When politics gets in the way: 5 takeaways from the Government of the Bahamas’ plan to regain majority share of the BTC
The Government of Bahamas’ intention to regain controlling interest in the Bahamas Telecommunications Company is a highly polarising initiative, which many consider foolhardy and ill advised. Below are five takeaways from this proposed plan.
Although most of us in the Caribbean might not be paying attention, a few weeks ago, the Government of the Bahamas (GoB) officially announced its intention to recover controlling interest in the Bahamas Telecommunications Company (BTC) from majority shareholder, Cable Wireless Communications (CWC). The Government has been positioning itself to engage CWC in talks by recently appointed a negotiating team. It has also cancelled a public share offering, in which the Government had planned to put 9% of BTC’s shares up for public purchase.
International ratings agencies and analysts, such as Moody’s and Standard & Poor, have been watching the unfolding situation closely. Early views, many of which were captured in this week’s new roundup, suggest that the Government’s change of heart does not augur well for investor confidence. Nevertheless, the Bahamas situation provides a number of insights, which are not only applicable to countries, but can also guide professional/business and personal endeavours.
1. Remember the context within which earlier decisions were made
On 27 April 2011, the purchase of 51% stake in BTC by CWC was finalised, with the GoB retaining a 49% market share. However, efforts to privatise the BTC had been a long journey, spanning well over 12 years, and had been supported by the main political parties when they were in power:
The chief motivation for the sell-off of BTC was the rapidly advancing technology of the telecoms business, which threatened to devalue the state monopoly and make its operations obsolete. A modern telecoms sector is seen as vital to the country’s economic interests, and a major strategic partner would enable BTC to compete and move forward in a transformed market… (Source: The Tribune)
However, although the Government had initially planned to sell 49% of BTC’s shares, very few companies jumped at the opportunity – they expected controlling interest and consequently, management control over the business. Additionally, when there were some offers, companies backed out, or were not sufficiently transparent regarding their intentions. Ultimately, it appears that certain concessions were made by the GoB, regarding sale price to CWC, for such a slim majority control, and to secure the resources and expertise that such an international company could offer.
2. Keep ego in check
The BTC was a profitable company for the GoB, where the dividends paid could be (and had been) used to bolster the budget or more generally, the country’s fiscal position. Furthermore, there was considerable pride in the fact that BTC was a 100%-owned Bahamian company, and much of sentiments that are being expressed regarding the recovery of controlling interest, are along the lines of re-attaining control of this “national resource” and cash cow.
However, the cost to the Bahamas to buy back 2% of BTC’s shares from C&W might be truly prohibitive, in light of its reported USD 550 million fiscal deficit, and on balance, might not be worth it. Moreover, in light of plans associated with the privatisation process to fully liberalise the telecoms sector by 2014, re-nationalising the BTC could be a step backwards. International best practice has indicated that competitive markets are best fostered when the government is not a player in the market, the policy maker, AND the regulator.
3. New blood is often needed to improve the status quo
As indicated in the quote above, a real concern had been identified and remained an important impetus for the sale. With the sale to CWC, a number of changes/improvements have occurred, many of which are geared towards re-positioning the BTC for imminent competition:
- the offer of Voluntary Separation to BTC staff to streamline operations and improve operating efficiency
- active expansion of the mobile network to islands that may not have enjoyed high levels of connectivity
- active upgrade of mobile/cellular networks from GSM/GPRS/EDGE (2G technologies), to HSPA+, a pre-4G technology, which should be fully completed by September 2012.
- considerably net earning have been generated, which in turn has begun to result in a substantial dividend payments to the GoB.
4. Do not underestimate the need for certainty and credibility
The stance to regain majority interest in the BTC is being widely held as detrimental to the both the Government and people of the Bahamas. Although the earlier sale might have been unpopular among the public and some political parties, it was ratified by Parliament. Efforts to now to reverse that position, could be seen as reneging on the agreement that had received national approval (through Parliament), and a sign of bad faith.
In that regard, the Bahamas is already beginning to feel the consequences. Analysts and ratings agencies are beginning to weigh in on the situation, calling the initiative ‘illogical’, ‘negative… erratic… and … could also harm liberalisation of the wider Bahamian communications industry, and showed the climate for foreign investment in the Bahamas had “deteriorated.” ’ (Sources: BahamasB2B.com and The Tribune)
5. It may be better to manage the current situation than to try to undo it
In summary, the sale of controlling interest in the BTC to CWC and the current’s administration’s efforts to regain it is an emotionally charged issue. However, based on some of the concern that has been expressed, this pursuit is likely to result in more damage to the Bahamas than benefits. More importantly, there does not appear to be any truly grievous reason, such as poor management of the company by CWC, or a lack of profitability, to demand the GoB to pursue remediation.
When the entire situation is considered, the GoB’s efforts could be better spent ensuring that appropriate policies and structures are in place to promote competition and the continued improvements in the country’s telecoms sector. Additionally, with such a high fiscal deficit and the decline of anchor industries, such as tourism, greater focus could be given to creating a more enabling environment that supports local and international investment and business development in the country’s ICT sector, to ensure the Bahamas’ concerted transformation into an Information Society and knowledge-based economy.