The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Regulators have backed the new mobile operator’s argument that it should be allowed to charge “asymmetrical” call termination rates that are 25 per cent higher than the Bahamas Telecommunications Company’s (BTC) over the short-term.

The Utilities Regulation and Competition Authority (URCA), in unveiling the results statement on NewCo 2015’s significant market power (SMP) on call termination, agreed to the new market entrant’s request despite BTC’s opposition and call for matching charges.

Acknowledging that the evidence could be used to support both companies’ arguments, URCA based its decision on NewCo2015’s requirement to gain “efficient scale” and achieve 15-20 percent market share.

“URCA preliminarily concluded that from the various potential justifications for asymmetric mobile rates, only the need to achieve an efficient scale seemed applicable to NewCo,” it found.

“URCA remains of the view that NewCo is likely to require time to establish itself, and to reach the 15-20 per cent minimum market share threshold for an efficient scale.

“During this interim period, NewCo is likely to face higher unit (Long Run Average Incremental Cost) termination costs than its longer run efficient level of termination costs. As such, URCA sees merits in allowing NewCo to temporarily set termination rates above those of BTC.”

However, URCA said these ‘asymmetrical’ termination rates will only be implemented for the short-term, and the regulator can reassess the situation any time after six months should mobile competition in the Bahamas develop more quickly than expected.

Taking NewCo’s proposal as the benchmark, the communications industry regulator said the new entrant’s termination rates will be a 25 per cent ‘mark-up’ to those charged by its BTC rival.

As a result, the second mobile operator cannot charge more than 3.10 cents per minute for terminating domestic calls on its network, and 5.76 cents per minute for terminating an international call. NewCo’s message termination charge will be fixed at 1.75 cents per minute.

BTC, in its second response to URCA’s original consultation, again said NewCo had failed to make any economic arguments that would support asymmetrical termination rates.

“BTC reiterates that the setting of symmetric call termination charges provides predictability and promotes competition,” Nicole Watkins, its vice-president of legal, regulatory and carrier services, wrote.

“Conversely, asymmetrical termination rates lead to distortions in the market and sub-optimal outcomes. Reciprocal termination rates will ensure both allocative and productive efficiencies in the market, and prevent distortions like excessive wholesale charging, high or inefficiently structured retail rates and inefficient market entry.”

However, NewCo’s in-house counsel and company secretary, Felicity Johnson, argued that BTC’s concerns had missed the mark.

In the new mobile operator’s response to URCA, she wrote that its rival’s arguments applied to the fixed-line, as opposed to the mobile, business, and were related to long-term asymmetrical rates - not the short-term ones being discussed for the Bahamian market.

“BTC’s argument that asymmetric termination rates do not lead to allocative or productive efficiencies may be correct if asymmetric rates are allowed to persist in the long-term,” Ms Johnson said, “but in the short-term, if asymmetric rates reflect real differences in the cost of termination between operators better than symmetrical rates, they will give more accurate price signals to customers who will be able to allocate their resources accordingly, leading to greater, not less, allocative and productive efficiency.”

NewCo and Ms Johnson added that “predictability, stability and transparency” were produced by a “clearly defined regulation regime on termination rates”, not matching charges or costs.

They said unequal termination rates were justified for new entrants “where the existing operator has achieved its economies of scale from an early market entry that has been protected by limits placed by the Government on the entry of competitors.

“In the Bahamas, BTC has enjoyed a mobile monopoly for at least 20 years, and NewCo will require time to build up the traffic on its network, and hence to bring its cost per minute down to an efficient level,” NewCo added.