AHEAD OF THE CURVE: Consolidation in the Caribbean
Innovation and convergence present opportunities for development across the Caribbean, but they have also highlighted the region’s regulatory limitations.
Regulatory uncertainty and fragmentation have long been features of Caribbean telecom markets. All eyes are currently on the proposed $1.85 billion acquisition of Columbus International by Cable & Wireless Communications (CWC). It has been approved by shareholders, but still requires regulatory consent in Trinidad and Tobago, Jamaica and Barbados.
CWC aims to complete the acquisition in the first half of 2015 following regulatory approval and has promised to transform connectivity in the region with a retail quad-play offering and an end-to-end terrestrial and submarine network serving enterprise and government customers. Beyond connectivity, it plans to expand its offerings with managed services, cloud products and Tier III data centres.
“What this proposed merger allows us to do is to become a larger, scalable operation,” says Chris Dehring, head of government and regulatory at CWC. “It will also enable the acceleration of investment in our wholesale network capabilities. Such investments and our ongoing push for innovative new wholesale services and products will benefit many other service providers and carriers in the region, including our biggest competitor.”
Digicel however, is calling for close scrutiny of the proposed deal, and that the appropriate checks and balances be put in place to ensure progress is maintained. “Digicel’s concerns are straightforward and transparent and all to do with ensuring there is a level playing field for competition to thrive and that the creation of a virtual monopoly that would be to the detriment of customers and economies across the region is avoided,” states Group CEO, Colm Delves. “We cannot risk an environment of higher prices, slower investment and degraded service, which often flow from virtual or actual monopolies.”
Given how far the region has progressed in terms of technological and economic development, Delves stresses that steps must be taken to ensure that competition is preserved and protected. However, he also urges caution: “The required processes should not be rushed through and approved with indecent haste.”
The Eastern Caribbean Telecommunications Authority (ECTEL) has expressed its “deep concern” that the acquisition could result in a negative impact on competition, while the Caribbean Telecommunications Union (CTU) confirmed in its first regional regulatory forum in December that it would be making a decision soon. With some operators currently blocking VoIP, additional topics include over-the-top services, as well as number portability.
“It is quite obvious that telecoms operators are seeing opportunities in the Caribbean despite the size and fragmentation of the markets,” states Bernadette Lewis, secretary general of the CTU. “Both pan-Caribbean operators have been engaged in acquisition programmes – some more discreetly than others. Accordingly, it is imperative that regional regulators collaborate and share information on a more regular and structured basis on market developments and its impact.”
According to Lewis, consolidation in the market poses new challenges for national and regional regulatory authorities. “What is concerning about this trend is that it reverses some of the gains we have made in fostering competition following liberalisation of the market over the last 15 years.”
The Caribbean’s love affair with the mobile phone is just one example of the benefits born from liberalisation. Likewise, the entrance and success of players such as Columbus, Digicel, and Karib Cable has led to a natural cycle of growth and consolidation. Lewis believes that regulatory authorities most now switch gears from liberalisation to focus more on convergence, competition and consumer welfare and empowerment.
One option would be to enforce certain conditions such as a customer or consumer charter. Governments should also engage more closely with the private sector to invest in fibre infrastructure and make it available for would-be prospective service providers at the retail level.
“Perhaps one of the conditions we need to insist upon is universal broadband coverage to make sure that we give the citizens of the region the opportunity to benefit from the convergence we are seeing. It is a tremendous opportunity and we are not just talking about the internet, but the internet of things. This is a global progression inextricably linked with technology and the rapid changes taking place,” Lewis adds.
According to CWC’s Dehring, the region’s wholesale market is already dynamic and competitive, given that it is currently served by both large privately-owned subsea systems and consortium-owned systems – all of which continue to be upgraded to add capacity to meet the region’s international broadband growth.
“This varied ownership and multiple investment translates into multiple potential suppliers of international capacity to the region. One of those high-capacity systems is the GCN network owned by our competitor, which serves most of the same countries as the CWC network, together with some that CWC does not serve,” Dehring says.
