Small telecoms blame OUR, C&W for their collapse

...cont'd

"We only sold prepaid calling cards, which we launched around the same time as Centennial (Oceanic Digital Jamaica) actually launched. We finally had to close operations at the end of last year," McCalla told the Business Observer. "The main reason was due to the lack of enforcement of regulations and lack of regulations from the OUR." McCalla estimates his total investment at US$200,000 (J$12 million), an amount he says he was unable to recover. David Goldson, a partner in calling card company Knutsford Telecom, estimated his company's loss at close to $10 million. But part of the cause of the fallout, according to Goldson, was the high number of licences issued.

"It was a bad regulatory environment that caused the fall of the local companies, as well as the fact that too many licences were given out," he said. "That is, many licences were given out and there were only so many minutes."

Moreover, more could have been done to accommodate new entrants, Goldson argues.
"The regulators would like to say that we were just 'margin gatherers' but as we in the competitive telecom sector have pointed out on several occasions, the telecom industry is an expensive one to enter," Goldson told the Business Observer. "So a lot of us were using the termination of minutes to generate revenue for investing in other areas of the industry." C&W has a different perspective. It points out that despite the large number of licensees in the market, the operations on the carrier level have been for the most part confined to the conveyance of international traffic. Its argument is that the lack of investment in physical infrastructure "eroded the objectives of liberalisation".

"The harsh reality is that the small telecoms have eroded the objectives of liberalisation as they effectively resell the services of network operators without contributing to the development of the telecommunications infrastructure in Jamaica," declares C&W.

C&W further charges that claims it was the new market player that "precipitated a decline in the international settlement rates," which according to the former monopoly, triggered a reduction of hard currency inflows to Jamaica.

"As a result of the existing regime, the revenue losses have been significant," says C&W. "For instance when compared to 1998 the national loss of hard currency generated from international settlements to the PSTN in 2004 was in the region of US$144 million per annum. Moreover, for every one cent decline in the settlement rate the country loses over US$300,000 per month of foreign exchange inflows." Mark Reid, chief operating officer and a principal of Jamaica Network Access Point (JNAP), is among a handful of players in the industry to have broken with the pack over the reasons for the fallout.

Reid's firm focused on interconnectivity and storage services rather than call termination. He believes that firms that focused strictly on call termination and not enough on infrastructure could not survive market forces.
"The industry has been deregulated for two years now and what has happened is that market forces have prevailed on us," Reid told the Business Observer. "The industry will evolve and those that have significant investment in infrastructure will survive. The problem with a lot of the smaller carriers is that they relied only on the termination of traffic."

McCalla, the owner of Callworks, remains adamant that the deregulated environment would have accommodated new entrants if Cable and Wireless had been forced to break itself up into different operating segments, as was done in the United States.

"America and Australia are markets that underwent successful deregulation," McCalla said. "They started with one company and then they broke them up into separate business segments. Once split up, business segments in one area of business could not operate in another."

However Palmer, the government's advisor, insists that such a course of action was not necessary in the Jamaican environment as competitive safeguards were sufficient. "In the case of the US, the incumbent had to be physically broken up because it became clear that the incumbent would not cooperate in a way that would make competitive safeguards useful," Palmer said. "The model that Jamaica took was not one that would require structural separation because our economy is significantly smaller."

Competitive safeguards are measures put in place to ensure that any part of the incumbent monopoly's operations that sold services in competition with its wholesale customers, would be required to take services from that section of its business on the same terms as it sells to a third party competitor.

"Jamaica is not the only or first country in which a phone company is both a retailer and a wholesaler," Palmer said. "Regulatory systems are put in place to manage the formula that firms use to determine retail or wholesale rates. In Jamaica, the regulatory system fixes the wholesale rates." According to Palmer, the formula used to determine wholesale rates is the retail price minus the cost avoided by selling at a wholesale level - costs associated with packaging, marketing, distribution channels and so on.

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