The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas has warned regulators they will be “in uncharted waters” by proceeding with implementing price caps on its pay-TV and broadband Internet services, arguing that the latter’s costs had dropped by up to 45 per cent in the past two years.

Responding to the Utilities Regulation and Competition Authority’s (URCA) initial conclusions on regulating operators with presumed Significant Market Power (SMP), Cable Bahamas warned that its price cap proposals would deter “investment and innovation”.

The BISX-listed communications provider emphasised that it had “serious concerns” with URCA’s plans, adding that it should be reducing - rather than expanding - the scope of regulation.

In its latest proposals, URCA is proposing to impose for the first time price caps on Cable Bahamas’ broadband Internet offering to Bahamian consumers.

It also wants to prevent the launch of product ‘bundles’ that rivals cannot match, and require Cable Bahamas to provide “standalone” Internet offerings.

On the pay-TV front, URCA desires to extend price caps from Cable Bahamas’ Prime (the former SuperBasic) to all its TV products, and implement the same restrictions on launching ‘bundled’ services.

Pushing back hard, Cable Bahamas is arguing that URCA is essentially ‘over-regulating’. It warned: “There is little if any reliable international precedent for the application of price caps in respect of either cable TV companies, or in respect of the provision of broadband or pay-TV services.

“URCA will once again be in unchartered regulatory waters if it proceeds with imposing price caps on broadband and pay TV services.”

The company believes URCA has failed to ‘prove the case’ for these price caps. Its position is that the Bahamas Telecommunications Company (BTC) already provides stiff competition on broadband Internet, and will soon do likewise in pay-TV.

“Cable Bahamas has a number of serious concerns about the preliminary conclusions reached by URCA in the consultation document. At a time when URCA should be considering deregulatory approaches in order to stimulate investment and incentivise innovation in the sector, URCA is instead proposing to increase regulation substantially,” the BISX-listed communications provider said in its feedback to URCA.

It described the regulator’s broadband Internet conclusions as “flawed’, and added: “At the same time, URCA is proposing to introduce an elaborate price cap scheme that would apply to Cable Bahamas’ pay television services, even though that market is, at the very least, moving rapidly towards effective competition.

“The retail pay TV market should, therefore, be a candidate for deregulation, or at the least, lighter-touch regulation - if not in this review period, then certainly in the next.”

Urging URCA to withdraw its current regulatory obligations, Cable Bahamas said: “In the broadband market, the existence of strong competition at retail level obviates the need for continued wholesale broadband regulation.

“There is strong end-to-end competition between Cable Bahamas and BTC in the broadband market, and there is no reason for any regulation at all. If any need for regulation in this market could be justified, then the existence of a wholesale remedy establishes an additional platform for service-based competition to develop at the retail level.

“The price cap scheme proposed by URCA is, in any event, ill-timed, intrusive and disproportionate.”

Focusing on broadband Internet, Cable Bahamas said URCA had “incorrectly applied” a three-stage process employed by the European Union (EU) in determining the appropriate level of regulation in that continent’s communications market.

Rather than use this process at the start, in determining whether certain operators had SMP, Cable Bahamas is arguing that URCA had adopted it too late - bringing it in at the stage of determining regulatory measures.

The BISX-listed communications provider added that a “proper” application of the EU test would show the proposed price caps were not needed, and accused URCA of relying on “dubious grounds” to reach its findings.

Pointing out that no other Caribbean market was subject to retail price caps on broadband Internet, Cable Bahamas said: “Rather than undertaking a comprehensive, forward-looking competitive assessment of the retail broadband market, URCA appears to have formed the assumption that the presence of two infrastructure operators is insufficient to guarantee effective competition on the Bahamian fixed telecommunications market.

“Unlike certain other electronic communications markets where BTC retains a legal or de facto monopoly (or near-monopoly), the retail broadband market benefitd from robust fixed, infrastructure-based competition.

“Cable Bahamas and BTC are therefore strong competitors at retail level, not only in terms of price, but also in respect of service quality, reliability, innovation and customer support.”

Cable Bahamas pointed to increasing broadband Internet penetration, with 10,000 new households connected during 2012, and the increased “overall value” it is providing to strengthen its case for lighter-touch regulation. Some 82 per cent of Bahamian homes have broadband Internet.

And it cited the “doubling” of BTC’s download speeds on its Internet packages, and $80 million investment in its Next Generation Network (NGN) over a five-year period, as ‘further proof’ of the market’s highly competitive nature.

