SECTION 4
THE REGULATED SECTORS
4.1 UTILITIES
In recognition of the fact that more stringent supervision of the public utilities is required, particularly in the context of privatization, all the countries under study have recently set up Public Utilities Commissions. The purview of these Commissions is to ensure that services rendered by public utilities are satisfactory and that prices are fair and reasonable to consumers.
In all the territories, the Commissions are charged with the responsibility of regulating services in electricity, water and sewerage, and telecommunications, except in St. Lucia and St. Vincent, where the Eastern Caribbean Telecommunications Authority (ECTEL) regulates telecommunications, with National Telecommunication Regulatory Commissions established in each country.
The Commissions are all fledging institutions that have to learn as they do, because changes in technology in the telecom sector are overtaking them. The linking of several OECS countries under one umbrella commission for regulating telecom helps alleviate the capacity constraints.
At the brainstorming session with experts overseeing this study, it was agreed that there should not be primary focus on the regulated sector, except telecom. However, information was gathered on the electricity sector in most countries and the water and sewerage sector in some.
4.1.1. Telecommunications Sector
The Bahamas
The state owned Bahamas Telecommunications Company (BATELCO) began the privatization process in 1998, liberalising Internet services, pager system and trunking radio services. Voice and cellular services are still monopolized, but it is proposed that competition will be introduced in cellular and customer key systems.
BATELCO downsized its staff by 50 percent in 1999 and put a freeze on hiring new staff. The staff size is currently 1,200 persons. Laid-off staff was re-absorbed into jobs in downstream services in telecom that sprung up as a result of deregulation. The privatization process was put on hold pending a decision by the new government. However, the company recognises that it is a bureaucratic dinosaur in the current technological climate of telecommunications. The PUC has required restructuring of the company within 18 months (end of 2003), separating accounts so that there is no scope for cross subsidizing.
Meanwhile, several companies proceeded to develop their own infrastructure for telecom services because their needs were not being satisfied. As such, in 1997, Barclay Bank laid a submarine cable to the US, which links it with branches throughout the Caribbean. CIBC has dedicated circuits for its business. In the tourist industry, wide band internet services provided by Cable Bahamas facilitate home calling direct for US tourists, using credit cards to link directly to the US operator.
As a result of liberalisation of Internet services, 11 companies applied for and were granted licenses for Internet Services. Only three companies are operational though: Batelco, Bahamas on Line, and Cable Bahamas. Cable Bahamas entered the Internet market in 2000 and soon became very competitive. They claimed that they provide the fastest service and the lowest prices for the bandwidth offered in the region. Prices dropped 75 percent. Data is transported from the Bahamas to the US using a fibre optic system. The company claimed that because of the competitive edge in data transmission, FDI is attracted to the Bahamas. Cable Bahamas emerged as the major competitor to the incumbent. The company’s ownership structure is 20 percent government, 30 percent FDI, and 50 percent public shares.
BATELCO argued that because of the geography of the Bahamas, it is difficult to provide services in the Family Islands. More equipment is needed, with greater capital outlay per capita, and maintenance is greater because of the impact of the sea. They complained that as the incumbent, they are obliged to undertake the Universal Service Obligation in their license, to ensure that the family islands are serviced. This is a Public Good issue for the family islands. However, they were not happy with the fact that their competitors are able to pick and choose the profitable markets while the dominant provider is burdened with a more onerous obligation. In their view, the PUC needs to look at revenues of other carriers and make them assume responsibility for part of the public good load. However, provision of telecommunication services via satellite may soon render this argument obsolete, in the view of some interviewees.
On the other hand, the PUC expressed the view that BATELCO was charging more than the economic cost for supplying the Family Islands. Local calls within New Providence are free of charge, and higher charges on international calls are used to subsidise local calls. It was suggested that BATELCO could instead increase rental charges or charge for local calls. Another view expressed by the PUC is that the Bahamas cannot have unlimited competition because the market can only support a small number of suppliers. As such, the regulator has to limit market entry.
Cable Bahamas has become one of the most controversial suppliers. This company was licensed in 1994 to supply Cable TV. They were granted a monopoly in this market in the form of an exclusive license for 15 years (1994-2009). While there is some competition through consumers obtaining direct satellite dishes (about 10,000 customers), there are some 54,000 that are linked to Cable TV. However, Cable Bahamas argued that Direct TV has no programming license for the Bahamas, only the US, and therefore this competition is unfair, since Cable Bahamas spend a lot of time, effort, and cost negotiating programming rights for the Bahamian market.
