The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The winning bidder for the second cellular licence is being required to meet higher service standards than the Bahamas Telecommunications Company (BTC) from the off, as it must achieve a monthly ‘dropped calls’ average of less than 1 per cent.

The Request for Proposal (RFP) document for the second cellular licence bidding process, which has been seen by Tribune Business, sets out detailed network coverage and service targets that the winner must hit within specified timeframes.

And bidders who commit to exceeding the minimum targets set by the Government will score extra points when their financial and technical capabilities are assessed during the first bidding rounds.

For instance, bidders who commit to building a network and infrastructure with a downlink speed of 5 Megabytes (Mbps) per second, as opposed to 2 Mbps, during ‘light load’ times will gain “additional points” from the evaluators.

Another opportunity for “additional points” comes if bidders exceed the Government’s “mandatory requirement” that the winning bidder be at least 51 per cent owned by Bahamians.

Tribune Business can reveal that the Government, according to the RFP, wants the winning bidder to establish a Bahamian company, called ‘Newco’, to hold the 15-year spectrum and operator licences that will be issued to the successful applicant.

The RFP then calls “for the people of the Bahamas to hold the majority equity ownership interest (51 per cent) in Newco” via another Bahamian company that will be established for this sole purpose.

This entity, called ‘HoldingCo’ in the RFP documents, is designed to ensure that Bahamian majority ownership in the second cellular operator is “as widely distributed as possible”.

While the winning bidder will have Board and management control over the ‘Newco’ second mobile operator, plus “strategic policy-making” power the company, the Bahamian shareholders via ‘HoldingCo’ will have “certain veto rights” that are undefined.

“The Government is committed to ensuring that the electronic communications sector has the broadest possible ownership participation by the people of the Bahamas, and is using the liberalisation of the cellular mobile market as an impetus to achieve this objective,” the RFP declares.

However, the ownership structure detailed in the tender documents appears unwieldy. And, moreover, the determination to ensure the “broadest possible ownership participation” by Bahamians is in market contrast to the Christie administration’s decision not to proceed with an initial public offering (IPO) of a 9 per cent BTC stake that was left on the table by its predecessor.

Prime Minister Perry Christie, in an interview with Tribune Business last year in which he hinted at the ‘Bahamian majority ownership’ requirement for the second cellular licence winner, conceded that this may make the Government consider similar for part of his BTC stake.

However, the RFP seems to make the Bahamian ownership process more cumbersome by offering the Government as the initial “sole shareholder” of Newco if this will help facilitate the share transfer to private investors.

“In order to facilitate the timely formation of Newco and commencement of operations, the Government’s primary role will be to facilitate the immediate transfer of shares to Bahamian private investors at the time that HoldingCo is formed,” the RFP reveals.

“However, the Government’s shareholding in HoldingCo would only be temporary in nature, pending an offering of the shares in HoldingCo to eligible investors.”

The RFP document’s content is such that the bidding process is clearly ‘not made to measure’ for foreign mobile operators or consortia interested in acquiring the second cellular licence.

The 51 per cent Bahamian ownership requirement, for example, would go against every corporate structure that regional cellular giant, Digicel, has established in all markets it has entered. The 100 per cent privately-owned company has always retained full equity ownership wherever it has gone.

And besides, many foreign-controlled bidders may be put off by the fact that, after all the time, expense and due diligence required to win the bid, they will only receive 49 per cent of the profits their equity stake entitles them to.

In contrast, the 51 per cent ‘majority Bahamian ownership’ requirements favours local players, who include among declared bidders the likes of Cable Bahamas, Junkanoo Mobile (little is known about its investors) and Limitless Bahamas (the former IP Solutions International).

Cable Bahamas, in particular, as a publicly traded company that is 100 per cent Bahamian-owned, should already be in line to score “additional points” on the ownership content.

In keeping with the ‘Bahamians first’ theme that was the hallmark of the Government’s election campaign, the RFP also wants bidders to ‘Bahamianise’ their senior management within five years - those committing to achieve this sooner winning additional points.

