The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas yesterday blasted regulators for engaging “in a frolic”, a senior executive accusing them of operating “inside, outside and above the law” over a decision that will cost the company “millions and millions of dollars”.

David Burrows, the BISX-listed communications provider’s head of marketing, said the company was “outraged” by the Utilities Regulation & Competition Authority’s (URCA) rejection of its application for an $8 increase in the monthly price of its residential SuperBasic TV service.

Pointing out that URCA’s decision put Cable Bahamas in non-compliance with the regulator’s own guidelines, which require the company to earn a minimum 10.86 per cent return on mean capital employed (RoMCE) in its SuperBasic product, Mr Burrows indicated that alterations or cuts to the channel-line up were among the options now being considered.

Disclosing that Cable Bahamas was “sharpening pencils on the paper right now”, Mr Burrows added that URCA’s decision was also anti-competitive - going against one of the regulator’s central philosophies and reasons for being.

This was because Cable Bahamas, by earning less than the 10.86 per cent minimum, was in a position to use SuperBasic as a ‘loss leader’, and undercut/squeeze potential rivals out of the market via predatory pricing.

Indicating that Cable Bahamas was now faced with cutting costs to come back into compliance with URCA’s own guidelines, Mr Burrows said the regulator “seems to have more power than the Supreme Court” - and was accountable to no one.

“They’ve gone way beyond their purview. They have stepped outside, and are not working within, the guidelines given to them as far as we’re concerned,” Mr Burrows told Tribune Business.

“We are working below the amount of profit we should be earning. They’ve [URCA] put us outside what we should be bringing in; they’ve put us outside the regulations themselves after 15 months of nonsense.

“There’s no reasonable explanation they’ve put on the table that any responsible person can look at and say this is equitable in any way, shape or form.

“The reality is that they’ve [URCA] not followed their own regulations. You give us the regulations, don’t follow them; you give us the guidelines, don’t follow them. What do we follow? Anything coming out moving forward, it’s a crapshoot.”

While a Utilities Appeal Tribunal was supposed to have been created under the 2009 legislation introduced by the Ingraham administration, Mr Burrows implied that it did not exist and indicated Cable Bahamas was examining potential legal action over the URCA decision.

“It seems as if they’re working above any type of legislation that exists in the country,” he added of URCA. “They seem to have more powers than the Supreme Court. They can work out anything they want to make up.

“To say we are disappointed is an understatement, to see we are outraged would be closer to it.”

Given that 15 months had elapsed since Cable Bahamas had first submitted its rate increase application, Mr Burrows said the BISX-listed company and its 3,000 shareholders were down “millions and millions of dollars”.

Tribune Business calculations showed that, based on 70,000 SuperBasic residential subscribers and 10,000 of the commercial variety, proposed fee rises of $8 and $13.5 per month respectively, and those 15 months, Cable Bahamas had lost out on $9.48 million in revenues since December 2011.

Some $8.4 million would have come from residential subscribers, and $1.08 million from commercial customers.

URCA rejected Cable Bahamas’ application on the grounds that the company had failed to fully comply with its Universal Service Obligations (USO) under the Communications Act.

Under the USO obligations, URCA said Cable Bahamas was supposed to provide ‘affordable basic television services to all’ in the Bahamas.

While it is providing over-the-air TV services in some Family Islands free of charge, URCA said 
“more than 70 per cent of the population” in the Bahamas - islands including New Providence, Grand Bahama, Andros, Eleuthera and Exuma included - did not have access to such a service.

“URCA understands that Cable Bahamas has the technical capacity to meet its obligations at this time, and ensuring that Cable Bahamas complies with such obligations remains a key objective of URCA,” the regulator added.

“Cable Bahamas has presented URCA with no argument which justifies its failure to date to comply with its legal obligation to make available an affordable Basic Television Service throughout, at a minimum, all of those areas where it currently provides services.

“It is clear to URCA that the increase in SuperBasic services, in particular to residential customers, will further disadvantage those persons whom the provision of an affordable Basic Television Service was intended to benefit.”

It was on these grounds that URCA rejected Cable Bahamas’ SuperBasic rate increase application, the regulator adding that it would have approved it had the USO obligations been complied with.

Cable Bahamas’ position throughout the consultation, though, was that the two issues - a Basic Television Service (BTS) to meet its USO obligations on one hand, and an increase in the monthly price of its SuperBasic service on the other - were completely separate, and should not be connected or bound together.

Sources close to Cable Bahamas management said the company believed the URCA consultation process had “muddied the waters” between the two issues. The company has been talking to URCA on the Basic Television Service USO, but treating it as an issue isolated from the SuperBasic situation.

They pointed out that while the term ‘affordability’ was defined when it came to the Basic Television Service USO, there was no such definition - either in the Act or the regulations - that applied to the SuperBasic service.

“Both these elements are 100 per cent separate,” a source told Tribune Business. “It was made absolutely clear to URCA that these were two separate things.

“Going forward, Cable cannot continue to offer a service that has had the same fee since October 1994. No business can. Something has to give.”

When asked whether Cable Bahamas had effectively ‘bottled’ the decision, Mr Burrows replied: “Absolutely. Yes.”

Alleging that URCA had never come back to Cable Bahamas during the consultation process to make amendments or warn it of problems, Mr Burrows described as “very infuriating” the regulator’s decision to inform the media it was about to announce its decision before it told the company.

“That’s ridiculous. There’s no justification for it. Nothing,” he added.

Mr Burrows said Cable Bahamas was now working out how to bring its Superbasic service into compliance with URCA’s minimum return guidelines.

Emphasising that quality would not be compromised, and no decision had been made, Mr Burrows said “all options are before us” - including channel line-up alterations and cuts.

Escalating programming costs, while the fees stayed the same, played a large part in forcing Cable Bahamas to seek a rate increase, as its profit margins were squeezed.

URCA’s decision, while the first for that regulator, is the fourth time Cable Bahamas’ application for a SuperBasic increase has been rejected.

Noting that there was “hope” when URCA was established as an economic regulator, Mr Burrows said “the regulator is not working for us” despite the company paying massive annual fees to it.

“I don’t know of any business in this country that has been impacted by something like this,” Mr Burrows added.

What is clear is that relations between URCA and Cable Bahamas, one of its largest licensees, are now coated in heavy frost. Mr Burrows acknowledged that the situation was “not very pretty”.

In a statement issued yesterday, Cable Bahamas said URCA’s decision was an “unbelievable outcome”, given that the economic case for the increase had been made out.

“However, URCA has decided to embark on a ‘frolic of its own’ and introduce additional requirements for a price increase,” the company added.

“From our perspective the process with URCA has also been extremely frustrating, despite compelling evidence from Cable Bahamas that the rate increase was below the cumulative rate of inflation.

“You will recall that Cable Bahamas made the application in December 2011 under the retail price rules applicable to price regulated services. So it has taken almost 15 months to reach this point, which speaks volumes about URCA’s priorities and efficiency.”

Calling for a body to supervise URCA, which had “more power than any regulatory or judicial body in the country, the company added: “Despite compelling evidence from Cable Bahamas, we are being made to provide service at a price set 18 years ago; a price which by URCA’s own metrics clearly indicates that it is below cost, below the rate of inflation and the allowable rate of return.”