There are two issues surrounding the current and proposed activities of Cable Bahamas. The first is a Supreme Court action, initiated by Cable Bahamas against the PUC, which accused them of providing a service outside the limits of their licence, that is, direct fibre optic data service. By this service, the fibre optic cable is brought directly to businesses, linking them. It was first done for the government, and this created a demand from the private sector. Data and cellular services are the fastest growing products in the telecom market. Cable Bahamas is of the view that the PUC needs to strengthen the capacity of their staff. In their view, they are interpreting their own act incorrectly.
The second issue is the signals being sent by Cable Bahamas that once voice services are liberalised, they want to be licensed. However, the PUC and BATELCO both feel that in order to get access to the voice market, Cable Bahamas must give up their monopoly on Cable TV. In fact, Cable Bahamas indicated that they would be willing to do so, even though it may mean a loss of some 20-25 percent of revenue. Obviously they are pretty confident that they can re-coup through provision of voice services. They already have the infrastructure in place (fibre optic cable) to provide voice services very competitively.
Belize
The telecommunications company, Belize Telecommunications Ltd. (BTL), was privatized since 1987 and was granted a fifteen years exclusive license that expired on 29 December 2002. Government made the first public offering of shares in 1988 when it divested 45 percent of the shares. In 1992, the government further divested another 52.6 percent of its shares, remaining with 2.41 percent, although the Social Security Board (BSSB) held 27.35 percent. In 1999, MCI sold off its shares in the company and ownership of 51.0 percent of the company went into the hands of a privately owned International Business Company (IBC), Carlisle Holdings which is now the major share holder: BSSB now holds 24.2 percent, the Government of Belize, 3.8 percent and small shareholders, 21.0 percent.
Another company approached the Public Utilities Commission for a license to operate national telecommunications services after December 2002. Both BTL and the new company have foreign interests. The new company has an exclusive agreement to provide government with telecommunications services for a fifteen-year period in Belmopan, the seat of government.
In 2002, a new telecommunications act was passed that empowered the Public Utilities Commission (PUC) to regulate rates, protect consumer interests and oversee the orderly development of this sector. The new Act contains specific provisions to foster greater competition and free market forces, taking into account the need for universal service considerations.
The high profits which BTL have been realizing yearly (operating margins averaged above 45 percent annually) and the company’s slowness in lowering telecommunication rates have fostered the perception of price gouging. Since its privatization in 1988, the company has implemented three tariff changes (1996, 1999 and 2001), the major thrust of which had been to rebalance its tariff to face potential competition after 2002. The last tariff rebalancing conducted in December 2001 raised a major public outcry since basic charges were raised while some call charges were reduced.
BTL's response was that it needed to increase cost to cover the cost of purchasing the GSM system - US$60 million. Consumers were outraged at this explanation whereby they were expected to pay the full cost, rather than the company taking a loss in the short-term knowing that there will be long-term gains.
In response, an association, (CAPU) was formed and they mobilised signatures of some 65 percent of the population; including the Bishop, petitioning the government to take action. The government then drew up a Statutory Instrument (SI) to stop the new rates and this was taken to court by BTL, who won the first hearing, since the court upheld that the SI was illegal. However, an appeal by the government resulted in a favourable decision in December 2002 by which the SI was upheld. Now, CAPU is demanding compensation for the overcharge during the months when the higher rate was charged. This matter is on appeal in the High Court. Meanwhile, the success of CAPU's action has led to a move to make it a full-fledged consumer organisation, legally institutionalised.
An interview with BTL revealed several issues that the company had with the way the government is proceeding with liberalization. The company felt that if it was to be competitive it must rebalance rates based on cost. Most of its revenues come from international services, which are quite profitable, whereas some domestic services are being offered at below costs. The company felt that it has, however, been prevented from rebalancing rates.
BTL started the process of modernization in 1999 with the Y2K programme. It created a subsidiary company, Digicell (not related to Digicel), to target the cellular market, and is in the process of phasing out the analog system. However, there is a need to address the problem of how to provide basic telephone access to villages in rural areas. BTL is also providing multimedia services (ADSL), and modernizing with fibre optics and the use of narrow and broadband capacity. The arrival of competition has quickened the pace of modernization. However, the company claimed that the scarcity of US dollars is impacting negatively on their modernization programme. When asked whether there was a special relationship between the Company and the Belize Bank, given that the owners are the same, the spokesman stated that the company does not get any special treatment and in fact seeks to obtain the best offers from the major commercial banks in Belize. BTL expressed the concern that the costs involved in the provision of universal service – some 275 rural communities exist – should be equitably shared by all licensees. The PUC, in fact, has not yet passed any regulations specifying the manner in which licensees are to meet the universal service obligations.
