AHEAD OF THE CURVE: Caribbean telecoms comes full circle
Despite fierce competition, high mobile penetration and many telecoms markets being a duopoly, the Caribbean still holds tremendous opportunity for growth.
Advances in technology and greater collaboration between islands are driving a fresh wave of regulatory reform across Caribbean telecoms. Calls for regulation are ironically coming increasingly from incumbents, which are seeing international traffic margins being eroded by VoIP.
“In places such as the Bahamas and Bermuda there are obligations on the incumbents, and they are suddenly finding themselves facing competitive pricing from pure ISPs and cable companies, which can now offer internet capacity and VoIP,” says Daniel Preiskel, senior partner at Preiskel & Co. “One could understand incumbents demanding for VoIP to be regulated, whilst from a regulator and consumer perspective, VoIP can be seen as pro-competitive.”
The Bahamas and Bermuda have implemented EU-based competition laws, giving regulators powers to act on any anti-competitive behaviour and make ex ante remedies to promote competition. Preiskel understands that other markets in the region are looking to follow suit.
“For the most part, the British-based islands have decent regulatory systems, while Puerto Rico’s is constantly evolving. Given the size of the islands and the geography, I don’t think one should be too critical of those moving to the next phase. But clearly technology has moved on quickly and they do need to consider liberalising further.”
According to Preiskel, governments wanting to privatise ought to review and update their regulatory regimes. However, those that are not seeking to cash in on their stake may find it hard to justify paying for the expertise to overhaul regulatory systems.
Numerous markets are said to be “open for business” and welcoming to outside investment, but opportunities across the Caribbean are erratic. “The combination of small population figures and high mobile penetration can be fairly off-putting to new investors, and regulators will struggle to combat these factors,” says Tom Leins, Research Analyst, TeleGeography.
“The problem is often not the regulators themselves, but the incumbent operators, which are keen to defend their turf. Many markets are commonly set up as a duopoly between LIME and Digicel. Anywhere these two are jostling for space is a cut-throat price war and anyone else is going to get caught in the crossfire, as they simply don’t have the same kind of economies of scale.”
Another issue is that there are many small countries in close proximity. “With 28 countries jostling for space, there have been issues with frequency overlap and many spectrum consultations,” Leins says.
Fragmentation is compounded because some islands are relatively new countries.
“The dissolution of the Netherlands Antilles flung new countries blinking into the regulatory environment. So it is a case of where they take their cues from – North America, Europe or Asia-Pacific,” he adds.
Key regulatory presences include the Eastern Caribbean Telecommunications Authority (ECTEL), Autorité de Régulation des Communications Electroniques et des Postes (ARCEP) and the Federal Communications Commission (FCC).
According to Leins, regulatory cohesion – as with ECTEL – has been a big step in the right direction, but many governments and state-backed telcos still have a vested interest in guarding their telecoms assets, with the slow progress of the Saba, Statia Cable System (SSCS) being one example.
In 2012, the National Office for the Caribbean Netherlands, Rijksdienst Caribisch Nederland (RCN), was thwarted in its attempt to bypass the landing station owned by Saint Maarten-based SMITCOMS in favour of one owned by Curaçao-based UTS, raising tensions between the countries. Nevertheless, initiatives such as the Pacific Caribbean Cable System (PCCS) combine disparate players from various countries, offering “a solid blueprint for extending connectivity”, says Leins.
Most islands have access to one cable, with some linking to their neighbours. Larger islands have multiple systems, while Puerto Rico has ten, providing a regional hub. However, TeleGeography reports there has been little activity in terms of new fibre, with projects focussed on smaller cables to fill the gaps. The East-West cable built by CWC, for example, entered service in 2011 and links Jamaica, the Dominican Republic and the British Virgin Islands.
“The driver in the Caribbean is connectivity rather than capacity,” says Vincent Chevalier, head of sales & marketing Americas, Alcatel-Lucent Submarine Networks. “Connectivity has two aspects: an island is either looking for its first connection into the broadband international backbone or it already has one submarine cable, but wants an additional link for redundancy,” he adds.
When connectivity is the driver, the business case can be challenging: “This is a factor complicating some of the investment that could be done in the Caribbean. However, if there is a clear need for international connectivity, but where the investment is not directly proportional to the capacity on the system, there are a number of options. For some islands, it is a matter of arranging their own investment, obtaining finance from banks or other sources.”
The most significant recent activity in the subsea cable market was the joint venture between CWC and Columbus Networks.
“We’ve seen a regressive step away from competition this year in the wholesale and capacity space,” states Conor Clarke, director of international business, Digicel Group. “The JV gives them a circa 60-70% market share and results in monopolies in a number of islands in terms of off-island capacity.”
Digicel does not sell capacity, but since it buys for its regional operations, it is one of the biggest customers for wholesale players. Yet it has had to find some creative solutions.
“We’ve had to push our needs to the wholesale players and some have responded positively and worked with us and some of them not so positively,” says Clarke.
“Haiti is a good example. There was a situation there where we were not offered capacity that was reasonable. In response, we built a cable on to the island ourselves.”
There are a number of markets where Digicel has not been able to go forward due to a lack of competitive pricing on connectivity. Yet Clarke hints there are more creative solutions in the pipeline. “We are a private company, so our decisions can be driven by our gut feel and our decisions aren’t always based on raw economics. Over the last ten years, you could probably say that about a lot of the markets that we’ve gone into.”
Certainly, the Digicel model is one proving hard to emulate. “For a while UTS looked like a contender to broaden its footprint, almost like a ‘mini Digicel’,” continues TeleGeography’s Leins. “But it’s not as simple as getting a licence and deploying some infrastructure.”
ARCEP granted Curaçao-based UTS licences for Guadeloupe and Martinique in 2008, but it was unable to fulfil its licence conditions (90% coverage by 2013). In May this year, UTS’ Suriname and St Kitts subsidiaries were ostensibly put up for sale.
Meanwhile, an emerging player in the region is private equity firm Altice Group. It has signed agreements to acquire Orange Dominicana and Dominican integrated telecoms services provider Tricom. This follows its acquisition of Outremer Telecom earlier this year, which Altice intends to merge with its Le Cable (Numericable) operations in Guadeloupe and Martinique.
“Not only did this activity take the French-backed Altice Group away from the French overseas territories – its usual Caribbean stomping ground – it also means that Altice are entering an unfamiliar market for the first time,” says Leins.
“Altice coming in is a very welcome sign,” concurs Preiskel. “It’s a vote of confidence in the region. If they succeed, I think some other major players will consider investing in the Caribbean. Incumbents can be relatively slow, inefficient and behind the times, and they probably need to come up with quad-play solutions to catch up.”
Preiskel sees VoIP regulation as a chance of regulatory review in the region without privatisation, but warns that certainty is essential. “Potential investors are looking for a strong and predictable regulatory regime that does not change by 180° every time a new government is elected,” he suggests.
While the region’s wholesale capacity space has taken a regressive step, Digicel’s Clarke feels the voice market remains healthy. “I think the rumours of its death are exaggerated,” he says.
Digicel’s “Roam Like You’re Home” service allows its mobile subscribers to roam on the US mobile networks of AT&T and T-Mobile for the same rate they pay at home.
“For companies to do this on their own networks is not uncommon. But to take the lead to do this off-net is very unusual. If you are prepared to be brave, then there is business out there to be got,” Clarke says.