The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Telecommunications Company’s (BTC) interconnection charges “are expected to fall by up to 55 per cent over the next three years” under proposals released by the sector regulator, in a move to ensure increased competition is not thwarted by the incumbent’s inefficiencies.

The Utilities Regulation and Competition Authority (URCA), in its consultation document on how to set the interconnection charges BTC will levy on rival operators - chiefly Cable Bahamas - in the near-term, is proposing to use a mixture of the newly-privatised carrier’s own data and so-called efficiency targets to determine these costs.

URCA has already set 19 per cent and 69 per cent efficiency improvement targets for BTC in its fixed-line and mobile businesses, respectively (see other story on Page 1B), but agreed to phase these in to avoid any ‘shocks’ to BTC’s financial performance.

The 19 per cent fixed-line voice target will be introduced over a three-year period between 2012 and 2015, while the cellular goal will be phased in over five years - between now and 2016-2017.

If these targets are achieved, it will mean that BTC’s interconnection (fixed-line call termination) charges for same-island calls will be brought down from their current 1.98 cents per minute to 0.92 cents per minute by 2014-2015, a 53 per cent reduction.

For calls originating elsewhere, URCA’s goal is to reduce BTC’s interconnection charge by 45 per cent over the same period - down from their current 2.65 cents per minute to 1.47 cents per minute.

And, given that BTC’s cellular monopoly means it will only be dealing in interconnection fees levied on international operators until 2014-2015, URCA is proposing that these fees be reduced by 42.5 per cent - from their current 7.26 cents per minute to 4.16 cents.

Pledging to review these charges, which BTC will have to include in its Reference Access and Interconnection Offer (RAIO), URCA said: “BTC’s RAIO charges are expected to fall by up to 55 per cent over the next three years.”

It is vital to the Bahamian communications industry’s development, in particular the emergency of a thriving, competitive market, that BTC’s interconnection rates are got right.

These are rates levied on other, rival operators for terminating calls originated by their customers on BTC’s network. If interconnection prices are set too high, or BTC is allowed to pass on its own inefficiencies via these charges to other carriers and their customers, the latter will be priced out of the market. Improved prices, products and services for Bahamian residents and firms could also be thwarted.

URCA, meanwhile, said reductions in BTC’s interconnection charges would be forthcoming even before the efficiency improvement targets were factored into the equation.

This stemmed from BTC’s 2010 separated accounts, which break the carrier’s business down into its separate activity lines. URCA said the 2010 accounts “show significant movement in unit costs” relative to their 2009 numbers.

“Based on information provided by BTC, URCA expects this to lead to reductions in RAIO charges of $0.84 per minute,” the regulator said of the 2010 accounts.

“For example, fixed call termination charges should reduce by 30 per cent to 40 per cent, relative to the current RAIO rates. The international mobile call termination charge should fall by 12 per cent, relative to its current value.”

As a result, based on the adjustments coming from the 2010 accounts alone, URCA is proposing that BTC’s 1.98 cents per minute fixed-line on-island call termination fee drop to 1.14 cents per minute, with its off-island counterpart declining from 2.65 cents per minute to 1.81 cents per minute.

As for international cellular traffic, the RAIO interconnection charge is scheduled to fall from 7.24 cents per minute to 6.40 cents per minute.

When URCA added in the efficiency adjustment targets, it said it was proposing that BTC produce a 10 per cent improvement during its 2012-2013 financial year.

This, it added, would further take the 1.14 and 1.81 cents per minute charges for on-island and off-island call termination, respectively, down to 1.03 cents and 1.63 cents per minute.

And, when the full 19 per cent efficiency adjustment took place in 2013-2014, BTC’s call termination charges are intended to hit 0.92 cents per minute and 1.47 cents per minute for on and off-island calls, respectively.

URCA said it was proposing a ‘multi-year glide path’ approach to tackling BTC’s RAIO interconnection charges for the next three years, effectively setting a cap on them.

It added that this approach would provide “certainty” on these charges going forward, “ensuring they follow a stable path”, and result in lower regulatory costs. This had more advantages, and fewer negatives, than other approaches, URCA saying its main aim was to ensure interconnection/call termination charges reflected the true cost of providing the service.

Still, acknowledging that benchmarking remained useful, URCA said that “despite the proposed significant reductions, BTC’s fixed termination charges would remain in line with those across the region” in 2014-2015.

Currently, BTC’s off-island fixed-line interconnection rates are cheaper only than Finland and the Turks & Caicos Islands in URCA’s sample. The proposed reduction would bring them to a level where they were less than those levied in Trinidad and the Cayman Islands.

As for the on-island interconnection rates, only Dominica and Turks & Caicos were more expensive in this region than BTC. The reductions proposed by URCA would bring them below most Caribbean countries’ current rates.

On the cellular side, URCA added: “The proposed glide path set out above would align BTC’s mobile termination rates in 2014-2015 with those currently experienced in Europe.

“However, it is again to be expected that mobile termination rates in the comparator countries are likely to fall relative to their current levels over the next few years.

“For example, this is best illustrated in the case of the Cayman Islands, where ICTA has recently determined a new mobile termination rate equivalent to 3.26 cents, which is due to replace the current rate of approximately 10.29 cents. The proposed 201-2015 RAIO charge for BTC would be significantly above the revised rate in the Cayman Islands.

“URCA is also aware that the OUR in Jamaica has recently announced a reduction in mobile termination charges as an interim rate pending the completion of its ongoing long-run incremental cost (LRIC) modelling exercise for mobile networks.”