BTL was of the view that the liberalization of all aspects of telecommunications in Belize was not necessarily a good thing for Belize. In their view, the Jamaican example of a phased liberalization should have been followed. It is interesting that in Jamaica, competitors to the incumbent felt that a phased approach was better than immediate liberalization when in a monopoly situation, since firms would not be prepared properly to enter the market and this would lead to a situation where there may be many new entrants with poor quality service. BTL felt that it was extremely important that the PUC remains independent of political interference to ensure a level playing field.
Intelco, meanwhile, had planned to provide cellular services by the end of April and all other services by the end of June 2003. They have not fully met this target, however. They will be using totally third generation technology (IP centric system), which would service voice, data and multimedia. They plan to offer cellular, data, video, video conferencing services. Their reasoning is that Belize is a small market, so they must have a diversified product if they are to make money. They want to make Belize the hub for Central America, with a fibre optic system and submarine cable that connects Belize to the US and other countries. They are at present deploying the fibre optics system. Their infrastructure will allow them to offer services to other countries and manage the service from Belize. They intend to be highly automated.
In their view, the incumbent is weighed down by old technology, contracts that oblige them to have a floor on the international prices they charge, and high cost of staff. They claim that the incumbent is trying to avoid giving them interconnection, and this issue is now with the PUC. Intelco also feels that the PUC is weak and overburdened, and that they should strengthen their staff. They are still struggling to get established to develop regulations. In Intelco's view, the PUC is not fully using their power to enforce competition, they are too flexible, and they must require that both the incumbent and the new entrant meet quality parameters of service.
When interviewed, the PUC agreed that they are understaffed and under a lot of pressure to cope with the rapidly changing situation in telecommunications. They have been in a difficult situation regarding telecom rates, and have put a cap on the existing rate until June. They are hoping that by then BTL would be in a position to support a rate change. They claim that they have been independent from political interference so far.
It is well known in Belize that the majority of shareholders in Intelco are supporters of the current administration, and there are suspected issues of favouritism in the government’s treatment of Intelco. The sequence of events that led to the contract for providing the service in Belmopan is interesting. Initially, there was a need for a telephone service in the Export Processing Zone, which BTL was unable to provide, and so Intelco got a license to operate within the EPZs. Subsequently, there was an agreement to provide a PBX service to the government offices in Belmopan for 15 years with extensions in all offices. BTL lines were linked into the PBX for trunk calls. This contract was not put out for tender.
Jamaica
In Jamaica, the telecommunication sector has undergone significant changes over the past two years and was fully liberalized in March 2003. Since February 1993 and up to 2001, Cable and Wireless Jamaica Ltd., a private company had a monopoly in the provision of telephone services in Jamaica. Prior to 1993 the state-owned company, Telecommunications of Jamaica Limited, provided telephone services.
The Telecommunications Act (2000) provides the legal basis for the introduction of competition in the telecommunications sector. The Act establishes the tariff and economic regulatory functions for the Office of Utilities Regulation (OUR) over this sector. The OUR regulatory functions include:
-determining which carrier or service provider is dominant (in consultation with the FTC);
-prescribing a system of regulatory accounts for dominant carriers and service providers;
-arbitrating pre-contract interconnection disputes between the incumbent and entrants; and
-assessing the Reference Interconnection Offer (RIO).
The OUR is also involve in price control. Since 1988, C&WJ has been regulated by the rate of return method with the permitted rate of return on shareholders' equity of 17.5 - 20 percent. The Telecommunications Act (2000) provides for the implementation of price caps on the first anniversary of the Act. Under the new pricing regime, the company is permitted to change its price by the difference between the rate of inflation and an efficiency factor called "X."
The telecommunications sector underwent a phased liberalization process as follows: -
Phase I (1st March 2000 to 31st August 2001) - the markets for the following services were opened up to competition: domestic mobile services; data services, such as internet service provision, using the incumbent’s facilities; provision of single line and multi-line customer premises equipment; and wholesaling of the incumbent’s international switched voice minutes.