Indeed, Dehring argues that the idea of one dominant player in the region is a myth. “In the Caribbean, our largest competitor has entered both the fixed-line broadband and video markets, making this a very dynamic and competitive space. They also have a cable licence in Jamaica and have secured capacity on our network at competitive rates. In addition, local cable operators, OTT players, Wifi operators and innovative service providers such as Netflix are able to aggressively compete in our markets by providing replacement video experiences without any required local investment.”
With 28 small countries in close proximity and a regulatory landscape divided along territorial rather than geographical lines, the Caribbean is not known for its ability to implement legislative change quickly. The fact that capacity prices have remained stubbornly high for relatively low-bandwidth links is another reason why the latest round of consolidation could be of far-reaching consequence.
“Regulation can only help so much in terms of influencing wet submarine cable prices,” says Greg Bryan, senior analyst at telecoms market research firm TeleGeography. “Prices are high – among the highest in the world – but volumes are low and are likely to stay low. So there is that ‘Catch 22’ where lower prices might increase demand, but only by so much when you still have relatively lower income and smaller populations. This is something the wholesale telecoms market cannot change. So the big opportunity is the one CWC and Columbus is going after – being profitable with a relatively small addressable market.”
Although Bryan believes the business case for further investment in submarine cable capacity for the Caribbean appears limited, he does see opportunities emerging on the terrestrial side if regulation were to be tightened.
“It can help with backhaul prices, not just in the Caribbean, but all along the Caribbean basin into Central America. However, as illustrated by the situation in Columbia, where wet prices have gone down significantly over the past few years as new cables and capacity have gone in, backhaul is still extremely expensive. It’s one thing to get to the landing stations, but getting inland is another matter.”
Bryan sees this problem in many of the Caribbean islands, where the lack of local loop policy and challenging geographies have limited the opportunity for market entrants. This in turn has impacted on the broadband sector, where penetration growth has slowed. “These islands are mountainous and difficult to get round with fibre, which can make competitive terrestrial backhaul development expensive and challenging.”
IXPs and local content
There are at least 15 independent submarine cables connecting Caribbean countries. The most heavily connected is Puerto Rico, which has nine landed cables. The British Virgin Islands, the Dominican Republic and Puerto Rico are three important concentration points, with telecoms traffic often routed via one of these three countries on to North America.
However, the Caribbean is looking to data traffic as a new model for intra-regional economic partnership between countries with an historical dependence on tourism. The governments of Grenada, St Lucia and St Vincent and the Grenadines are working together as part of a wider project to upgrade data networks across the region. Internet exchange points (IXPs) are one of the main infrastructure upgrades being implemented, with St Lucia the latest of eight countries in the region to establish an IXP.
IXPs are seen as catalysts for internet-based economic activity and the development of local content. Here, the CTU’s Lewis identifies a tremendous opportunity for indigenous content that is largely untapped. “Like other regions, the Caribbean has a rich cultural heritage and we need to defend it, develop it and make use of communications technologies to showcase it to the world,” she says.
The Caribbean Regional Communications Infrastructure Programme (CARCIP) led by the CTU and funded by a $25 million allocation from the World Bank has had some success in reducing the gaps in regional broadband connectivity to foster technology-based innovation. It is also creating business incubators, and promoting skills development and certification programmes for ICT.
Meanwhile, Digicel completed its submarine fibre capacity acquisitions via Global Caribbean Fibre and the Global Caribbean Network (GCN) cable, with all the necessary regulatory and government approvals in place in September. It now intends to roll out fibre to businesses in select markets.
According to Digicel’s Delves, it is prepared to invest further – provided it has a level playing field to work with: “As the company that brought competition to the Caribbean region, we are in absolute support of the continued development and sustainability of the industry supported by a strong regulatory regime, which ensures that providers are held accountable and consumers’ rights and interests are protected and promoted. That is all we are asking for in this regard.”