Irish-owned, regional telecommunications giant Digicel says the completion of its rollout of fibre throughout the region, and particularly in Jamaica, could be impacted if the proposed merger between Cable & Wireless Communications and Columbus International is allowed to go ahead without significant intervention from regional regulators.
Digicel says that it would "need to review our investments across the Caribbean," especially in the areas of fixed broadband and cable television "if competition is removed from the market, as will surely be the case with the proposed merger."
Digicel sought to clarify what it described as "inaccurate and misleading information" quoted in the last Sunday BG lead story, which was headlined Cable & Wireless Communications' CEO, Phil Bentley: ECTEL will not hold back deal.
In relation specifically to Jamaica, but also applicable to the rest of the Caribbean, Digicel said:
"There are significant costs associated with the installation of fibre. These costs are not recoverable if a virtual monopoly is allowed to squeeze out an entrant to the market. Therefore, the long payback term for the installation of a fibre network is only feasible if the market is competitive."
The Business Guardian sought comments on the Digicel clarifications from CWC's head of government relations and regulatory, Chris Dehring.
Digicel on mobile vs fibre
The proposed CWC and Columbus merger is not about the mobile market. It is well known that Digicel is the leader in the mobile market in Jamaica with over 70 per cent market share, but our dominance starts and ends here. The fundamental issue is the creation of monopolies, or virtual monopolies, in the Cable TV, Fixed Telephony, Fixed Broadband and Off-Island Capacity (submarine cable) markets.
CWC's response
Digicel are much larger than us with almost 14 million subscribers worldwide compared to our 4.5 million. They have bought 20 companies in the last 10 years in the Caribbean and admitted publicly that they also tried to acquire Columbus but found the price too high. If they had been successful with that acquisition, then there really would be a danger of a "monopoly" which isn't the case today.
Both our competitors and our regulators know and understand that in today's world of converged technologies, it is indeed very much about the power of wireless. The sheer size and value of the mobile market in the Caribbean and Digicel's confessed dominance of it, makes them by far the dominant telecoms player in the region. That is a fact they have proudly paraded for years in their "bigger, better" tagline.
In fact, to even speak about a monopoly in fixed telephony is simply archaic since the vast majority of telephone calls now take place over mobile networks. Fixed line subscribers are a declining market in the Caribbean and globally.
The proof of the dominance of wireless is that even our (Columbus/LIME) combined fixed voice, broadband and television revenues in Jamaica (approx. US$150 million) pales in comparison to Digicel's US$430 million in revenues from mobile alone! Saying we have a monopoly on our old copper fixed line is like saying we have a monopoly on the slide rule - which not a lot of people seem to want these days either.
CWC's response
The small number of cable tv subscribers they say they acquired when they bought Telstar in Jamaica is surprising in light of the tremendous publicity which heralded that deal.
But more importantly, the statistics they quote actually support our position. In a Jamaican market of 2.7 million persons they have 2.2 million mobile subscribers (81.5 per cent) generating over US$430 million in annual revenues.
Yet they infer that in that same market of 850,000 households, Columbus and ourselves could have a "monopoly" with our combined 130,000 cable TV and broadband customers (15.3 per cent) and 230,000 and declining, fixed line customers (27 per cent).
Combined, that generates only US$150 million in annual revenues with significantly higher operating costs. And besides, even if they decided to go after only half of the underserved households available to them, that still leaves a very significant market to go after.
In fact, they have heavily publicized how successful and competitive their wireless broadband product (WIMAX) has been and confirmed they have over 46,000 broadband customers already.
They also announced to much fanfare their islandwide roll out of fibre and cable TV in Jamaica promising a superior cable TV product. That, combined with the massive revenues from their mobile operations and the marketing power that affords them, the public should see them continue their dominance for many years to come.
We just hope to be able to offer stiffer competition to them than we have been able to do in the past through our merger with Columbus.
CWC responds
Through our joint investments in offshore submarine capacity with Columbus we serve this market and Digicel is one of our wholesale customers. The capacity we sell to them are at fair, market determined rates and governed by contracts and Indefeasible Rights of Use (IRUs) which we have and will continue to honor. In fact, the joint venture of Columbus and CWC submarine assets took place prior to this merger some 18 months ago and nothing has changed with Digicel continuing to utilize our services. In addition, Digicel is more than capable of building out their own submarine cable capacity and their recent acquisition of the extensive GCF submarine system is a clear indication of their intention.
