On Thursday, millions of people across the Caribbean woke up to the news that Cable & Wireless Communications, which has been operating in the Caribbean for more than 130 years, had acquired cable and fibre provider Columbus International Inc (which trades across the region as Flow) for US$1.85 billion plus US$1.17 billion in net debt.
The transaction brings together CWC–which is strong across the Caribbean in mobile, Internet and home phone services and also provides television content–with Flow, that is strong across the region with its Internet and cable offerings and in business-to-business services, but not so strong in the provision of home phone (landline) service.
CWC has just over 2 million customers in the 13 Caribbean countries that use the LIME brand, plus a 49 per cent stake in TSTT, while Columbus, only established in 2005, has 700,000 residential customers in the Caribbean, Central America and parts of South America, as well as information technology services to businesses.
If approved by the CWC shareholders, and regulators in T&T, Barbados and Jamaica, the proposed merger will create a regional telecommunications that would be a strong quad player–meaning providing mobile, Internet, cable television and in home phone service–across the Caribbean
Across the Caribbean, the merged and enlarged CWC will face one bitter corporate enemy: Digicel, majority owned by Irish billionaire, Denis O'Brien, and established only 13 years ago.Digicel operates in 21 Caribbean countries as well as Central America, Oceania and French Guyana in South America.
While Digicel made its name as a mobile operator throughout the Caribbean, it has recently positioned itself to become a quad-play provider, offering mobile, broadband, television and landline, particularly to business places.
Digicel's recent moves include:
�2 In October, the company launched its fibre-to-business offering, which aims to provide businesses, small and large, with Internet connectivity of up to 100MB.
Although hugely expensive to install, fibre to businesses is potentially a very lucrative venture for Digicel, which it would like to monopolise.A local business with a fibre connection will automatically be able to offer its employees extremely fast, internal, data download speeds, mobile telephony, television content and PBX (landline-type) connectivity, both locally and regionally. Installing fibre allows Digicel to become a quad-play operator in T&T, one of its larger markets.
The fibre-to-business offering would facilitate, for example, someone calling the Guardian Holdings office in Westmoorings and being transferred to the company's Jamaican office, for the cost of a local call.It also allows video conferencing, multimedia streaming and VOIP applications
Digicel is planning similar fibre-to-business offerings in Barbados, Haiti and Jamaica;
Competition: Flow already offers a 100MB download speed service to small and medium-sized businesses and high-income households in Trinidad, which CWC will inherit, at $650 a month.This means that the enlarged CWC will go head-to-head with Digicel in offering high-speed broadband Internet services when the Irish-owned company fully rolls out its service;
�2 In October, as well, a company called Sierra Support Services ran full-page newspaper advertisements seeking to employ over 30 fibre installation managers and supervisors. Sierra is owned and controlled by Denis O'Brien, the Irish billionaire who also owns and controls Digicel.
Presumably, this means Digicel will outsource its fibre installation to Sierra. But it also probably means that Digicel is not going to be satisfied with simply offering fibre to businesses and will seek to bring fibre to homes in high-income urban centres like Westmoorings and Lange Park;
�2 In September, Digicel closed a transaction involving the purchase of a submarine fibre optic cable network providing capacity from Trinidad and connecting 12 countries to Puerto Rico with onwards connectivity to the United States.
That deal gives the company an international fibre-connectivity backbone that facilitates and globalizes the fibre-to-business offering in T&T;
Competition: Before Thursday's announcement, CWC and Columbus were partners (27.5% and 72.5% respectively) in a submarine cable network connecting 42 countries in the Caribbean and Latin America, spanning 42,000 kilometres. If the transaction is approved CWC will own 100 per cent of that company;
�2 In September, as well, the company announced that it had acquired majority ownership and control of the parent regional sports broadcaster, Sports Max, providing Digicel with content for its television offering
�2 In the last six months, Digicel has hired journalists in Jamaica, Barbados and T&T as it launched a mobile app called Loop that provides news and information to the company's mobile subscribers.
