Early thoughts on imminent purchase of Flow by LIME
Some initial thoughts on the intended purchase of Columbus Communications Inc. by Cable & Wireless Communications Plc, and the implications for the Caribbean.
Unless you were living under a rock yesterday, the world woke up to an announcement that Cable & Wireless Communications Plc (CWC) intended to purchase Columbus Communications Inc. to the tune of USD 1.85 billion. This news has relevance in the Caribbean, as CWC is the parent company of LIME, which operates in 17 countries across the region, Latin America and the Seychelles. Columbus Communications Inc. is the parent company for Flow and Columbus Business Solutions that have a presence in several countries throughout the Caribbean. Further, it also owns Columbus Networks, which provides submarine, fibre optic and backhaul connectivity in 42 countries through the Caribbean, Latin America and the Andean region.
Though the purchase will be subject to CWC shareholder approval, and possibly regulatory approval in countries across the region, the odds – so far – are that it will proceed as planned, and should be concluded by the end of the first quarter of 2015. However, beyond the initial surprise, the general sentiment by the ‘man on the street’ appears to be one of concern. Below are four initial thoughts on this most recent development.
CWC’s move was a while in the making
Over the past few years, reports on CWC tend to focus on the firm’s financials, especially the losses that were being realised in some Caribbean countries. Little attention was being paid to the strategies it intended to implement, which were also regularly communicated. For example, based on the reporting of its performance at the end of March 2013, and the strategic priorities highlighted, in retrospect, the purchase should really not have been a surprise:
3. Capture data opportunity – ongoing focus on completing the transition to being a data-led telecommunications provider, capturing the growth opportunities that exist within the region.
4. Lead in full service provision – we will continue to invest in and leverage our position as the number one full service operator in pan-America. This will enable the capture of data growth by both extending the range of customers that can be served as well as creating synergies for data delivery through multi-play services.
Our ambition is to grow the business as the leading full service operator in pan-America, with improved margins and increased cash generation enabling greater distributions to shareholders.
Similarly, CWC’s report at the end of the March 2014 calendar year again reiterated the firm’s direction, and in clearer terms:
Following our successful disposal programme, we have completed a strategic review of the business. Our aim is to deliver sustainable, profitable growth by focusing on four strategic imperatives:
- Mobile leadership – deliver the best handset range, network, data packages and customer service;
- Fixed-mobile convergence – leverage our unique combination of fixed and mobile assets;
- Reinforce our TV offering – generating TV and broadband growth whilst reducing fixed line churn; and
- Grow our business services – bespoke, customer-centric solutions leveraging our on-land and sub-sea assets.
LIME has leapfrogged to the head of the class
Currently, and most consumers across the region are likely to agree that the quality and standard of LIME’s services – in fixed-line, mobile/cellular, Internet and cable TV – might be second-best to other providers in those market segments. On the other hand, Flow, which is Columbus International residential service brand, has been offering some of the fastest and most affordable Internet service across the region, along with an extensive selection of cable TV channels in the countries where that service is available. Furthermore, Columbus Networks terrestrial and subsea cable networks are extensive, and make it the largest and leading provider of international backhaul in the region.
In acquiring Columbus International and all of its subsidiaries, CWC would be in a position, virtually automatically, to upgrade its service and offerings. If done right, CWC/LIME could be seen as a leader in Internet and cable TV services, and in international subsea connectivity, all of which tie back to its stated priorities and goals.
Competition in the region likely to suffer
Without a doubt, the proposed purchase is likely to open up a broad range of options and opportunities for LIME. However, the anticipated loss of Flow and other Columbus International brands – in the absence of information to the contrary – will be a loss to the region, and to the competitive posture of telecoms across the region.
Though there might not have been the active jostling between Flow and LIME in the Internet and cable TV markets (where applicable), as might have been the norm between Digicel and LIME, LIME could not necessarily afford to sit on its laurels. For example, in our last Snapshot on broadband Internet speed and spend earlier this year, marked improvements were noted in some countries across the region since the 2013 review, that were directly attributed to service upgrades made by LIME. Should Flow disappear, what might spur LIME to not be complacent?
Caribbean regulatory machinery may be ill-equipped for developing paradigm
In addition to overseeing competition where it exists, another important function of regulators is to implement measures that mimic competition, when absence but necessary. Measures that can be implemented are well established for traditional voice services, especially fixed-line operations, which frequently have no competition. For Internet and cable TV, the existing laws might not have envisaged a need to regulate those services, and neither might the regulators be equipped, in terms of knowledge and experience, to competently implement compensatory structures for a monopoly in those services.
In summary, mergers and acquisitions in the telecoms industry are likely to occur from time to time. For the companies involved, which tend to be private entities, it may make good business sense to engage in those transactions. However, consumers are the ones who will need to adjust to the changes that eventuate with such activities, which under the current circumstances could include changes in price, service offerings and service quality.
At this juncture, it might be too early to say whether this proposed sale is good for the Caribbean. However, what ought to be appreciated is that there are likely to be far-reaching implications for consumers, individual countries and the region as a whole.
Image credit: Flazingo Photos (flickr)