The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CABLE Bahamas is urging its rivals to join the battle against “this travesty in budget increases” for the sector’s regulator whose downtown Nassau headquarters it branded an “albatross”.

The BISX-listed communications provider, in its response to the Utilities Regulation and Competition Authority’s (URCA) 20204 annual plan, urged the communications supervisor to “stop the bleed” and abandon its plans to rent out spaces to help finance the cost of its Frederick House head office.

Blasting what it labelled an “outrageous” 80 percent increase in capital spending on URCA’s head office in 2024, Cable Bahamas, in a February 2, 2024, missive that has just been publicly disclosed, also slammed the regulator for raising licence fees on itself and other operators to finance extra spending at a time when “profits are under siege”.

“URCA’s draft annual budgets continue to increase significantly year-over-year with complete disregard to the pleas and complaints of all major licensees,” it argued. “It cannot be that all major licensees year after year, with- out prior reference to each other, echo similar criticisms to unconscionable and fiscally irresponsible budget increases by a regulator who appears to be impervious to the realities of the costs incurred by licensees in seeking to provide state-of-the-art emerging technologies (including 5G, AI and quality infrastructure to the country), and the new expense of managing cyber security.

“Profits are under siege from the grey markets and robust competition in our relatively small markets.” Cable Bahamas urged the Government, and especially the Cabinet ministers with responsibility for communications and relations with URCA, “to use their respective influences and prevail on URCA to adjust its draft budget closer to realistic norms prior to its finalisation for 2024”.

Tribune Business reported previously how URCA was for the second consecutive year proposing a major hike in its operating budget via a near-20 percent increase for 2024. It produced a budget showing a more than $1.5m increase in planned operational spending to $9.221m as opposed to $7.692m for 2023.

To cover these costs, it is relying on a similar-sized 19.5 percent jump in fee income obtained via statutory levies on its licensees, such as the Bahamas Telecommunications Company (BTC), Cable Bahamas/ Aliv and Bahamas Power & Light (BPL). It is forecasting that total fee income will also rise by $1.5m to $9.517m in 2024 as opposed to 2023’s projected $7.967m.

However, Cable Bahamas, describing URCA’s Frederick Street headquarters as a financial drain on the industry, said: “The time worn justification of usability for future growth and rental spaces to offset costs of operations should be abandoned by URCA.

“Indeed, the Cable Bahamas group notes that in 2023 the rationale was that the expenditure for capital projects at Frederick House was to include ‘replacement of the elevator and genera- tor’, and those two items were budgeted for in 2023.

“We note, however, that yet again the elevator and generator are in the draft budget for 2024 having been ‘deferred’ from 2023, and so we ask the question: ‘Where did the money budgeted for these items in the 2023 Budget go which now requires duplicate budgeting in the draft 2024 budget?”

And, seeking to gain support from industry rivals, Cable Bahamas added: “The Cable Bahamas group will lobby relentlessly for this travesty in budget increases to be corrected for the benefit of the industry and we invite all other licensees to join this lobby....

“We again repeat that URCA’s excessive budget flies in the face of government’s efforts to lessen fees and taxes in a concerted effort to enable the necessary investments by licensees in emerging technologies and modern infrastructure and Family Island projects.

“The Government has further provided for the sector in the new draft electronic communications sector policy (2024-2027) with a percentage of the communications licence fee going into a Universal Service Fund equivalent.

Surely this is not lost on URCA?

“An 80 percent increase in capital expenditure for the Frederick Street albatross must be curtailed and, indeed, at this juncture it would be more advantageous for URCA to move to rental premises. The overall budget increase of over $1.5m year over year on operational spending, and the 80 percent increase on Frederick House maintenance and repairs are an ongoing concern to major licensees and we call for an itemized budget for allocations to specific headings including generator and elevator replacements.”

Similar concerns were echoed by BTC in its response to URCA’s 2024 annual plan. “According to the draft budget for 2024, URCA’s operational expenditiure in 2024 is expected to increase very significantly - by 20 percent for its overall operations and 12 percent for its electronic communications segment operations relative to 2023,” BTC noted.

“While these growth rates on their own are substantial, they follow even larger increases in the preceding year of 23 percent and 22 percent, respectively. Consequently, over the last two years, URCA’s operational expenditure is projected to increase by 48 percent for its overall operations and 36 percent for its electronic communications segment operations.

“BTC considers the brief explanations for such extraordinary cost increases in URCA’s budget insufficient. There appears to be no effort to control costs, as is reinforced by the absence of any reliance on cost- related key performance indicators.”

BTC continued: “As well, according to the draft budget 2024, URCA’s electronic communications staff, non-executive and executive compensation costs are projected to increase over the two-year period 2022 to 2024 by 23 percent, 85 percent and 25 percent, respectively.

“There is no indication of any change in electronic communications sector staff levels in the draft budget 2024. Therefore, they appear to be solely related to salary and benefit compensation increases. According to the Government of The Bahamas’ Department of Statistics, inflation as measured by consumer price index (CPI) increased over the last two years by 8.7 percent.

“The salary and benefit compensation increases to be provided to URCA electronic communications sector staff are roughly three times or even greater than this amount. Similar compensation increases apply at the overall budgetary level. Again, no satisfactory explanation was provided in the draft budget 2024 for such generous compensation increases,” BTC continued.

“There are other operational expenditure categories with alarming year-over-year cost increases as well. Electronic communications sector premises costs and utilities are projected to increase 50 percent bin 2024, after increasing by 56 percent in the previous year. Electronic communications sector general and administrative expenses are projected to increase by 51 percent in 2024....

“Overall, BTC is extremely concerned with the absence of adequate explanations of such enormous increases in URCA costs and, moreover, the apparent lack of effort to limit cost increases which ultimately are passed on to the industry licensees.”

URCA, though, has defended its plans to recover some $5.315m in operating costs from its electronic communications licensees - chiefly Cable Bahamas and BTC - in 2024 as “a balanced approach to financial management”.

“There is a notable decreasing trend in the total operating budget recovered from 2017 to 2022. In 2017, the recovered amount was the highest at $8.199m due to purchasing Frederick House on Frederick Street, which serves as URCA’s main office. The following two years, 2018 and 2019, show a slight decrease in the recovered budget to $6.979m and $6.654m, respectively,” URCA added.

“The year 2020 shows a more significant drop to $6.518m. The down- ward trend continued with a sharper decrease in 2021 to $6.218m and then a substantial drop in 2022 to $4.147m, reflecting URCA’s decision to cut budget acknowledging the financial challenges faced by licensees because of the COVID-19 pandemic.

“However, in 2023 there was a minor increase to $4.844m as URCA gradually transitioned to its pre-COVID operating budget. The trend continued in 2024 with a recovery of $5.315m, which is still significantly lower than the 2017 peak,” the regulator continued.

“URCA stresses that the 2024 budget is below the pre-pandemic levels and remains below the average of $5.911m for the 15 years of URCA’s life......URCA reminds licensees that URCA is an independent regulator and URCA fees are a significant source of URCA’s operating budget.

“The respondents should appreciate that the substantial drop in 2022 to $4.147m in response to financial realities during the pandemic is not sustainable and, if not addressed, could adversely impact the organisation’s financial health and regulatory effectiveness. We advised that increases in 2023 and 2024 reflect the necessary recovery to pre-COVID operational costs.”