Telecom operators fear reforms may bring foreign domination

This was published at the end of last week. It’s interesting to note, it really depends who the carrier is as to whether or not they are for or against the new legislation.

Published: November 28. 2008 09:49AM
Royal Gazette Bermuda

Telecom operators fear reforms may bring foreign domination

By Tania Theriault

Fears that the local telecommunications industry may fall to foreign domination are at the top of the list of concerns providers have about industry reforms set for the draft legislation stage.

Telecom operators feel strongly that more discussion is needed before new policy is rushed through and many said, while consulted about changes announced last week in Parliament, their issues and suggestions have fallen on deaf ears.

Bermuda’s three classes of telecommunications licences are set to be abolished in favour of one universal licence for all providers and a Regulatory Authority to oversee the industry is to be established. Smaller telecom providers are worried that the changes will eventually put them out of business and lead to market domination by a few operators smashing local providers, jobs and competition in the process.

The details cannot be left to a Regulatory Authority yet to be fully defined and not expected to even be operational until 2010, providers said.

“Clearly one of the larger concerns with any regulatory reform initiative is that we do not create a condition that promotes and favours a monopolistic or duopolistic environment for Bermuda,” said TeleBermuda International president and chief operating officer Greg Swan. “In an environment that is already demonstrating competition within its regulatory framework, this balance can be severely disrupted as a result of the net effect of vertical integration and cross subsidation within any licensed conglomerate.”

North Rock general manager Vicki Coelho and executives from Igility Group of Companies expressed similar ‘don’t fix it if it isn’t broken’ sentiments on the reforms. They said the industry had taken major strides in the past few years to bring down prices and offer better services and that customer complaints about local services had fallen largely silent but still reform is being thrust upon them.

“Bermuda has been and continues to be a model for how ‘managed competition’ has promoted competition in a small jurisdiction, while still not impeding the incentive for additional capital injections for infrastructure upgrades by the licensed carriers in any licensed class,” added Mr. Swan. “What needs to be carefully and astutely considered in Bermuda’s reform process is that we do not create a stimulus that negatively impacts the competitive balance and economic health of our licensed carriers.” With large and even international providers able to compete across services with smaller local providers which by their very nature have higher overheads the fear is that competitive balance will be lost.

Based on a policy document made public last Friday, the Ministry of Telecommunications and E-Commerce is cognisant of this possibility noting that moving to one licence “will cause direct competition between operators with different levels of obligations relative to the 60/40 (Bermudian to foreign ownership) rule”. Larger Class A providers already have exemptions to the 60/40 rule.

The policy paper suggests these larger providers may have to wait out a transition period where constraints are put in place to protect local businesses before getting the new universal licence. “In particular, to prevent anti-competitive behaviour in the transition period, the new standard licence would not be offered to dominant operators until the RA (regulatory authority) has defined the necessary regulatory measures to prevent anti-competitive behaviour and the dominant companies have complied with these measures,” the policy document says.

But providers said the cart seems to be before the horse. “That provision might help, but the bill has been put forth before the definition of ‘dominant operators’ has been defined,” one industry insider said.

“The challenge of dominance and foreign ownership is complex,” added Ms Coelho. “This has been a grave concern of North Rock’s. How does a small carrier compete with Cable and Wireless that has worldwide revenue for the first six months of this year at $2.7 billion and post tax profit of $300 million in six months? This would be similar to BF&M having to compete with All State Insurance or Masters competing against Home Depot.

“The B and C licence groups are a complex mix of Bermudian and foreign ownership, she said: “The problem is that we already have foreign owned entities with very deep pockets competing against locally owned.

“In the situation of the ISPs, there are no dominant providers as there is so much choice available. But facilitating the foreign owned carriers the ability to provide additional products and services severely disadvantages the local carrier. They have access to large amounts of capital.

“With the new licence regime, a foreign owned carrier can deeply discount or cross subsidise a service offering. The local carriers do not have the access to the capital and will be in a position that their hard-earned base of customers will flee to the heavily subsidised offering hence lessening competition.”

The impact from full competition with large local companies is also a concern, she added, pointing to the KeyTech group. “Having BTC, Logic, Cable Co. (new International Cable System), M3 Wireless and minority ownership of CableVision puts the group in a dominant position vertically,” Ms Coelho said.

Much consideration will be needed to balance the industry in a way that does not stamp out small providers, she suggested. “Foreign ownership restrictions need to be removed for the local carriers prior to the new licensing regime coming into play,” she said. “Also a period of protection is necessary before the incumbent foreign companies are allowed to expand their offerings. This would allow locally owned providers an opportunity to find suitable international partners to effectively compete.”

But the providers do not feel their concerns have been heard or addressed. They said the consultant used by Government in drafting reforms simply fell to “cookie cutter” predetermined outcomes rather than looking for creative solutions to Bermuda’s unique conditions.

“Currently it looks like the Ministry intends to make wholesale change without having given much consideration on the economic impact losing all of these Bermuda-based jobs,” one source told The Royal Gazette.

“I don’t think anyone in the industry feels that there has been a full vetting of the issues with industry,” added Logic chief executive officer Lloyd Fray. “Surely no one feels there has been a vigorous back and forth debate on the issues which is really vital if we’re to get the best result.”

He said Logic welcomes the competition the new framework will open up but still feels the legislation must be well thought out and designed. “We’re concerned about not being fully apprised of policy proposals in a timely fashion, and we’re concerned about not being given sufficient time to be able to respond thoughtfully,” he said. “These are very important matters with wide ranging impact for customers as well as operators.”

Leave a Reply Text

This site uses Akismet to reduce spam. Learn how your comment data is processed.