Cable Bahamas then took issue with URCA’s conclusion that there had been no “headline price reductions” for its Internet product, adding that reductions had occurred across a “basket of services”.

Comparing its prices to a UK regulatory report cited by URCA, Cable Bahamas said prices for its 4 megabytes per second service had fallen by over 30 per cent in the past two years from $60 to $40 per month.

And for its 10 megabytes per second product, Cable Bahamas said prices had dropped by 45 per cent over the same period - from $75 per month to $40 per month.

While its 30 megabytes per second product was priced at $60 per month, the BISX-listed provider said this was a newly-launched service whose cost was still within the range cited by UK regulators.

International comparisons, Cable Bahamas added, also refuted URCA’s arguments that Bahamian broadband Internet prices were “excessive” and true competition had yet to emerge.

“For comparable 4 megabytes per second broadband services, Cable Bahamas’ prices are 5 per cent below the average for global comparators, and priced lower than those in the US and Canada,” the company added.

“ Additionally, Cable Bahamas’ prices are 35 per cent lower than the average for regional comparators, and priced lower than similar services in Panama and Barbados.”

This pattern, according to Cable Bahamas, was repeated for its 10 megabytes per second product, where prices were 11 per cent below the global average, and 23 per cent lower than the region.

While prices for its 30 megabytes per second product were 12 per cent higher than the global average, Cable Bahamas again explained this away on the grounds it was a new service. It argued that it still offered “better value” than similar products in the US and Canada, while its prices were 44 per cent lower than the regional average.

“Cable Bahamas’ minimum entry package download bitrates increased from 3 megabytes per second to 20 megabytes per second between 2010 and 2014,” the BISX-listed provider added. “In addition, upload bitrates have increased by four fold over the same period.

“Similarly, BTC’s downloads speeds have doubled between 2011 and 2014. As a result of this important change in the content of offers, the price per megabyte per second paid by Cable Bahamas customers has fallen sharply from between $8-14 per megabyte per second to between $2-3 per megabyte per second.”

On the pay-TV front, Cable Bahamas is arguing that rather than focus on the past, URCA should concentrate on the future and the likelihood of significant competition emerging within the next 12-18 months via BTC’s IPTV (Internet Protocol TV) plans.

And the BISX-listed provider is arguing that barriers to entering the pay-TV market are not high, given the availability of satellite TV and the ability of programmers such as ZNS to stream TV to tablet phones.

“[There] are very public signs of what TV subscribers can expect from BTC in the pay TV market,” Cable Bahamas said. “This development is highly likely to happen within the next 12-18 months, the relevant timeframe for URCA’s forward-looking market analysis.

“It is, therefore, difficult to understand how URCA could form the opinion that barriers to entry in the pay-TV market are high. These barriers are obviously not as high as URCA has assumed, at least not for BTC.”

Cable Bahamas said regional experience had shown IPTV had gained market share quickly in nations where it had launched. It has a 21 per cent share of the pay-TV market in Panama, home to BTC’s controlling shareholder, Cable & Wireless Communications (CWC).

“CWC, which also owns 49 per cent of Cable & Wireless Panama, is likely to try to leverage its group experience in the launch and commercial provision of IPTV services in Panama to the benefit of BTC in the Bahamas,” Cable Bahamas added.

“Therefore, IPTV could quickly play an important role in the Bahamian pay-TV market, and BTC has the potential to gain rapid market share, especially as it will benefit... from its corporate parent, CWC.”

Cable Bahamas also effectively implied that it was hypocritical for URCA to suggest there was excessive pricing in the pay-TV market, when it had rejected its application for an $8 per month increase in the PRIME package’s pricing, therefore forcing the company to provide this below cost.

Urging URCA not to extend price cap regulation beyond PRIME, the company added: “There is a strong case for URCA to defer from taking any final decision on the extension of ex-ante regulation into the pay TV market at this point.

“Instead, it should monitor the development of this market over the forthcoming 12-18 months, and undertake a market assessment and review at the end of this period.

“It will allow for the relaxation of existing retail regulation on PRIME/SuperBasic, and the sun-setting of current ex-ante obligations as soon as BTC acquires, for example, a 15 per cent share of the TV market,” Cable Bahamas said.

“The application of such a price cap on Cable Bahamas would inevitably impact on issues such as quality of service and ability to innovate. This would have a wider effect on Cable Bahamas’ commercial activities in the Bahamas, and on the Bahamian economy itself.”