Competition: With Sports Max and Loop, Digicel may be thinking of establishing a regional broadcasting company that would provide direct competition to One Caribbean Media, the Independence Square-based company with regional newspaper and broadcasting offerings
�2 In T&T in August, Digicel applied to the Telecommunications Authority for a licence to provide a subscription broadcasting service via a telecommunications network. In short, Digicel wants to be able to offer cable entertainment to households in T&T.
Competition: If Digicel's application is approved, this would bring it into direct competition with DirecTV, GreenDot and CWC/Flow in Trinidad.
�2 Over the course of the last year, Digicel has been buying up cable companies in the north Caribbean. Four transactions have provided Digicel with cable television, broadband and telephony access in Jamaica, Turks and Caicos, Dominica, Anguilla, Nevis and Montserrat.
In a sense, in those six markets, Digicel is already a quad-play provider and its fibre-to-business rollout, when completed, will make the company a quad-play provider in Barbados, Haiti and Trinidad.
Questions for Digicel
On Friday morning, the Sunday BG sent follow-up questions to Antonia Graham, the Digicel Group spokesperson, who is based in Jamaica.
The questioning went like this: Does CWC acquiring Columbus change the competition picture in T&T? TSTT is a quad-play provider, Digicel is rolling out fibre, which would allow it to become a quad-play provider and CWC (with Flow) may be a quad-play provider soon. If TSTT sells its 49 per cent stake in TSTT, won't there be three strong large quad-play providers in T&T and won't that mean MORE intense competition (which favours consumers) and not less?
Answers from Digicel
The company responded by stating: "As CWC (with its 49 stake in TSTT) and Flow are each others main competitors for fixed telephony and fixed broadband in T&T, the merged company would hold a near monopoly position for these services.
"The combined entity may also enjoy significant infrastructural advantages that could be difficult for competitors to replicate in the short term and this could enable it to raise prices."
In a lengthy statement to the Sunday BG, Digicel also called for a comprehensive and transparent approval process that would allow all stakeholders (including Digicel) to have their say.
Is Digicel right?
Digicel is right that TSTT (not CWC) and Flow are direct competitors in fixed-line telephony and fixed broadband.But TSTT and CWC are entirely different entities and the Government of T&T has ownership and management control over TSTT.
And yes, while TSTT (not CWC) and Flow are direct competitors in fixed (landline) services in T&T, all telecom experts acknowledge that landlines to the home is a business in decline and the real money is to be made by offering bundled fibre services to businesses, which Digicel is rolling out.Also, the broadband situation is a little more complicated than Digicel seems to think.
TSTT had 94,000 broadband subscribers, as at September 30, 2014, which was down by 13 per cent from 108,000 a year earlier, according to CWC's six-month financial report, released on Thursday, the same day as the announcement.According to the Telecommunications Authority of T&T's (TATT) most recent quarterly report, this country had 228,000 fixed Internet (broadband) subscriptions as at the end of June 2014.
This means, with a little extrapolation, that TSTT has 41 per cent of the fixed broadband and that its share of that market is in decline.The market fox fixed broadband in T&T has declined by 1 per cent if the June 2014 data are compared with June 2013.But at only 53 per cent penetration in June , according to the TATT, there is room for some expansion in this market if competition leads to a decrease in prices.
Moreover, the gross revenues from all fixed broadband offerings in T&T at the end of June was $178 million. While this was a nine per cent increase from a year earlier, revenues from fixed broadband are dwarfed by the gross revenues generated by mobile voice services, which amounted to $686 million at the end of June 2014.As well, the following companies provide fixed broadband service in T&T–Lisa Communications, Massy Communications, Green Dot and Open Telecom.
Is fixed broadbandthe future?
