Dimming opportunities: are Caribbean telecoms sectors becoming victims of their own success?
A discussion on whether the progress that has been realised in telecoms sectors across the Caribbean would be a deterrent to new investors to enter those markets.
Last week, as was noted in our latest news roundup, Jamaica’s auction of frequencies in its 700 MHz spectrum band has been delayed indefinitely. Although no reason was given officially, speculation was rife that there was insufficient interest in the spectrum. Moreover, the reserve price for the frequencies, which started at USD 40 million, might have been too pricey for those that might have been prepared to throw their hat in the ring.
This delay in the auction is not surprising. As was noted in our post, Some thoughts on Jamaica’s 700 MHz auction, bidders would need to ensure that that they had conducted sufficient due diligence in order to be confident of the viability of their proposed operations in Jamaica. However, the challenges that prospective investors could face in Jamaica led to a wider consideration of telecoms across the region. To varying degrees, the telecoms sectors across the Caribbean are no longer as fledging as they used to be, and the prospect of still having completely untapped opportunities for investment in that sector, is declining. In essence, is the region becoming a victim of its own success?
The mobile/cellular space
In the mobile/cellular space, as of 2011, subscriber teledensities ranged from 63% in Belize, to 166% in Antigua and Barbuda (Figure 1), which inherently indicates that for the most part, there are few underserved areas or interests groups that potential competitors can take target. Additionally, although mobile/cellular rates might be increasing, as suggested by our latest Snapshot on mobile spend, regulators across the region have been intervening by setting interconnection charges between the providers. The most recent instance of this is Jamaica, where yesterday, 30 May 2013, the Office of Utilities Regulation (OUR) announced that mobile/cellular termination rates will drop from JMD 5.00 (USD 0.05), to JMD 1.10 (USD 0.01) (Source: Jamaica Gleaner).
The announcement by the OUR should result in significant cuts in retail calling rates to mobile/cellular phones in the Jamaica. However, more importantly, there could be some reduction in the margins that the carriers have been realising on calls. Nevertheless, consumers have welcomed those reductions and should benefit considerably from the changing dynamic that should eventuate.
Having said this, Jamaica might be keen to have a third player in its mobile/cellular market. However, the anticipated low calling rates, active competition in market, high subscriber penetration, and the solid regulatory oversight that currently exists, could all make it difficult for a potential entrant to uncover an untapped opportunity that it could harness.
In a different vein, in the Bahamas, where the mobile/cellular sector is not yet open to competition, the sole carrier, the Bahamas Telecommunications Company (BTC), the company, since coming under the control of Cable & Wireless Communications (CWC), has accelerated build out and upgrading of its mobile/cellular network. Over the past several months, islands in the Bahamas that had not had service before have been added to the network, and some of the latest technologies are now available.
Liberalisation of the mobile/cellular network in the Bahamas is imminent, within 2—3 years, and so the incumbent had been positioning itself for that eventuality. However, as the BTC’s subscriber base and service coverage continues to grow, a potential investor might be seeing less of a “green fields” opportunity, and may have to work a bit harder to develop a viable business model, should it wish to enter the Bahamas mobile/cellular market.
The Internet market: are we really as badly off as we think?
Our last review of fixed Internet broadband service penetration as of the end of 2011, did indicate that subscriber teledensity in the region was still quite low, which could suggest that are untapped investment opportunities. Fixed broadband teledensity ranged between 2.5 subscribers per 100 inhabitants in Guyana to 33.0 subscribers per 100 inhabitants in the Cayman Islands, as reflected in Figure 2.
However, based on our latest Snapshot of fixed Internet broadband spend in the Caribbean, one of main observations made was that Internet speeds was increasing, while pricing had generally been decreasing since 2011. Two countries with the most notable improvements were Belize and Barbados, where higher transmission speeds had been added and monthly rates dropped by over 50% in some instances. Additionally, in Barbados, Jamaica and Trinidad and Tobago, residential customers can subscribe to Internet plans with advertised download speeds of up to 100 Mbps, which is consistent with what is offered in some developed countries.
With regard to wireless broadband, carriers throughout the region have been deploying Wi-Fi, WiMax and other similar technologies, as a more cost-effective way of increasing broadband coverage into areas not yet served by fixed-line networks. Unfortunately, most official indicators do not consistently measure wireless broadband subscriber and user penetration, but if those numbers are also considered, the region’s Internet broadband penetration figures could be considerably higher and reflect a more challenging prospect for new investment.
Without a doubt and considering current business practice, successful companies are generally driven to maximise profits and efficiency, while decreasing costs. For example, in its latest yearend report, CWC is planning in the current financial year to aggressively reduce costs by USD 100 million and improve its bottom-line. Hence there might be limited tolerance among investors for markets that considerable effort and creativity might be needed to achieve the desired return on investment.
In summary, the days of investor-driven investment in telecoms sectors in the region might be on the decline. For governments-driven projects that require considerable capital investment, public-private partnerships and other subsided arrangements, such as using Universal Access/Service financing, might become increasing necessary to realise those initiatives.
Image credits: Master isolated images & digitalart (FreeDigitalPhotos.net)