The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Telecommunications Company (BTC) is being required to reduce the interconnection charges it levies upon rival operators by up to 53 per cent in 2013, with regulators determined to prevent its internal inefficiencies blocking competition.

And the Utilities Regulation and Competition Authority (URCA), in unveiling its decision on BTC’s regulated interconnection charges moving forward, said the approach it aimed to adopt would reduce the fees paid by competitors by up to 62 per cent come 2015.

URCA acknowledged that it had been forced to shift its method for setting BTC’s interconnection fees away from its preferred approach, that of basing them on the actual costs incurred by the newly-privatised carrier in providing its respective services.

Due to “the continuing instability” and “prevailing shortcomings” of BTC’s accounting separation data, which is essential to the accuracy/success of URCA’s preferred method, the regulator has agreed to use a ‘benchmarking’ approach to calculate the incumbent operator’s interconnection rates in the short-term.

Expressing hope that BTC’s 2012 separated accounts, which are likely to be completed in the 2013 second half, would provide a “more robust” data set that facilitate the shift to an ‘actual cost’ approach, URCA said the ‘interim’ use of benchmarking would prevent the newly-privatised carrier from stifling competition.

If BTC’s separated accounting data remained unreliable, URCA said that from 2013-2014 onwards it would require the incumbent carrier to reduce fixed-line and cellular (mobile) call termination charges by 10 per cent and 15 per cent, per annum, respectively.

“URCA considers it important that BTC does not benefit from a delay in the transition to RAIO (Reference Access and Interconnection Offer) charges based on an efficient cost level, and that BTC is clearly incentivised to improve its accounting separation system in a timely manner to allow transition to an alternative approach for setting RAIO charges,” the regulator said in its results statement.

“URCA is of the view that this can be achieved by applying annual reductions to the termination rates from 2013-2014 onwards.”

Achieving interconnection rates based on efficiently incurred costs is vital to the continued liberalisation of the Bahamian communications market, and fostering a competitive environnment. The ultimate beneficiaries from all this will be Bahamian residential and business

consumers, who will have more choice and cheaper, more efficient services that enhance this nation’s economic competitiveness. Interconnection allows calls originating on one carrier’s network to reach customers of a rival operator, and terminate on that network. Given that

BTC remains the dominant provider of fixed-line voice services, it could potentially stifle competition and squeeze rival operators out of the market by levying excessive, inefficient call termination rates on those carriers - costs they would be forced to pass on their customers.

Conceding that its alternative approach would prevent it from achieving all its objectives, URCA said the ‘benchmarking sample’ BTC is being compared against includes rival Caribbean nations plus other small nations. Included in the latter are the Channel Islands, Cyprus, Bahrain, Lithuania and Luxembourg.

Noting that BTC’s current same-island and inter-island fixed-line call termination rates currently stood at 1.98 cents per minute and 2.65 cents per minute, respectively, URCA said these exceeded the three sample averages they were compared to by some distance.

For instance, BTC’s same-island fixed line termination rate was 83.3 per cent higher than the Caribbean regional average of 1.08 cents per minute. It was also 112.9 per cent, or more than double, the total benchmarking sample average of 0.93 cents per minute when the other non-Caribbean nations were factored in.

And, compared to the Channel Islands, Cyprus, Bahrain, Lithuania and Luxembourg, BTC’s same-island fixed-line termination rate was 247 per cent greater than their collective 0.57 cents per minute average.

“Given this, URCA considers it reasonable to align BTC’s RAIO charge for on-island fixed call termination services with the overall average of the regional and other small country benchmarking sample (0.93 cents per minute) for 2012-2013,” the regulator said.

“The RAIO charge for off-island fixed call termination services will be set at 1.4 cents per minute for 2012-2013.”

As for cellular call termination rates, BTC’s current 7.24 cents per minute charge again exceeded all three sample measurements. However, it was only 1.7 per cent ahead of the Caribbean countries’ average, and 19.7 per cent ahead of the total sample’s 6.05 cents per minute mean average.

BTC was still 88 per cent ahead of the collective 3.85 cents per minute average set by the non-Caribbean nations, but URCA decided to lower its 2012-2013 cellular termination rate to the total 6.05 cents per minute average.

As a result of all this, BTC will be required to reduce its same-island and inter-island fixed-line call termination rates by 53 per cent and 47 per cent, respectively. The former will drop from 1.98 cents per minute to 0.98 cents per minute, and the latter from 2.65 cents per minute to 1.4 cents per minute.

As for BTC’s cellular termination rate, that will drop by 16.7 per cent, from 7.24 cents per minute to 6.03 cents per minute. URCA added that BTC’s regulator-mandated fixed-line termination charges were similar to those it had targeted in the consultation paper.

“BTC’s RAIO charges are expected to fall by up to 45 per cent, relative to their current values,” URCA said. “URCA considers the significant (one-off) reduction in fixed termination charges justified, given the methodological issues identified with accounting separation unit cost data underlying the current RAIO charges, the results of the efficiency study of BTC, and the fact that the current RAIO charges have remained unchanged since 2011.”

Describing these actions as “an interim measure” until BTC was able to produce more accurate cost information from its separated accounts, URCA said it was hopeful the carrier’s 2012 data - set to be completed in the 2013 second half - would do just that.

Separated accounts break down BTC’s operations into the individual business lines, and are intended to show the respective costs associated with providing each service.

But, should these continue to prove inaccurate, URCA said it would adopt an approach post-2013 that requires BTC to lower its fixed-line and cellular termination rates, respectively, by 10 per cent and 15 per cent per annum.

“These annual reductions are intended to ensure that BTC continues to be incentivised to achieve further efficiencies, and does not benefit from the lack of robust, stable separated accounts results,” URCA said.

Applying this annual reduction policy, URCA said BTC`s RAIO charges “would fall by 56 per cent” over the next three years. Same-island fixed-call termination rates would fall to 83 cents per minute in 2013-2014, and 75 cents per minute in 2014-2015, the latter figure representing a 62.1 per cent decrease over the current 1.98 cents per minute.

For inter-island fixed-line calls, BTC`s call termination or interconnection charge would drop to 1.26 cents per minute in 2013-2014 and 1.13 cents per minute in 2014-2015, the latter representing a 57 per cent reduction on current levels.

Cellular, too, would see call termination rates drop to 5.13 cents per minute in 2013-2014, and 4.61 cents per minute in 2014-2015. The latter is a 36.3 per cent drop from the current 7.24 cents per minute.

URCA is requiring BTC to post the amended interconnection rates, as part of its RAIO offer, on its website by Jnauary 14, 2013.

Conceding that it had been forced to moderate its goals, at least in the short-term, URCA added: “URCA recognises that RAIO charges based on benchmarks may not allow URCA to achieve all of its objectives, set out in the consultation document.

“In particular, adopting a benchmarking approach may not ensure that the resulting RAIO charges are fully reflective of BTC’s cost of providing these services or an efficient cost level.

“However, in the absence of any robust costing data, URCA has concluded that this approach is most suitable at the time as it removes the uncertainty arising from the fluctuations in the separated accounts unit costs in RAIO charges; provides a clear policy statement for how RAIO charges will be set going forward; and limits the degree of regulatory burden on the sector.”