The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Telecommunications Company (BTC) is bracing for a 20 per cent cut in income over the next four years as a result of losing its lucrative cellular monopoly, it was revealed yesterday.

Phil Bentley, chief executive of BTC’s controlling shareholder, Cable & Wireless Communications (CWC), told a conference call with analysts that its Bahamian investment was set to face “revenue and profitability headwinds” once mobile competition became a reality later this year.

Mr Bentley admitted BTC’s top and bottom lines would “decline”, and remain under pressure post-cellular liberalisation, until its broadband Internet and IPTV investments started to pay dividends.

Acknowledging that BTC’s financial performance had already deteriorated slightly in its 2015 financial year, the CWC chief said this would continue - and accelerate - in the following 12 months (the companies’ financial year-end is March 31).

While unable to predict the precise impact on BTC’s financials as a result of cellular liberalisation, Mr Bentley was relatively dismissive of the bid submitted by Cable Bahamas for the second mobile licence (see other article on Page 1B).

While some might view the BISX-listed communications operator as formidable competition for BTC if it won, Mr Bentley said the company had “never operated mobile in their lives” and lacked the necessary scale to invest in a nationwide cellular network.

Asked by London-based analysts to estimate the precise impact that cellular liberalisation will have on BTC’s performance, Mr Bentley replied: “I think, realistically, we’d be looking at 15-20 per cent off of that number in the next four-year run rate.”

When pressed to clarify what he was referring to, the CWC chief said: “Fifteen per cent year-on-year EBITDA (earnings before interest, taxation, depreciation and amortisation). That’s probably where you’ll need to steer.”

BTC is on track to generate $118 million in EBITDA for its 2014-2015 financial year, based on the $59 million it recorded for the first half. Applying Mr Bentley’s 15-20 per cent figure to the former number would cut $23.6 million off BTC’s annual EBITDA.

All first-round bids on the second cellular licence, which have to detail each bidder’s technical and financial capabilities to meet the Government’s requirements, are due to be submitted by today.

They will all be opened in the presence of both Cellular Liberalisation Task Force representatives and executives from each of the bidders.

Mr Bentley, meanwhile, said BTC was looking to grab increased broadband Internet and pay-TV market share to compensate for the likely decline in cellular revenues that competition will bring.

Confirming that BTC’s results in the third quarter “were down slightly”, the CWC chief said: “There will be headwinds there [in the Bahamas] for revenues and profitability in the near term, certainly in the mobile category, until we get broadband and TV up and running.”

Mr Bentley said that BTC’s current international partners, aware that mobile competition was imminent, were already trying to “squeeze” the roaming rates charged to both Bahamians and visitors when each was overseas.

Describing the arrival of competition as a “challenge”, Mr Bentley added: “The new entrant will be arriving in our new fiscal year.

“But already, some of the carriers, international carriers, are seeing that coming and are putting the squeeze on us a little bit on some of the roaming arrangements we’ve got. That is why the Bahamas is slightly flat, slightly down on mobile.”

This assessment is born out by BTC’s key performance indicators, which show reveal a mixed picture with relatively modest subscriber growth, and revenue per customer down in the areas of both cellular and broadband Internet year-over-year.

Cellular subscribers were up, as at December 31, 2014, by 7,000 or 2.2 per cent year-over-year at 314,000 compared to 307,000 the year before.

Broadband subscribers were up 23.8 per cent year-over-year, having risen from 21,000 to 26,000, while fixed-line customers were down by 1,000 - from 104,000 to 103,000 year-over-year.

As for average revenue per mobile subscriber, this had fallen from $65.80 to $60.40 in the year to end-December 2014, although the latter was a slight improvement on the $60 at end-September 2014.

Broadband revenues per subscriber had continued to fall, from $67.50 at end-December 2013 to $48.40 some 123 months later.

Fixed-line revenues per subscriber, though, had jumped from $30.70 at end-December 2013 to $37.90 as 2014 drew to a close.

Mr Bentley said BTC’s results had “shown we can grow fixed-line” revenues, reversing years of decline in this segment around the world, due to its replacement by mobile communications.

But, while BTC continues to trial its Internet Protocol (IP) TV product in the Family Islands, it faces a long and expensive fight to dislodge Cable Bahamas’ dominance in both this market and broadband Internet. Yet this is what BTC is relying on to counteract the loss of its cellular monopoly.

“I think that we’ve always flagged that in the Bahamas that, until we get TV and broadband up and running, we are going to see declines there,” Mr Bentley admitted.

“We’ve seen it this year, seen a little bit of a decline, and I think next year we’ll probably see, you know, a little bit further than this year’s decline.

“We’ve already started to lower prices a little bit. After that, we should start to see it stabilise a little bit if we get to the TV category.”

Pointing out that the Bahamas’ relatively high GDP per capita made it one of the most lucrative markets in the Caribbean, Mr Bentley said cellular liberalisation’s impact on BTC depended on who the second licence winner was.

“If it’s a mobile-only player, then we should have quadruple play up and running by then very effectively,” he added. “The IPTV being tested at the moment is going down very well.

“If it’s, let say, Cable Bahamas, who have applied, and they’re already the Triple Player, then on the one hand you could say well, that could be tougher for you.

“But equally, I could say they’ve [Cable Bahamas] never operated mobile in their lives, and they’re a one-country story. So, they won’t necessarily have the buying scale that’s required for investment.”

The Christie administration has publicly stated its intention to award a second cellular licence by April/May this year, with the expectation that the second applicant will begin offering services to Bahamians by October/November 2015.

That would mark the half-way point of CWC/BTC’s 2015-2016 financial year, but the company has said little about the estimated financial impact of cellular liberalisation.

However, BTC’s figures for the six months to end-September 2014 showed it has become ever-more reliant on its expiring cellular monopoly to deliver its profitability.

For that period, cellular/mobile revenues accounted for $126 million, or 73.68 per cent (nearly three-quarters) of its $171 million top-line revenues, confirming that despite privatisation and the Cable & Wireless Communications (CWC) takeover, BTC still remains a ‘glorified cellular company’ with little else to its armoury.

Extrapolated out on an annual basis, BTC earns between $240-$260 million (between $20-$22 million per month) from its cellular/mobile monopoly, again dominating the annual $350-$360 million top-line.

The latter has stubbornly refused to grow since CWC acquired Board and management control at BTC in April 2011, and despite the company’s new efforts to get into pay-TV, the entry of a new mobile operator will likely have a major impact on its top and bottom lines.

Taking Cable Bahamas’ seizure of a 30 per cent fixed-line market share within two years as a guide of what the new mobile operator may do, some $80-$90 million of BTC’s annual mobile revenues might be in jeopardy.

This not only demonstrates how lucrative the second cellular licence is as a business/financial opportunity, but the potential consequences for a BTC net income that was $37 million in the six months to end-September 2014.

This again raises questions as to why the Christie administration went to such trouble to ‘reclaim’ 2 per cent of BTC’s equity, thus ‘regaining’ a majority 51 per cent interest for the Government if you combine that with its original 49 per cent stake.

The Bahamian people, via the Government, thus have a larger stake in what is - per Mr Bentley’s admittance - set to soon become a less valuable property as a result of cellular liberalisation.

And this means that any future initial public offering (IPO) of part of the Government’s BTC equity is likely to be less attractive to private investors, and raise less money for the Treasury.