The TATT quarterly report makes it very clear that the future of broadband in T&T (as elsewhere) is mobile broadband.The penetration for mobile broadband subscriptions increased by 20 per cent to 36,000 in June 2014 compared with a year earlier.
What's more is that the TATT board forwarded to its line minister in "early September" its recommendations for the award of licences in the 700 Mhz spectrum, the so-called LTE (long-term evolution) band, which allows providers to deliver enhanced mobile data services.
According to the January 2014 edition of TATT Bytes, the regulator's magazine, the authority is looking to attract providers via the following mechanism:
1) Award licences for the 700 MHz spectrum to incumbent mobile operator(s) and or potential third mobile operator;
2) Potential for award of a concession to a third operator;
3) Potential award of licences for available 850 MHz and 1900 MHz spectrum to a third mobile operator.
Obviously, the 700 MHz spectrum–for which Digicel is in with a chance of winning–would be the crown jewel for local mobile operators.CWC and Flow have both applied for the LTE spectrum and the decision is up to Cabinet, which as is often the case, is sharply divided on this issue between those who favour going with the TATT recommendations and those who wish to carve out a niche for the legacy, majority state-owned company, TSTT.
One says no more on that issue, at this point, except to add that Section 21 (1) of the Telecommunications Act states: "No person shall operate a public telecommunications network, provide a public telecommunications service or broadcasting service, without a concession granted by the minister."Subsection 5 of clause 21 states that TATT has 90 days of receiving all relevant information onan application to submit a recommendation to the minister.
The minister (which in this case means Cabinet) then has 60 days to indicate his approval, modification or rejection of the recommendation.Subsection 9 of clause 21 states that if the minister has not indicated to the authority in writing within 60 days whether he is approving, modifying or rejecting the recommendation "it shall be deemed to have been approved."
Questioned on the fact that the minister has had TATT's recommendation since "early September" which would make it close to 60 days, the authority's CEO Cris Seecharan, said Cabinet had sought some clarifications on the recommendations made by TATT and therefore the clock has had to be restarted.
He said he did not have the information on when the clarifications were provided and he would need to check his corporate secretary.He also drew a distinction between a competitive bid process and an application made by a potential operator, suggesting that the 60 day limit for Cabinet approval may not apply to competitive processes, such as the 700 MHz process.
...Where does all of this leave TSTT?
Digicel has already indicated that it is likely to challenge the acquisition of Flow by CWC, if the latter retains its 49 per cent stake in TSTT.The CEO of TATT, Cris Seecharan, also described the situation of cross-ownership by CWC of 49 per cent in TSTT and 100 per cent of Columbus as potentially anti-competitive.TATT is almost certain to block the acquisition of Columbus by CWC if the London-based company does not sell its stake in TSTT.
And CWC's 59-page announcement of the transaction on Thursday makes it clear that the regulators in T&T, Jamaica and Barbados MUST all approve the acquisition for the transaction to be completed.So, CWC will attempt to hold talks with Finance Minister Larry Howai within the next ten days and it is expected to make a firm offer to sell the 49 per cent stake in TSTT.
Should the Cabinet not approve or delays approval unduly, the purchase of CWC's 49 per cent stake by National Enterprises Ltd (the investment holding company that owns the State's 51 per cent stake), the deal would be dead.But that would leave a half-baked TSTT facing the prospect of previously unseen competition in the 700 MHz (LTE) space, which is the future of mobile revenues.
Alternatively, if TSTT and CWC are not enemies, the majority state-owned company can facilitate the rollout of the LTE spectrum by CWC/Flow by making its cell towers and other infrastructure available to the enlarged entity.Clearly, Cabinet has some leverage if not a whole lot of time.
Cabinet can use its power to approve the purchase of the 49 per cent stake–as well as its power to approve the two new 700 MHz licences–as leverage in its negotiations with CWC over the future shape of mobile telephony in T&T.Digicel, no doubt, would like a seat at that particular table.
Will they get it?