Small telecoms blame OUR, C&W for their collapse

...cont'd

In a written response to questions posed by the Business Observer, C&W out its position on the issue:
"The company is indisputably the most regulated telecommunications provider in the island and is constantly under the watchful eyes of the Telecommunications regulator, the competition authority, its competitors and the public," said the firm. "A substantive example of the regulatory restrictions placed on C&W is the fact that the Office of Utilities Regulations as the regulator must approve C&W's rates for interconnection as well as for several retail services."

Minette Palmer, a lawyer and telecom advisor to technology minister, Phillip Paulwell, argues that the companies are looking to the wrong reasons for their failure. It is actually the competitive environment created by the deregulation process that has caused the fallout, she argues. "A lot of persons came into the sector to trade international minutes only, and many who started in the liberalised environment were entrepreneurs drawn to the market by the high margins," Palmer told the Business Observer. "They came in with expectations of low overheads and high margins but now it is a competitive environment, and as prices moved down the margins disappeared." According to Palmer, with high competition, those firms that lack the capital to survive on very thin margins would naturally be forced from the market. "People who didn't have the resources to withstand that kind of assault had to get out," she said. "It used to be expensive to make calls into and out of Jamaica - US$1 per minute at one point. It went down to US$0.025 per minute in less than a decade. That level of competition in a market is bound to drive out some companies."

Termination rate is what is charged by a local network operator to terminate an incoming call on its network. On the other hand, settlement rate is the charge by the local international carrier to the overseas carriers (eg AT&T and Sprint) to convey incoming international minutes into Jamaica.

The settlement rate to the PSTN has fallen dramatically from a high of US$0.625 per minute in 1999/2000 to an American-imposed unilateral reduction to US$0.19 effective January 2001. This reduction arouse out of the Report & Order on International Settlements, issued by the Federal Communications Commission (FCC) of the USA. During the early stages of liberalisation in March 2003, the rate was US$0.14, falling to US$0.017 by September 2004.

The November 2004 approval of the US$0.025 rate in the fifth version of the Reference Interconnection Offer (RIO5) saw an increase in the settlement rates to an average of just under US$0.035 per minute, with the rates from the primary markets of US, Canada and UK being as low as US$0.026. C&W suggested that it was not surprised by the fallout given the reduction in rates, and the fact that the newer entrants to the market had been piggy-backing on its network.

"Since March 2003 the focus of the newly licensed international carriers has been "piggy-backing" on the C&W PSTN," said the telecoms. "The consequence of the current regime is that the international carriers have been in the business of negotiating settlement rates that are marginally higher than termination rate."
Siska however insists that some firms, including his, could have competed at very low margins but were unwilling to continue operating in an environment fraught with uncertainty.

"The telecoms industry in general has had decreasing margins but if you had certainty in the market [regulations], companies could work with small margins," Siska said. The OUR's Jackson has another perspective - believing that the industry had reached a point of stability at the beginning of this year, and contends that level at which international settlement rates stabilised had discouraged the smaller operators.
"In stabilising market fluctuations in the settlement rate, one of the problems was in relation to cost-based termination on local networks, which had not been finalised before the conclusion of a cost study," Jackson told the Business Observer.

"During that time," he added, "the OUR attempted to take some interim decisions pending the conclusion of the cost-based rates, which perhaps caused some difficulties in the trade. There has been stabilisation since the last determination in February of this year (2005), but the level at which prices have stabilised seems to be causing problems for the smaller operators."

But Mike Dawson, the acting chief executive officer of People's Telecoms, largely agrees with Siska, although his firm, which uses Jamaican cultural icons to brand its calling card, has managed to remain in operation.
Nonetheless, says Dawson, People's Telecoms has been hurt on several occasions due to sudden regulation changes. The most recent of these, he says, was in June, with the imposition of a cess on international telephone calls termination in Jamaica - US$0.03 per minute to fixed wire and US$0.02 per minute to mobile.
"Since the cess, we had to let people go and reduce our Canadian operations to a skeleton," Dawson told the Business Observer. "So far, the hit we have taken is in the millions. I had to take down all my flyers advertising the rates, maintain our published rates for a period of time and make reductions gradually. So we will sustain a loss until the end of August."

Dawson charges that there were undeclared motives behind the cess, which the government says will be used to finance e-learning in Jamaican schools.

"I think the cess was set up to eliminate discount carriers, those are carriers who maintain low overheads in order to provide low prices," he says. "The cess was agreed by the Big Three and introduced after the fact. If the environment continues in the same vein, the industry will return to a duopoly."
The Big Three to which he referred are Cable & Wireless, Digicel and the third, but smaller mobile phone company, Oceanic Digital (MiPhone). Leon McCalla, who owned a company called Callworks which is among those that failed, blames the failure on regulation.