Cable & Wireless vs Digicel

Cable & Wireless Communications (CWC) chief executive, Phil Bentley, has given a commitment to Caribbean governments and regulators that if the company’s US$3 billion acquisition of Columbus International is approved, the enlarged CWC will not negatively impact competition in the cable and broadband markets.

Bentley made the point in an address on Friday to CWC shareholders at a general meeting held at the Hilton hotel above the Paddington train station in London, to get the approval of the company’s owners.

Six resolutions aimed at getting shareholder approval of the acquisition received over 84 per cent approval of the CWC shareholders.

The shareholders meeting was covered exclusively by Guardian Media Ltd, which fully underwrote the cost of airline ticket, hotel accommodation and per diem for coverage of the meeting.

On the issue of competition, Bentley said: “In the Caribbean countries in which CWC and Columbus overlap – Jamaica, Barbados, St Lucia, St Vincent and Grenada – we know that we have to work closely with governments and regulators to ensure that our customers benefit and competition is not compromised.

“And that’s a commitment we happily make to all our stakeholders. “I know that we have got a member of the Caribbean media here today, so I will repeat my commitment for your benefit: this is a transaction that will benefit all our customers and will not compromise competition.
After all, our biggest competitor in the Caribbean will still be bigger than us after this deal.”

Digicel, CWC’s biggest competitor in the Caribbean, has repeatedly stressed that approval of the transaction will provide CWC with market dominance in fixed broadband and in cable.

In a statement on November 27- responding to comments by the Caribbean Telecommunications Union (CTU) expressing concern that the acquisition could reverse the gains in telecommunication as a result of liberalisation – Digicel said: “We welcome the fact that the CTU recognises, correctly, that the real concern in this proposed deal is not the mobile market, but rather this blatant attempt to establish virtual monopolies right across the region in the markets for fixed
broadband access, fixed line services, international connectivity/submarine fibre access and subscription cable TV services. “It is the consolidation of the specific markets in which LIME and FLOW used to compete which is of clear concern to the CTU.”

In the statement, Digicel group CEO, Colm Delves said: “We are very pleased that the CTU has taken such a proactive stance in terms of seeking to assess properly the potential impact of this hugely significant deal on the telecommunications industry and wider economy right across the Caribbean region.

“Whatever may happen, no one can argue against the proposition that the creation of monopolies and the elimination of competition in the markets for fixed broadband access, international connectivity, subscription cable TV and fixed line services would be a massive backwards step for the Caribbean region.”

Documents provided to the Business Guardian after the meeting paint a picture of CWC/Columbus having market dominance – but not a virtual monopoly – in the broadband and cable markets in Jamaica.

One document indicates that if the transaction is approved, the combined revenue of CWC/Columbus in Jamaica will be US$281 million as compared with US$430 million for Digicel.

The CWC document indicates that the combination of CWC and Columbus would have 153,000 broadband subscribers Jamaica, while Digicel would have an estimated 40,000.

In the Jamaican cable market, the combination would have 130,000 customers compared with CWC’s estimate that Digicel would have 21,000 customers.

The CWC document also indicates that the combination will have 743,000 mobile customers in Jamaica compared with Digicel’s 2.2 million mobile subscribers.

In terms of the fixed voice market, the enlarged CWC is likely to control 253,000  subscribers in Jamaica, compared with Digicel with an estimated 10,000, if the transaction is approved.

In the fixed voice, broadband and the cable markets, the estimated size of the Jamaican market, according to the CWC document, is 850,000 potential subscribers.

Bentley said in an interview after the meeting that the size of the fixed-line, cable and broadband markets in Jamaica was an indication that both an enlarged CWC and Digicel have growth potential in those markets.

The CWC chief executive said: “Digicel’s argument is that we dominate the fixed-line market. But CWC only has 253,000 fixed-line accounts in Jamaica versus mobile in which Digicel has 2.2 million subscribers.

“On the issue of their claim of fixed-line dominance in Jamaica, it’s like we would say that there is market dominance in the slide-rule market. It does not mean anything. That’s not where the action is because that’s old fashioned. “They have broadband in Jamaica.

The Jamaica Gleaner in September quoted Digicel’s Jamaica CEO as saying the company was planning a massive rollout of fibre to create a national service.
They say we have a monopoly on broadband in Jamaica. It’s just not true. Even if we have more customers than they have, the fact is there is a great deal of potential growth in the cable and broadband markets in Jamaica. We can both go after it.”

Approval by the CWC shareholders is only the first regulatory approval that the transaction faces. It is a condition precedent of the transaction that it receive regulatory approval in T&T, Jamaica and Barbados as well as the approval of the US anti-trust authorities and that country’s telecommunications regulator.

In discussing the risks relating to the acquisition, the 171-page shareholder circular that was given to the shareholders attending the meeting, states: “Completion of the acquisition is not conditional on the obtaining of regulatory approvals in jurisdictions outside the US, Barbados, Jamaica and T&T. However, there are a number of jurisdictions in respect of which regulatory notifications and/or approvals may be required.”

The fact that the approval of Eastern Caribbean states is not a condition precedent of the transaction’s approval has not been well received among the five member nations of the Eastern Caribbean Telecommunications Authority (Ectel) – Dominica, Grenada, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines.

On November 13, following a meeting of its constituent members, Ectel put out a statement noting “with deep concern that this development can potentially result in a negative impact on competition. It can also reduce choice by consumers, of both services and service providers. “Since the advent of liberalisation, the prices of all telecommunications and ICT services have been significantly reduced due to competition in the region.

“Ectel is mindful that over the past 15 years there has been major development in the telecommunications sector under the guidance of independent regulators in the Eastern Caribbean.

“Increased monopolisation therefore can erode the gains made by liberalisation, and create challenges for the entrance of new service providers.”

The regulator for the five Eastern Caribbean member states said that both CWC and Columbus may be in breach of their licences, if they engage in activities which can have the effect of unfairly preventing, restricting or distorting competition.

Bentley said Flow, the name under which Columbus trades in the Eastern Caribbean, has revenues of US$25 million in the region, with St Vincent- whose Prime Minister Ralph Gonzales has expressed concern about the impact of the acquisition – generating US$5 million.

“The reason why the approval of the Ectel countries is not a condition precedent of the transaction…is that it is not material to the deal.

It does not mean that we won’t talk to them as we have met all the Prime Ministers and regulators. “But if we could not get an agreement in St Vincent, does that mean the whole deal is off? No. St Vincent not approving is not a reason to hold back a US$3 billion deal.

“All we said was, we would just have to park it. Of course, we want an agreement, of course we want to move forward. But if the worse came to the worse, we would say: ‘Fine. Leave it.’ Don’t have that as part of the deal.’ “But it’s just not material for it to be a condition precedent for the completion of the deal.”

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