The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Utilities Regulation & Competition Authority (URCA) is threatening to “inflict maximum damage” on the now-liberalising mobile market via a major change to its regulatory approach on retail pricing.

NewCo 2015 Ltd, the newly-licensed second mobile operator, said the regulator had picked the worst possible time to propose shifting from an interventionist approach, where it took actions in advance to prevent potential market distortions such as anti-competitive behaviour.

It warned that unless call termination rates and the methods used for billing customers were determined before this shift, URCA could unwittingly pave the way for the Bahamas Telecommunications Company (BTC) to cripple the competitive threat it poses.

The Cable Bahamas-controlled operator, in July 8 feedback to URCA, expressed particular concern that BTC was in “an excellent position” to blunt its new rival’s ability to win customers through the ‘Club Effect’.

Describing how this worked, NewCo2015 warned that BTC could levy higher, discriminatory prices and “above cost” termination rates on its subscribers when they called/contacted the latter’s customers.

NewCo2015 warned this would enable BTC to leverage its larger subscriber base to limit its new rival’s growth and market share, as the “discriminatory” tariffs would give no incentive for Bahamians to switch operators.

As a result of these concerns, the second mobile operator is urging URCA to revert back to its proactive, interventionist (ex-ante) approach rather than switch to acting only when distortions or anti-competitive behaviour is identified.

While the latter approach was adopted in other Caribbean markets, these had all seen the introduction of a second operator when they were in the process of liberalising and growing.

In contrast, NewCo215 is arguing that the Bahamas is a “unique situation” in that it is a mature market with an entrenched incumbent, BTC, that has enjoyed a 15-year monopoly.

Hence NewCo’s call for a more interventionist, proactive regulatory approach by URCA if competition is to flourish in mobile communications, and provide Bahamians with improved pricing, choices and service.

Responding to the regulator’s consultation on proposed revisions to its retail pricing rules, in light of mobile liberalisation, NewCo said it was vital to determine how Bahamian consumers will be charged.

It added that the correct regulatory regime for “anti-competitive behaviour” was closely linked to billing methods, with the Bahamas having a choice between a receiving party pays (RPP) regime and a calling party pays (CPP) plus “cost-oriented mobile termination” arrangement.

Presently, BTC uses the latter approach. As a result, NewCo2015 said: “In an RPP scenario, ex-ante controls to prevent BTC from behaving in an anti-competitive manner are needed more at the point of commercial launch of NewCo than during the BTC monopoly in the mobile market, and should last until NewCo has built a substantial presence in the market and is able to constrain BTC’s market power.

“The approach of removing ex-ante controls without first addressing the billing protocol and associated issue of the mobile termination rate risks offering freedom to the SMP [Significant Market Power] operator (BTC) in the Bahamian mobile market at just the right time to behave in an anti-competitive manner, and inflict maximum damage on the evolution of competition.

“This would be in direct contravention of URCA’s stated goal to ‘ensure that all participants in the market have a level playing field while being guided by high level principles of fairness, non-discrimination and transparency’.”

The outcome of this consultation, and the one on NewCo2015’s ability to ‘nationally roam’ on BTC’s network for 24 months, are vital to fostering competition that benefits Bahamian mobile consumers.

They set ‘the rule of the game’, and are critical in creating a competitive ‘level playing field’ between BTC and its new competitor.

NewCo2015 also urged URCA not to allow BTC to determine how the mobile market charges/bills customers.

“BTC, as an SMP operator, is in a position to impose its opinions on other market players even if BTC’s position is detrimental to the development of competition and the interest of consumers,” it warned.

“It is therefore imperative that the billing protocol is either agreed by NewCo and BTC, or imposed by URCA.”

Then, detailing its main concern, NewCo2015 argued that the switch in regulatory approach and regime would give BTC “too much pricing flexibility” over the mobile market’s early development.

Pointing out that BTC would hold a 100 per cent market share at the point of liberalisation, it said: “BTC is in an excellent position to impose a ‘Club Effect’ on the market through discriminatory on-net/off-net pricing, thus limiting NewCo’s ability to grow its subscriber base.

“Should BTC be allowed to do so, competition in the Bahamas will initially be based on the relative sizes of the subscriber bases of BTC and NewCo, and much less on innovation, quality of service and price competition than would otherwise be the case.

“This is an undesirable outcome from a policy perspective, and NewCo urges URCA to ensure that BTC will not be allowed to engage in discriminatory anti-competitive pricing practices.”

Explaining how the ‘Club Effect’ works, NewCo2015, whose management team features a number of ex-Digicel employees, warned that this allowed operators with large market shares, such as BTC’s, to “limit the growth of smaller operators”.

By lowering rates to its own customers, and increasing those levied on NewCo’s, consumers would be more likely to remain with BTC, as it would have more subscribers, including frequently-called “friends and family”.

While NewCo could lower the tariffs it levies on BTC customers to match, it still faces the obstacle of “above cost” termination rates for traffic sent to the latter, depressing its margins.

While it could “mitigate” the impact, NewCo2015 argued that the ‘Club Effect’ still made it “impossible to compete effectively with BTC”.

“If BTC is allowed to charge low on-net retail rates, high off-net tariffs and above-cost mobile termination rates, then BTC is thus using its superior subscriber base to impose a ‘Club Effect’ and make it more attractive for subscribers to remain on BTC’s network,” Newco2015 argued.

“NewCo, having a much smaller initial subscriber base, will need to respond to this by lowering its off-net tariffs to BTC, but will incur lower margins on this traffic while BTC’s mobile termination rate remains above costs.

“Such an anti-competitive on-net/off-net retail price differential, combined with above-cost mobile termination rates, provides a huge and anti-competitive benefit for BTC, and an unfair disadvantage to NewCo.”

The new operator also urged URCA not to ‘copy’ the regulatory treatment employed in other Caribbean mobile markets.

“This situation is unique to the Bahamas,” NewCo2015 argued. “In the vast majority of markets in the region, the second mobile licence entered when the mobile market was going through an expansive growth phase.

“Customers find greater ‘friction’ in moving from one supplier to another compared with choosing between two new suppliers. Hence the ability of the new entrant to constrain the marker power of the incumbent operator is reduced.

“If the impact of this difference is not recognised, URCA runs the risk of copying approaches taken in other markets that may have been appropriate to a different stage of market development, but not to existing circumstances in the mobile market in the Bahamas.

“NewCo would therefore urge URCA to conduct a full market review of the mobile market to ensure regulatory intervention is proportionate and based on observed competition problems.”