Will the proposed amendments to Jamaica’s Telecoms Act improve LIME’s competitiveness?

Over the past several months, LIME has regularly expressed concern that the regulatory framework for the Jamaican telecoms sector was out-dated and unduly oppressed the company. Amendments to the current Telecoms Act have been tabled in Parliament, but will LIME benefit from the proposed changes?

http://upload.wikimedia.org/wikipedia/en/2/2d/LIME_Logo.gifLast week, the Jamaican media was gripped by reports that the incumbent telecoms operator, LIME (formerly Cable & Wireless) planned to shut down its operations in Jamaica, following approval of the merger of mobile companies, Claro and Digicel. It was widely known that in recent years, the company had been operating at a loss in Jamaica, due primarily to the challenges it faces in the mobile/cellular market.

Although the merger would most likely weaken LIME’s position further, its officials have categorically stated that reports of it abandoning Jamaica are not true, granted it is struggling in the mobile market. However, just prior to the national elections held in late December, a Bill was tabled in Parliament to amend the Telecoms Act 2000. The Telecoms (Amendments) Bill is currently been debated, and policy makers are hoping that it will effect urgently needed changes in the sector. This post will highlight select amendments and consider some of the implications to LIME and to telecoms competition in Jamaica.

Why amend the Telecoms Act?

As it currently stands, the Telecoms Act is in dire need of updating. It was enacted over 11 years ago, when Cable & Wireless operated as a monopoly and there was no competition in any market. Since then, the sector has undergone extensive transformation, but the overarching legislation has not kept up with the developments. Although policy makers have long recognised that the current Act should be repealed and replaced with a more relevant framework, the lengthy legislative process has been a deterrent from undertaking such an exercise. Hence, this Bill has been envisaged as a stopgap that addresses select deficiencies.  In summary, it aims to, among other things:

  • encourage the sharing of telecoms facilities and infrastructure, where feasible;
  • increase the resources that the telecoms regulator, the Office of Utilities Regulation (OUR), can use when determining rates
  • allow the setting of interim wholesale and retail rates
  • bestow enforcement powers on the telecoms regulator and the spectrum management regulator,
  • expand the consumer protection to include infrastructure sharing, and
  • address matters related to the administration of the Universal Service in Jamaica.

Amendments that could have an impact on competition

Although a number of amendments have been proposed throughout the Act, those most likely to have an impact on competition are in Part V of the Act, which deals with interconnection.  Three key amendments are highlighted.

http://www.flickr.com/photos/greggobst/1. Widening the services that could be subject regulation Throughout the Act, but most significantly in Part V, terms such as “voice carrier”, “voice network”, “voice services”, etc., would be changed to “telecommunications carrier”, “telecommunications network”, etc. This seemingly minor adjustment would broaden the scope of services/operations that could be subject to regulation – from just voice, to telecoms. Further, noting that voice services can be carried by a variety of networks, no longer just fixed-line or mobile as initially was the case, the more inclusive terms factors in convergence, which has occurred in the delivery of voice data and Internet services over a single network.

2. More options given to the regulator to make rate determinations. Currently, should the OUR need to make a rate determination, e.g. regarding interconnection, it could only rely on the outcome of cost study in order to make its decision. Cost studies are expensive and lengthy to implement. Often, they require data from industry players, and some may be more inclined to delay the process. Typically, the exercise can take well over a year from the tender to select consultants, to finalising the rates that will be implemented, but it may still be thwarted by litigation if a provider is not satisfied with the outcome. Through the proposed amendment, the OUR will now be allowed to use local and international benchmarks to aid in its determination, which means that an abbreviated process is now permissible.

3. Introduction of the ability to set interim rates. Recognising that highly protracted processes are the norm when determining and implementing certain rates, the proposed provisions allowing the Minster to set interim wholesale and retail rates, would likely be most welcomed. Interim rates would be valid for a year in the first instance, but could be extended for an additional six months, and could be used pending completion of the more lengthy rate determination process. Hence, the OUR, through the Minister, can be more responsive and more efficiently implement a rate intervention, should it be necessary.

Will LIME experience some relief?

Currently and with the assistance of consultants, the OUR is undertaking a cost study, but the process is far from completion. In the interim, should the Bill be passed, the organisation will most likely opt to implement interim rates, relying primarily on benchmarks to do so. Hence LIME could see its competitiveness improve, if the rates it currently pays to Digicel are reduced, and  any existing asymmetry in the rates it pays to Digicel (and vice versa) is eliminated.

Finally, it is important to highlight, that the sale and merger of Claro and Digicel would, according to the Fair Trade Commission, resulting in a “lessening of competition in the telecoms market” (Source: Jamaica Observer). The merger will increase Digicel’s share of the mobile market considerably, increasing its power in the market and consequently the vulnerability of other players in the market, specifically LIME. The proposed amendments would better equip the OUR to address some of the longstanding issues in the sector, which not only will have an impact on competition, but also on the attitude and perception of telecoms in Jamaica.

Image courtesy of Wikipedia and Gregg Obst, flickr