creates a level playing field and minimises the opportunities for an operator to manipulate asymmetry of rates to gain an unfair advantage”.

“Such an arrangement ensures that competition is maximised. Ultimately, the customers benefit, and the buying power of their dollar is optimised,” he added.

Not surprisingly, Cable Bahamas yesterday begged to differ with BTC’s view, the BISX-listed operator questioning URCA’s decision to designate it as having Significant Market Power (SMP) in the fixed-line voice market.

David Burrows, Cable Bahamas’ marketing head, told Tribune Business: “We are not an SMP for voice services, and my understanding of the way URCA is supposed to work is to encourage those not an SMP for certain services to expand those services.

“It there was a 50/50 split in market ownership, that would be a different scenario, but we’re not. We are not an SMP for voice, but the argument being posed is that somehow the SMP [BTC} is negatively impacted.”

URCA, while it has not designated Cable Bahamas as having SMP in fixed-line voice, applying this to only BTC, is arguing that all operators - including the BISX-listed company - possess such power when it comes to calls terminating on their own respective networks.

URCA is proposing to place all operators on a ‘level playing field’ over a 90-day period, “promptly removing” a long-standing complaint of BTC.

“URCA is of the preliminary view that the existing asymmetry in termination rates of other SMP (Significant Market Power) licensees should be promptly removed and that, going forward, Cable Bahamas and IPSI’s call termination charges should be set in line with the termination rates set out and approved by URCA in BTC’s RAIO(Reference Access and Interconnection Offer),” the regulator said in a consultation document released yesterday.

BTC has long complained that the 113 per cent call termination “premium” enjoyed by Cable Bahamas has placed itself at a competitive disadvantage, allowing the latter to offer consumers ‘below cost’ pricing.

“Other licensed operators (OLOs) charge a significant premium for fixed local call termination on their networks compared with BTC (1.98 cents per minute versus 0.93 cents per minute, which represents a premium of 113 per cent for OLOs),” BTC said in previous feedback to URCA.

“This rate premium will allow an OLO to obtain higher wholesale revenues from a fixed-line customer than BTC would, which in turn allows the OLO to lower retail prices below costs without incurring an economic loss. This anomaly, while it is allowed to persist, should be reflected in any margin squeeze tests applied to BTC.”

Describing the situation as “asymmetric”, BTC added: “When an OLO competes for a fixed-line customer, it will therefore do so in the knowledge that any wholesale revenues related to that subscriber will be significantly higher than BTC’s wholesale revenues relating to the same customer.

“This puts BTC at a competitive disadvantage, and it allows the OLO to charge lower retail tariffs than BTC without incurring economic losses as a consequence of the available cross-subsidy from the call termination service.”

URCA’s proposals disclosed that Cable Bahamas’ termination rates, $1.98 cents per minute for on-island calls and $2.65 cents per minute for off-island, were the same as BTC’s initial RAIO.

However, BTC is now on a “glide path” to reduce its on-island and off-island termination rates to $0.75 cents and $1.13 cents per minute by 2014-2015. Its current charges are $0.93 cents per minute for on-island calls, and $1.4 cents for off-island.

Noting the “asymmetry” between BTC’s rates and those of its rivals, URCA said there was no basis to justify this. It added that BTC’s existing termination charges were 53 per cent and 47 per cent, respectively, below those of Cable Bahamas.

“BTC is further required to reduce its fixed call termination charges to $0.83 cents per minute and $1.26 cents per minute, respectively, (which will increase the asymmetry relative to their current level) in early 2014,” URCA added.

The regulator is thus proposing a phased approach where Cable Bahamas first brings its fixed-line call termination rates in line with BTC’s existing ones within one month of its final decision.

BTC, at the same time, will reduce its termination rates to the already contemplated $0.83 cents per minute and $1.26 cents per minute, for on-island and off-island calls, respectively.

Then, finally, Cable Bahamas and IPSI will have to bring their termination rates into line with these charges three months from the date of URCA’s final decision.

“Thereafter, BTC and all other licensees with SMP in fixed call termination will be subject to the same price control for these services,” the regulator added.


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