The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Despite ending Cable Bahamas’ four-year wait for a 27 per cent basic TV price increase, regulators are disputing its assertion that it still faces ‘a revenue shortfall’.

The Utilities Regulation and Competition Authority (URCA), in finally granting $8 and $14 monthly price increases for residential and business consumers, respectively, made it clear it was not convinced by all the BISX-listed provider’s financial arguments.

For it also questioned whether the 27 regional jurisdictions, shown in Cable Bahamas’ benchmarking survey as having similar prices to the now-approved $38 per month residential SuperBasic package, employed “cost oriented” charges.

URCA, recognising that its decision is unlikely to be popular with the Bahamian public, made its approval conditional on Cable Bahamas fulfilling several terms and conditions.

Chief among these is the requirement for the BISX-listed communications provider to submit, within 30 days, a lower late payment fee for its six-channel universal service (USO) TV package than the current $5.50 imposed on basic TV customers.

URCA also wants Cable Bahamas to properly market its new $10, six-channel package to the 90 per cent of its customer base that will be able to choose between it and the SuperBasic package.

And, while it has no powers to determine the six-channel package’s line-up, URCA is “dissatisfied” with the content Cable Bahamas has selected.

Apart from ZNS Channel 13 and the Parliamentary Channel, the company is proposing to include the Weather Channel, JCN (Jones Communications Network), the Bahamas Christian Network and PBS as the remaining four.

URCA, though, is employing ‘moral suasion’ to argue that Cable Bahamas would be “demonstrating its commitment to the Bahamian public” if it included the Florida affiliates of ABC, CBS, Fox and NBC in its USO package alongside ZNS and the Parliamentary channel.

“Notwithstanding URCA’s dissatisfaction with Cable Bahamas’ proposal, URCA appreciates that, within the parameters for URCA’s consideration of a proposed USO pay TV service, this is an inadequate basis for URCA to reject Cable Bahamas’ USO pay-TV channel line-up,” URCA added.

The regulator’s release of its decision on New Year’s Eve, more than a year after Cable Bahamas submitted its original application, appears to have been timed to minimise any consumer backlash by the Bahamian public.

Most minds will have been elsewhere, and the long post-New Year’s holiday weekend will also have provided time ‘for the dust to settle’.

And URCA was also quick to affirm that its approval of Cable Bahamas’ basic TV price application should not be interpreted as a sign that it will accept further increases any time soon.

Cable Bahamas’ first application for the increase, submitted more than four years ago in December 2011, argued then that the proposed price rises would still be insufficient to cover costs incurred in providing the service.

It said that “an even larger price increase” than the $8 rise to $38 per month for residential customers was necessary to cover projected 2012 basic TV costs, with a $41.30 price justified by inflation.

While the first application was ultimately rejected by URCA, Cable Bahamas reiterated the fact it would still be suffering from a basic TV “revenue shortfall” - even if the price increase was approved - when it re-submitted its request in December 2014. Its programming costs for the Bahamas increased by 12 per cent that year to $18.6 million.

“Cable Bahamas also stated that it would still have a ‘revenue shortfall’ after the price change,” URCA said in its December 31 results statement on Cable Bahamas’ application.

“However, whilst not meaning that the price increase should not be granted, URCA does not agree that Cable Bahamas’ analysis demonstrated this point. This is because in economic costing terms, the price of a product or service would not necessarily be expected to cover average costs, but rather cover marginal costs, with services making different contributions to common costs.

“Therefore, any acceptance by URCA of the pricing applications should not be taken as evidence of URCA accepting there may be a need for other policy measures to be used to offset the perceived ‘shortfall’.”

Cable Bahamas has consistently argued that the monthly basic pay-TV price has remained unchanged since the service’s launch in 1994, and that increased programming costs have placed it in non-compliance with URCA’s requirements.

The company’s position has been that absent a price increase, its basic pay-TV package is acting as a ‘loss leader’ that fails to generate the 10.86 per cent regulated cost of capital employed benchmark mandated by URCA.

And, by offering the basic pay-TV package at a loss, it could be argued that the situation is anti-competitive because any potential new entrant to the Bahamian cable TV market will be unable to match it on price.

URCA alluded to all this in its New Year’s Eve results statement, saying: “URCA notes that whilst Cable Bahamas’ statutory accounts show that Cable Bahamas is earning an overall profit, Cable Bahamas’ audited Regulatory Financial Statements (RFS) (profit and loss, and statement of mean capital employed) for SuperBasic show that Cable regulated rate of return on SuperBasic is below the URCA-approved 10.86 per cent regulated rate of return for cable TV.

“It further reveals that Cable Bahamas’ average cost of providing these services are higher than the current average revenues for these services. This suggests that current prices are not reflective of fully allocated (average) costs and, on that basis, Cable Bahamas is not earning a reasonable return on these services. In fact, the information provided to URCA demonstrates that the RevTV Prime service was loss making at the time of the application.”

URCA added that Cable Bahamas’ rationale for the price increases is that they would “align the price of SuperBasic more closely to the underlying costs of providing the service (inclusive of Cable Bahamas’ regulated cost of capital for cable TV)”.

Still, URCA rejected Cable Bahamas’ benchmarking of cable TV prices in other jurisdictions as grounds for supporting the price increase.

“Cable Bahamas buttressed its own company-specific information with a benchmarking study showing that, in 27 regional markets, the average current price for cable TV packages comparable to SuperBasic was $37.75 per month,” URCA’s results statement said.

“This information prima facie appears to support Cable Bahamas’ application to increase the monthly price for REVTV Prime from $30 to $38. URCA notes, however, that Cable Bahamas’ benchmarking study of the prices for comparable cable packages in markets purporting to have similar characteristics to the Bahamas does not provide any indication as to the degree to which charges for cable TV in those other jurisdictions are cost oriented.”

URCA rejected Cable Bahamas’ initial 27 per cent basic TV price rise application in early 2013, on the grounds that the company had failed to comply with its legal obligations to provide ‘affordable basic television services to all populated areas and specified institutions’.

Cable Bahamas, though, argued that the regulator was mistaken to link its universal service obligations (USO) to the basic pay-TV price increase bid, with the BISX-listed company appealing the decision to the Utilities Appeals Tribunal (UAT).

It subsequently withdrew this appeal in favour of the revised December 2014 application which, at the time, seemed to have won over URCA.

In applying for the same 27 per cent increase, Cable Bahamas also offered to launch the new six-channel pay-TV service called ‘Prime Local’. This was clearly designed to counter the rationale that URCA employed in its February 2013 rejection of Cable Bahamas’ first bid.

URCA’s approval means that 2016 is already shaping up to be a promising year for Cable Bahamas, given that it is also already preparing to launch mobile services and compete with the Bahamas Telecommunications Company (BTC) in that sphere.