“The applicant should identify the extent to which Bahamian employees will be engaged, specifying executive, management and staff levels,” the documents say.

“In order to obtain the minimum marks for this category, the plan must demonstrate a commitment to upskilling Bahamians to fill specialist positions (technical or otherwise) throughout the organisation.

“Additionally, applicants must also commit to up-skilling Bahamians to fill the chief operating officer, chief financial officer and chief executive posts in a five-year timeframe,” the RFP added.

“Applicants who are able to commit to filling the chief operating officer, chief financial officer and chief executive posts with Bahamians in a shorter timeframe will be awarded additional mark-ups.”

Bidders have also been asked to submit a Local Benefits Plan, committing them to “maximise the supply of goods and services” from the Bahama for their network build-out, and duration of the license.

They are also expected to “engage as many local contractors and design and construction professionals” as possible.

On service quality, the winning cellular operator has to provide users with “90 per cent confidence” in the areas where they provide service.

As for targets, they must hit:

• 99 per cent broadband session availability

• 99.9 per cent network availability

• Greater than 99 per cent average monthly completion rate across all cell sites

• Greater than 95 per cent completion rate on each island’s busiest cell site

• Greater than 75 per cent average monthly completion rate for each cell site

As for dropped calls, the bidders must deliver:

• Less than 1 per cent average monthly dropped call rate.

• Less than 2 per cent average monthly busy hour dropped call rate

• Less than 3 per cent average monthly dropped call rate for the hour with worst performance.

These targets seem more stringent than BTC’s current standards, with the incumbent still averaging a daily average of 40,000 dropped calls as recently as November 2014.

When it comes to network roll-out, the winning bidder must provide 75 per cent mobile services to New Providence/Paradise Island; Grand Bahama; Abaco and all its cays; Eleuthera, including the likes of Harbour Island and Spanish Wells; Andros; Bimini (including Cat Cay and Ocean Cay); and Exuma and its main cays within six months of being awarded the licence. This coverage must increase to 99 per cent of these islands after 12 months, and 85 per cent on Andros.

The successful bidder must also provide 75 per cent coverage to Cat Island; Long Island; San Salvador; the Berry Islands and its cays; Inagua and Ragged Island within 12 months, with this rising to 90 per cent after 18 months and 99 per cent after two years.

Acklins, Crooked Island, Long Cay, Rum Cay and Mayaguana are to have 75 per cent coverage within 18 months of the licence award, rising to 99 per cent in three years. And the minor Exuma cays will have 80 per cent mobile coverage from the new operator within 36 months.

The goal is clearly for the winning bidder to provide nationwide cellular coverage within 36 months, and not just ‘cherry pick’ the main markets, as BTC and Cable & Wireless Communications (CWC) had feared.

The winning bidder can also commit to a more rapid mobile services roll-out, which would see them attain 75 per cent coverage on New Providence; Grand Bahama; Abaco and all its cays; Eleuthera, including the likes of Harbour Island and Spanish Wells; Andros; Bimini (including Cat Cay and Ocean Cay); and Exuma and its main cays within three months of being awarded the licence.

Ninety-nine per cent coverage would be achieved on these islands in eight months instead of 12, with Cat Island; Long Island; San Salvador; the Berry Islands and its cays; Inagua and Ragged Island having 75 per cent coverage within this timeframe.

To guarantee these delivery targets, the winning bidder will have to obtain a performance bond, with sums ranging from $500,000 to $4 million depending on the roll-out pace selected.

The RFP documents stipulate that the winning bidder, not the 51 per cent Bahamian shareholders in ‘HoldingCo’, will be responsible for posting the performance bonds.

While the bidder and Bahamian investors will be responsible for start-up and initial capital costs in proportion to their shareholdings, the two sides will have to agree “projected capital injections” for each roll-out phase prior to the licences being issued.

The two sides will then finance these in proportion to their shareholdings, but the Bahamian investors in HoldingCo will have to agree to finance this via debt.