The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Telecommunications Company (BTC) has been set efficiency improvement targets of between 36-69 per cent just to bring it into a ‘median’ position against rivals, the sector regulator finding its “productivity levels remained below those of comparable operators”.

Unveiling the results of its efficiency study on BTC, the Utilities Regulation & Competition Authority (URCA) said it was setting a total 36 per cent efficiency improvement target - including both retail and wholesale costs - for the newly-privatised carrier’s fixed-line voice operation.

A 19 per cent improvement in wholesale costs (costs faced by rival operators) alone has been mandated for BTC’s fixed-line operations, while URCA requires its cellular arm to improve the efficiency of wholesale costs by 69 per cent.

While only a total 64 per cent efficiency improvement is required for BTC’s total cellular operation, implying there is a decent performance on the retail (consumer) side, when it came to measuring the company’s total fixed and cellular connections per employee, URCA has mandated that a 48 per cent efficiency improvement is required.

However, “given the full magnitude of the required adjustments”, URCA has in deference to BTC agreed that the efficiency improvements will be phased in over several years.

Acknowledging BTC’s concerns that cuts of up to 60 per cent in its wholesale prices, plus the move to implement new cost-based prices based on its 2010 accounting separation data, 
“will not allow BTC to fund its ongoing operations”, the regulator said it would be “proportionate’ in its approach.

“URCA is not intending to impose a one-off 60 per cent reduction in BTC’s RAIO charges in order to align them with efficiently incurred costs,” it confirmed.

“Instead, when determining its approach to reviewing RAIO (Reference Access and Interconnection Offer) charges, URCA will take both the results of the efficiency study and the current developments on BTC’s accounting separation data into account.

“This requires, amongst others, weighing up the requirement to ensure that consumers benefit from lower retail prices (via cost oriented RAIO charges which reflect efficient cost levels) and providing certainty to the market (including, BTC’s ability to fund its ongoing operations).”

Rejecting BTC’s argument that its efficiency study was ill-timed, URCA responded: “URCA considers neither the current state of market development nor the recent change in ownership of BTC as an obstacle to implementing the efficiency study at this point in time.

“The limited competitive pressure on BTC is likely to increase the potential need for efficiency adjustments to its current RAIO charges.

“Further, URCA notes that as part of Cable and Wireless Communications’ (CWC) recent acquisition of a 51 per cent share of BTC, CWC has written down some of BTC’s fixed asset values due to the ‘obsolete’ nature of much equipment and technology purchased by BTC over recent years.

“This appears to support the need to make adjustments to BTC’s cost base in order to ensure that any cost oriented charges reflect the costs that would be incurred by an efficient operator in the Bahamas.”

Noting that the efficiency improvement targets represented the difference between BTC’s current performance and achieving the ‘median’ position in its benchmarking sample, URCA added: “The final efficiency study results confirm URCA’s initial findings that BTC’s productivity levels, based on the 2010 accounting separation data submitted by BTC, remain below those experienced by other comparator operators.

“This holds for both BTC’s fixed and mobile business segments and irrespective of whether total (retail and wholesale) costs or wholesale only costs are considered.”

Geoff Houston, BTC’s chief executive, said the carrier was still assessing URCA’s findings and would comment once it completed its review.