The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas believes its proposed 27% basic cable TV rate increase is the only way to “safeguard the product’s financial viability”, having predicted that the shortfall below its 10.86 per cent capital return target would “double” for 2011.

Acknowledging the likely consumer backlash, and current Bahamian economic reality, the BISX-listed communications provider said in its original regulatory application that it was suffering “a significant shortfall” between revenues and costs on its basic cable TV package.

The application, which was submitted on December 1, 2011, indicates that “an even larger price increase” than the proposed $8 per month rise would be required to cover the projected 2012 basic TV “shortfall”.

However, Barry Williams, Cable Bahamas’ senior vice-president of finance, said economic realities meant it was limiting its request to a $38 per month fee, rather than the $41.30 it argued was justified by inflation.

Admitting that Cable Bahamas will likely see a negative return on mean capital employed in its basic cable TV service for 2012, Mr Williams wrote: “Based on Cable Bahamas’ 2010 audited regulatory financial results, there was a significant shortfall between SuperBasic’s revenues and costs.”

This meant that Cable Bahamas was unable to hit its allowed return on mean capital employed (RoMCE) of 10.86 per cent, and Mr Williams added: “As demonstrated in the application, the SuperBasic revenue shortfall has increased significantly in 2011.

“Absent a price increase, the SuperBasic revenue shortfall is expected to grow further still in 2012, resulting in a negative RoMCE for SuperBasic.”

Cable Bahamas effectively admits that the $8 price increase would only address the 2011 “shortfall”, meaning that the rise - if approved by the Utilities Regulation & Competition Authority (URCA) following a public consultation - would still not enable it to hit the 10.86 per cent return target for its basic cable TV package.

“A further price increase would be required to address the expected 2012 shortfall,” Mr Williams wrote.

“Based on forecast revenues and costs, Cable Bahamas expects that the SuperBasic revenue shortfall will double for the current year, 2011. Absent any change in the SuperBasic price, Cable Bahamas expects the revenue shortfall to increase further still next year.”

He added: “Cable Bahamas is sensitive to the harsh economic reality the Bahamas is currently experiencing, and the fact that these are difficult financial times for our subscribers.

“However, after careful deliberation and weighing of all the facts involved, Cable Bahamas has decided that proceeding with this application is the only way it can safeguard the continued viability of the product.”

The monthly fee for basic residential cable TV has remained stuck at $30 since the service began in 1995, some 17 years ago, but this is not for want of trying in Cable Bahamas’ part.

It has made several applications for a rate increase previously, but these were all rejected by the former regulator, the Television Regulatory Board.

This Board was government appointed and controlled, and the political influence meant such applications never stood a chance, given the Government’s sensitivity to the impact price increases might have on election votes.

Indeed, in 2005, current minister of tourism, Obie Wilchcombe, announced in the House of Assembly that a basic cable TV rate increase application from Cable Bahamas had been rejected.

It was felt that the transition to URCA, a politically-independent economic regulator, and the new Communications Act regime would help Cable Bahamas’ case, but this might not be.

The fact that it has taken some nine months, since the application was first made, for Cable Bahamas’ request to become public raises questions in its own right. Given the correspondence exchanged between URCA and the company, it is clear the regulator has difficulties with it - especially given the potential consumer backlash - and was reluctant to approve it without feedback.

The consumer fightback already appears to have started, judging by social media comments and those posted on Tribune Business’s website.

Many Bahamians are unlikely to see why the company needs to increase its basic cable TV rates, especially after Cable Bahamas unveiled a 37.4 per cent net income increase to $6.339 million for the 2012 first quarter, up from $4.614 million during the same period in 2011.

The company’s argument, though, is that its basic cable TV margins and returns are being squeezed by rapid increases in its costs across the board. The proposed rate increase also amounts to less than $100 per year - $96 in total.

Still, pushing Cable Bahamas’ case, Mr Williams said in the application: “Cable Bahamas’ commercial rationale for the proposed price increase is to ensure the revenues derived from SuperBasic reflect the costs of provisioning the service, including the cost of capital.

“As the financial evidence provided shows, SuperBasic’s current 2011 revenues fall significantly short of covering the associated costs of the service, including the cost of capital.”

And he added: “Cable Bahamas also notes that it has maintained the price of SuperBasic at $30 for 16 years now (since the service’s launch in 1995).

“Over that same period, consumer price inflation in the Bahamas has grown on a cumulative basis by roughly 37 per cent or 2 per cent annually.

“Had the price of SuperBasic kept up with the rate of inflation since its launch, it would be just over $41 today.”

Mr Williams said that to eliminate the 2012 basic cable TV revenue shortfall, an $11.30 rate increase would have been needed, but with the URCA consultation slated to end in October, hopes that any rise might happen this year are likely to be dashed.

Cable Bahamas added that its benchmarking survey of 24 Caribbean jurisdictions showed the average fee per channel paid by subscribers was $0.66 per month, “well above” its current $0.56 per month.

“Cable Bahamas also found that over the course of the last 17 months alone (the period covered by the analysis), the price of the average comparable residential basic cable TV package has increased close to 4 per cent in total,” Mr Williams said.

“This evidence suggests that Cable Bahamas’ proposed price increase for residential SuperBasic service to $38 is fair and reasonable in view of the average price and rate of change of comparable basic cable TV service prices in other Caribbean jurisdictions.”

From 2010 to 2009, Cable Bahamas saw its basic cable TV revenues rise 1.2 per cent year-over-year, from $29.015 million to $29.349 million. This compared to a 4.9 per cent increase in its total revenues to $88.862 million.

As for basic cable TV subscriber numbers, Cable Bahamas said these only rose by 0.1 per cent during the same period, from 67,657 to 67,715.

“The market for basic cable TV service in the Bahamas is mature and has been for some time,” Mr Williams said.

“This is reflected by the fact that the growth rate of SuperBasic subscribers has been very low in recent years and, moreover, has been steadily declining.

“The average annual rate of growth in residential SuperBasic subscribers over the last five years (2006-10) was 1.1 per cent. In 2010, growth in residential subscribers dropped to almost zero.”