The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas says “18 years of neglect” forced it to seek a 27 per cent price increase for its basic cable TV product, a senior executive telling Tribune Business it had “no choice” if it was to remain compliant with regulatory benchmarks.

David Burrows, Cable’s head of marketing, said the BISX-listed commmunications provider’s demand for a one-time $8 increase in the monthly price of SuperBasic cable would “absolutely have been avoided” had a proper pricing mechanism been developed prior to the 2009 Communications Act.

Noting that Cable Bahamas’ programming costs had been increasing by 4-5 per cent annually, while SuperBasic’s price had remained unchanged since the service started in 1994, Mr Burrows said the returns the company was earning were below the minimum threshold stipulated for the product by the Utilities Regulation & Competition Authority (URCA).

To ensure it stayed compliant with approved regulatory targets, and maintained SuperBasic’s quality, Cable Bahamas is thus arguing it had no alternative but to seek a monthly increase in the product’s price from $30 to $38.

Mr Burrows told Tribune Business that failure to obtain the requested increase would see “the rubber meet the road”, with Cable Bahamas then forced to cut costs - something that would likely impact SuperBasic’s quality via a reduced or changed channel line-up.

Disclosing to this newspaper that he had five-six programming contracts before him for renewal, some seeking 100 per cent increases, Mr Burrows said pay-TV providers with similar products - and channel line-ups - levied monthly fees that were in some cases more than double SuperBasic’s.

And, while Cable Bahamas was sensitive to its customers’ concerns, Mr Burrows said it also had to consider its 3,000 shareholders and over 500 employees. He added that the BISX-listed provider injected around $50 million into the Bahamian economy on an annual basis.

The latest $8 increase is the fourth SuperBasic price rise requested by Cable Bahamas, but the first submitted under URCA. The previous three applications all went to a former government-appointed body, the Television Regulatory Board, but each was rejected and, on one occasion, Mr Burrows said Cable Bahamas’ submission was not even acknowledged.

“We’ve asked three times in the past, received one or two rejections and, in one instance we were never acknowledged or completely ignored,” he added. “We did not even get a reply acknowledging they received the request.”

Mr Burrows said he believed that particular submission was made in the mid-2000s, when Columbus Communications, under Brendan Paddick, was still the controlling shareholder. The first request for a SuperBasic price increase, he added, was submitted in 1996.

What Cable Bahamas will not openly state is that its $8 per month price increase demand is the consequence of bad policy and politically-related decisionmaking. Bad policy in the sense that no formal mechanism was put in place to deal with SuperBasic pricing from the company’s founding in 1994, and politically-related where the Government - via the Television Regulatory Board - failed to tackle the issue for fear of upsetting voters.

Mr Burrows told Tribune Business that the current $8 increase application “would have absolutely been avoided” had a proper pricing mechanism been implemented prior to 2009 and URCA. He added of the current situation: “This is a culmination of 18 years of neglect.”

Had SuperBasic’s price been linked to inflation, as measured by the Consumer Price Index (CPI), it would have increased by an average 2 per cent annually since 1994. That percentage is the equivalent of 60 cents per month, and would have gradually taken the monthly fee to $41.30 today - a phased increase that would have been more palatable to consumers.

Mr Burrows also pointed out that the company’s SuperBasic product had expanded from around 30 channels at inception in 1995 to more than 50 today, yet the consumer price had remained the same.

“We know that price increases are anywhere from 4-5 per cent a year on the signals,” he told Tribune Business, adding that this did not account for sharp cost rises in a host of other areas, such as electricity and vehicle gasoline.

Mr Burrows likened the situation to a Bahamian worker whose salary had stayed the same for the past 18 years. He questioned how that worker would have coped with the major increases in school fees, utility bills, gasoline and healthcare costs with an income that never increased.

The Cable Bahamas executive also compared it to the 58 per cent rate increases that the Bahamas Telecommunications Company (BTC) obtained approval for within the past six-seven years.

“They were in the same situation as us - they had not received a rate increase in decades,” Mr Burrows said. “We’re going on two decades without an increase in rate.”

Over the same time period, Mr Burrows told Tribune Business that electricity costs had risen over 300 per cent; propane and gasoline by more than 100 per cent; and medical insurance costs had increased by, in some cases, 25 per cent per annum.

“All of these different things that impact makes it necessary for this to happen, to bring some relief,” Mr Burrows added. “If something doesn’t change we will be operating outside the proper regulatory framework set by URCA.”

URCA’s creation, and the 2009 Communications Act, established an economic regulator - replacing the politically-led Television Regulatory Board.　It also set up a framework, and process, for how operators with Significant Market Power (SMP) - chiefly BTC and Cable Bahamas - could apply for price increases in those regulated services.

URCA has set Cable Bahamas a 10.86 per cent return on mean capital employed (RoMCE) for its SuperBasic TV product. This was done to facilitate further communications market liberalisation and prevent Cable Bahamas from using SuperBasic as a ‘loss leader’ to undercut/squeeze out potential new entrants.

Explaining that SuperBasic was effectively in non-compliance with URCA’s regulatory regime, Mr Burrows told Tribune Business: “It is currently running at below the 10.86 per cent we’re supposed to be operating at as a minimum. Based on the rules set out by the regulator, we cannot be doing this.

“We didn’t set out to apply; we had to apply. If we don’t apply we are out of compliance with URCA’s mandate as regards the liberalisation of the market.”

“We, along with BTC, went through this process of accounting separation,” Mr Burrows added. “Between the two of us, we spent tens of millions of dollars - Cable Bahamas spent millions of dollars - in accounting separation to get us to the point where we can say this is what this service actually costs you.

“The reason why that 10.86 per cent minimum is set in place is very simple - competition. So someone else that comes in can have a reasonable rate of return.” Thus URCA set the minimum SuperBasic rate of return to prevent any market manipulation that could stifle competition and act as a barrier to entry.

URCA, in common with regulators the world over, frowns on companies cross-subsidising loss-making products with profits from other services they provide. Thus, while Cable Bahamas appears massively profitable, it cannot run its SuperBasic product at a loss and cover these with earnings from its ReVoice, RevOn and Caribbean Crossings segments.

“We cannot by law pay for that product with the proceeds from any of the other products,” Mr Burrows explained. “We can only pay for that product with proceeds from that product. That’s the law. There is no choice. We have to abide by the law. How that all breaks out with URCA, we’re not sure.”

Asked what would happen if Cable Bahamas did not receive the price increase it was seeking, Mr Burrows replied: “That’s where the rubber meets the road.

“There are resolutions when it comes to that sort of thing. I have five-six contracts in front of me asking for renewal, and some of them are for 100 per cent increases in rates.

“We would have to sit down and take a look. Do I take this out. I can’t. URCA said I can’t. I have to drop the channel or change the channel line-up. I don’t have the luxury of taking this channel and moving it from here to there. The contracts we have stipulate the location of where these channels have to reside, and in a lot of instances if it’s not situated in that SuperBasic line-up I can’t carry the channel.”

Mr Burrows said the best SuperBasic comparisons, in terms of product and channel line-up, were the likes of DirecTV, Comcast, Xfinity and Canada’s Cogeco. DirecTV’s comparable product monthly fee was $54, while for Comcast and Xfinity it went up to $68. Cogeco was “even higher”.

“Something has to give,” Mr Burrows told Tribune Business. “There’s not even a question about that. There is no grey area there, as URCA has set out the ground rules for that. That isn’t a choice in our hands.”