The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas will continue to “incur a loss” on its basic cable TV package without its proposed 27 per cent price increase, the BISX-listed communications provider arguing that current revenues were insufficient to cover service costs.

But, unveiling its planned public consultation on the proposed increases, which if approved will see Cable Bahamas’ 70,000 residential customers and commercial clients paying monthly fees of $38 and $63.50, respectively, the Utilities Regulation & Competition Authority (URCA) said it had “significant concerns”.

These included the “affordability” of these prices to the poorest segments of Bahamian society, and then fact that Cable Bahamas had yet to meet its Universal Service Obligations (USO) by providing a lower-priced, fewer channel offering to Bahamian consumers.

It appears that URCA, realising that there is the potential for a big Bahamian consumer backlash against the proposed increases, is looking to protect its position by holding - and publicising - the public consultation. This is the first time it has held a press conference to highlight such a initiative.

Cable Bahamas has long been pushing for an increase in its monthly basic cable TV fees, which have remained at $30 and $50, for residential and commercial customers respectively, since it launched its service in 1995 - some 17 years ago.

Essentially, the company is arguing that increased programming and operating costs are squeezing its margins right down to the point where its basic cable TV product is now loss-making.

Without a retail price increase, it will be unable to maintain the existing service quality, and will thus have to reduce its channel offering.

In its proposal, Cable Bahamas pointed out that it was seeking a monthly rate that would still be more than $3 lower than the $41.30, based on aggregate inflation since 1994, that it should be charging.

“Cable Bahamas noted that since that time the retail Consumer Price Index (CPI) in the Bahamas has risen by 37 per cent on a cumulative basis, or about 2 per cent annually,” URCA noted.

“Cable Bahamas asserted that current prices will lead it to incur a loss on the SuperBasic service in 2011 and 2012.”

The BISX-listed communications provider added that the basic cable TV price should better reflect costs, and enable it to meet the regulator-set 10.86 per cent Return on Mean Capital Employed (RoMCE).

Cable Bahama also pointed out that the $38 per month basic residential fee was in line with the average price charged for similar channel line-ups in other Caribbean jurisdictions, based on a benchmarking survey of 24 nations.

“Based on its estimates of costs and revenues for SuperBasic services, Cable Bahamas finds that the revenues it generated on this service were not sufficient to cover its fully allocated costs, including its cost of capital. This is supported by Cable Bahamas’ separated accounts for 2009 and 2010.,” URCA said.

“Cable Bahamas forecasted that if prices for SuperBasic remained the same in 2011 and 2012, SuperBasic revenue would be less than the estimated fully allocated costs, including the cost of capital.

“Indeed, based on the cost and volume information Cable Bahamas provided to URCA, the proposed price increase from April 1, 2012 ,is not sufficient to remove the estimated difference between revenue and costs.

“This is because Cable Bahamas suggests that the price increase should be limited to take account of ‘several other important considerations’. These include the current economic climate in the Bahamas affecting demand for the service.”

However, URCA disagreed with Cable Bahamas’ suggestion that the proposed $38 per month price, at 2.1 per cent of current GDP per capita, was less than in 1995. The company put its $30 price at 2.3 per cent of per person GDP then.

“Cable Bahamas noted that at $38 per month the annualised cost of the current SuperBasic package represents only 1.18 per cent of mean annual household income/budget for 2011 ($38,512), versus 0.93 per cent assuming the current price of $30,” URCA said.

“In Cable Bahamas’ view, both the current and proposed price represents a minimal share of average annual household income/budget.”

“Cable Bahamas submitted comparative ratios on the share of GDP per head spent on basic TV services in the Caribbean. These ratios demonstrate that on average the price of basic TV services across the region represent 3 per cent of GDP per head, versus 1.7 per cent and 2.15 per cent for the Bahamas.”

URCA, though, described this analysis as “narrow”, noting that there were “significant disparities” in household income in the Bahamas, with the bottom 10 per cent of households earning median income of $2,856 annually or $238 per month.

As a result, URCA said there was “a good chance” that some low income households could not afford the $30 per month fee, let alone the proposed $38 fee.

This, the regulator seemed to say, was exacerbated by the absence of any lower-priced USO package.