Digicel on benefits of fibre vs wireless technology
The reference to Digicel's penetration of the fixed telephony and fixed broadband markets in the article is also inaccurate.
Digicel's current infrastructure is limited to the provision of wireless broadband (Wimax) services and Wimax voice services, sometimes referred to as wireless "fixed" line services. For these wireless services, we have 46,632 and 11,000 subscribers, respectively.
They are hosted by our mobile network. Wireless technology is considerably more limited by speed, capacity and redundancy than the duplicate all-island fibre network infrastructures which both Columbus and CWC have in Jamaica.
CWC responds
As everyone knows, the vast majority of phone calls today and the revenues associated are made on wireless networks. Wireless technologies compete with fixed and vice versa. It is backward to speak about them as if they are distinct markets. A similar phenomenon is happening globally in broadband where most people are experiencing the internet for the first time via wireless broadband networks. The evolution of wireless broadband to technologies such as LTE is the future and both Digicel and ourselves have acquired spectrum from Governments in this regard and are making plans to deploy these networks. So, to single out our old copper network as if it gave us a competitive advantage, and not talk about their own investments in LTE or fibre which they have announced and are deploying, is a diversion.
Digicel's fledgling fibre network
Reference made to Digicel's recent start to rolling out an on-island fibre network is factual. However, completion of the network would not be feasible if competition is removed from the market, as will surely be the case with the proposed merger.
There are significant costs associated with the installation of fibre. These costs are not recoverable if a virtual monopoly is allowed to squeeze out an entrant to the market. Therefore, the long payback term for the installation of a fibre network is only feasible if the market is competitive.
The ability to penetrate the market is what makes the business case for the roll out of a fibre network possible. Given CWC/Columbus's mature market position, the possibility of them bundling products and services limits the ability of existing players to effectively compete and creates a barrier to entry for new players.
Consequently, the potential growth in the cable and broadband markets which Mr Bentley refers to in the article is heavily curtailed by the stranglehold which CWC/Columbus will have on the market and consumers once the proposed merger is complete.
These negative effects on the market which the resulting monopolies are sure to create can be mitigated. If enabled to play their crucial role, the regional regulators can ensure that the appropriate rules and competitive safeguards, aimed at protecting consumers and the continued development of the industry, are put in place prior to the completion of the proposed merger.
CWC responds
As Digicel illustrates by the numbers they present, with such a small share of the available market for cable TV and broadband, we have no such "stranglehold". Indications are that less than 25 per cent of our people in the Caribbean have access to broadband in their homes. Our problem in the region therefore, is not the small number of customers currently served by Columbus and ourselves, but the large under-served markets. With the additional resources and scale that our merger with Columbus will generate, we intend to tackle that problem head-on and compete for that under-served market. Greater access to broadband and television is a priority, which can free up the natural productivity and creativity of Caribbean people everywhere.
Digicel on virtual monopolies in cable/fibre
The actual statistics, which are stated below, clearly show the markets in which CWC and Columbus will create monopolies, or virtual ones, as Digicel Jamaica does not currently have operations in these areas or would become extremely marginalized by the proposed merger.
Cable TV - CWC/Columbus currently have over 80 per cent market share
Digicel through Telstar has 5,000 Cable TV subscribers and not the 21,000 quoted in the Article.
Cable TV Providers Subscribers
Columbus/FLOW 124,700
Telstar/Digicel 5,000
Others 20,000
Fixed Telephony - CWC/ Columbus currently have 99 per cent market share
Fixed Telephony Provider Subscribers
Columbus/FLOW 20,782
CWC/LIME 229,598
Digicel 0
Fixed Broadband - CWC/ Columbus currently have 99 per cent market share
Fixed Broadband Provider Subscribers
Columbus/FLOW 71,025
CWC/LIME 56,400
Digicel 0
?Digicel on off-island capacity/submarine cable
CWC/Columbus will control 80 per cent of all the Submarine Cable Systems entering/leaving Jamaica.
CWC/Columbus will control 100 per cent of all Submarine Cables between Jamaica and the USA.
Submarine Cable Systems Owner
Cayman Jamaica Fiber System CWC/LIME
East West CWC/LIME
Fibra Link Columbus/FLOW
CFX-1 Columbus/FLOW
Alba 1 Cuban Transbit/Telecom Venezuela
(Alba 1, which is owned by a Cuba-Venezuela partnership, does not provide a viable alternative for access to the USA. Therefore, it does not alleviate the monopoly which the proposed merger could create. Furthermore, the landing station for Alba 1 is hosted by CWC/LIME)