The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

ALL key Bahamian communications industry players are opposed to using the Bahamas Telecommunications Company’s (BTC) historical cost data as the basis to set its future interconnection charges, with the newly-privatised carrier admitting auditors were unable to give its 2010 separated accounts a clean bill of health.

Indeed, in admitting that PricewaterhouseCoopers (PwC) was unable to issue an unqualified opinion, BTC told the Utilities Regulation and Competition Authority (URCA) that it was “premature” to use this data as the basis for setting its future interconnection rates.

URCA is proposing that BTC’s 2009 separated accounts, financial data broken down into the carrier’s different business streams, be used as the foundation for its future interconnection charges once efficiency adjustments are made to them. It is then proposing that BTC’s interconnection charges be reduced downwards via a three-year transitional period for fixed-line services, and five years for cellular, using what is being described as a ‘glide path’.

Yet URCA’s proposal has run into opposition from all sides, not just BTC. Cable Bahamas, in its submission to the regulator’s consultation on setting BTC’s interconnection charges, warned that using a ‘glide path’ merely “delays the introduction of cost-based [call] termination rates”.

And, urging that BTC’s target interconnection rates should be forward-looking, not historical, Judith Smith, Cable Bahamas’ in-house legal counsel, setting out the BISX-listed communications provider’s position, warned that using 2009 data would be “irrelevant and inappropriate”.

Cable Bahamas also joined with Internet Protocol Solutions International (IPSI) in calling on URCA to tackle BTC’s anti-competitive ‘double dipping’, noting that the former incumbent was also earning transit as well as call termination fees from rival operators.

For once, both BTC and Cable Bahamas appear to be in agreement, albeit for different reasons. Interconnection is vital to the development of a competitive Bahamian communications market, as it allows calls from one carrier’s network to seamlessly terminate on a rival’s. If the tariffs charged by one player are too high, it could squeeze out rivals.

Outlining BTC’s objections, Felicity Johnson, its senior vice-president for legal, regulatory and carrier services, argued that its separated accounts were “not stable, and so do not yet provide a satisfactory starting point for future interconnection rates”.

In particular, Ms Johnson said BTC’s 2009 separated accounts - URCA’s proposed starting point - had not been subjected to an external audit, and contained volume date “based on management estimates, rather than on actual traffic”.

Describing the 2009 separated accounts as “deficient”, Ms Johnson added that using them for what URCA was proposing would create “significant regulatory risk”. Explaining that call traffic data was “automatically overwritten” after a certain time, she said this impacted volume calculation and wholesale service unit costs.

“BTC has since come to the conclusion that call volumes for local calls are overstated to a significant degree, which would have a significant upward impact on unit costs (including those for interconnection) if adjusted,” Ms Johnson said.

“PwC, the auditors of the BTC 2010 separated accounts, issued a Qualified Opinion, mainly due to the inability to prove the completeness and accuracy of data extracted from internal sources, switches, billing and management systems, or based on management estimates. BTC believes that such a qualified opinion would likely apply to the 2009 separated accounts as well had they been audited.”

URCA has already set 19 per cent and 69 per cent efficiency improvement targets for BTC in its fixed-line and mobile businesses, respectively, but agreed to phase these in to avoid any ‘shocks’ to BTC’s financial performance.

The 19 per cent fixed-line voice target will be introduced over a three-year period between 2012 and 2015, while the cellular goal will be phased in over five years - between now and 2016-2017.

If these targets are achieved, it will mean that BTC’s interconnection (fixed-line call termination) charges for same-island calls will be brought down from their current 1.98 cents per minute to 0.92 cents per minute by 2014-2015, a 53 per cent reduction.

For calls originating elsewhere, URCA’s goal is to reduce BTC’s interconnection charge by 45 per cent over the same period - down from their current 2.65 cents per minute to 1.47 cents per minute.

And, given that BTC’s cellular monopoly means it will only be dealing in interconnection fees levied on international operators until 2014-2015, URCA is proposing that these fees be reduced by 42.5 per cent - from their current 7.26 cents per minute to 4.16 cents.

But Cable Bahamas, for its part, echoed BTC’s concerns, arguing that “in an environment of falling service unit costs, using outdated cost information could lead to super-normal profits for BTC at the expense of consumers and other players in the electronic communications sector.

“Cable Bahamas believes that neither itself, other competitors nor the general public should bear the burden of shortcomings in BTC’s information system.” In other words, it fears BTC’s separated accounts do not reflect efficiently-incurred costs, and that itself and others could face inflated interconnection charges if they are used.

While Cable Bahamas backed URCA’s proposed ‘glide path’ method, as this would avoid market disruption from sudden or rapid termination rate changes, Ms Smith wrote that the targets and timelines had to be correct.

The BISX-listed provider argued that the five-year ‘glide path’ for cellular, meaning that the target rate for interconnection would be achieved in 2016-2017, was too long. Of 15 countries it had studied, Cable Bahamas said only one had implemented a ‘glide path’ of that length, the average being three years.

Given that BTC was effectively being given a further five years to bring its cellular interconnection charges in line with 2009 efficiency-adjusted costs, Cable Bahamas said this was “excessive” and should be brought into line with the 2014-2015 fixed-line target.

“If benchmarked against the jurisdictions which have conducted cost studies in the past two-three years, the proposed rates for both 2012-2013 and 2014-2015 are among the highest of the benchmark countries selected by URCA,” Cable Bahamas said of BTC’s proposed interconnection rates.

It added that the efficiency adjustment also failed to account for the fact BTC’s cellular monopoly meant it paid zero interconnection fees in this area itself, making the adjustment too small.