New competition for tel
coms
as regional Governments
liberalise their
economies
Cable & Wireless Plc may lose its virtual monopoly in the Caribbean as regional governments prepare to open their domestic markets to other international and local telecommunication providers.
This can spell trouble for the UK based Cable & Wireless, also known as C&W, as the company gets stiffed with broken promises from the governments which in the past blindly gave them monopoly contracts in return for the company's investments.
Times have changed though, as the company stands to lose decades
of relationship building to competing telecom companies which
offer cheaper services and a variety of other telecommunication
products.
"There are international commitments these countries have
signed. This includes agreements with the World Trade Organisation
that would necessitate a re-discussion with Cable & Wireless
to see how quickly they can move out of this exclusive license
and provide competition," says Donnie DeFreitas, spokesman
for the Organisation of Eastern Caribbean States (OECS).
The eight-nation body, held talks with regional representatives
from C&W in November, in a bid to develop a new framework
for competition in their respective telecommunications sectors.
That meeting fell on the heels of a decision by the 15-member
Caribbean Community (Caricom), to open its telecommunications
sectors following discussions with the UK carrier.
In early October, regional telecommunications ministers held two-days
of negotiations with Cable & Wireless to break the company's
monopoly on the region's industry. The decision by regional governments
to band together comes against the background of growing challenges
to C&W's monopoly and a determination by most regional countries
to open their telecommunications sectors to competition.
Monopoly
To confirm their past investments and assure their future profits in the Caribbean, C&W signed contracts with most Caribbean governments which gave them monopoly status. Those contracts have since been a bone of contention as politicians struggle to meet the call by their electorate for cheaper and improved telephone services.
C&W's historical relationship will go to the test, as the
regional governments prepare to face-off with the communications
carrier as contracts expire and possibly even before they expire
in most instances. St. Lucia, a member of the OECS, is likely
to lead the way in negotiations with C&W as their monopoly
contracts expire in 2000 and 2001.
"St. Lucia's arrangement with Cable & Wireless will serve
as a case study," said DeFreitas. "After a common type
of license is established it will provide an indication of what
the provider can expect of the OECS."
That news will spell a boon for regional telecom customers who
are likely to get better service as competition picks up - but
it could mean revenue shortfalls for C&W.
In Trinidad and Tobago, for example, where C&W has a 49 percent
stake in the telecommunications company TSTT, after-tax profits
increased by 9.6 percent between 1996 and 1997, said the company.
Total after-tax profits for 1997 was TT$234.4 million (US$37.6
million), which spelt a TT$57.4 million (US$9.2 million) dividend
for C&W.
Profits for Cable & Wireless Jamaica were even more handsome,
with the company's after-tax earnings growing 17.7 percent to
J$3.138 billion (US$83 million). The loss of monopolies in those
major Caribbean markets will certainly hurt C&W.
Threats of open competition have forced the company to cut costs,
said Colin Little, C&W's general manager in Bermuda. "As
part of the restructuring, there will be a reduction in certain
areas of the workforce," he said.
The overhaul of Cable & Wireless Bermuda last year followed
the awarding of a license to TeleBermuda International Ltd. which
permitted it to offer international telephony from Bermuda.
That cut into Cable & Wireless' revenues from Bermuda by as
much as 25 percent, prompting C&W to sue the Bermuda government
for more than US$100 million, the estimated value of the international
telephony service in Bermuda.
Cable & Wireless said the Bermuda government was allegedly
breaching an agreement which gave the UK-based company exclusive
international telecommunication services out of the island.
That litigation was settled in August, with C&W losing the
monopoly but wining more control of its pricing policy for customers.
"A new excitement has been created in the telecommunications
industry in Bermuda as a result of the agreement between the Bermuda
government and Cable and Wireless," said Don Reed, executive
director at C&W Plc.
Cable and Wireless Bermuda signed a new 15 year license to provide
international telephony services, however it must now compete
in Bermuda by keeping up with its competitors.
"We have always believed in Bermuda and with the new changes,
new areas of growth have been created," said Reed. This was
the first legal action taken by C&W against the Bermuda government,
after having invested and operated on the English colony for over
100 years.
On the other end, C&W has also been a target for litigation
for its actions in the region. In July a U.S. appeals court revived
parts of an antitrust suit filed against Cable & Wireless
Plc by a Caribbean radio broadcaster.
Caribbean Broadcasting Systems, based in the British Virgin Islands
charged C&W along with another company for illegally crushing
its 1984 bid to start an FM station by misleading advertisers
and objecting to its license application.
The broadcasting company said C&W in a joint venture with
Caribbean Communications Company wanted to monopolise the regional
FM market by allowing the communications company to offer FM radio
while C&W use the FM frequency as a FM paging service.
That case is still open.
Even so, Cable & Wireless now has to trim its waist in preparation
for international competition as well as a client base that is
becoming less tolerant of high communications costs.
The other providers sitting patiently on the sidelines include
AT&T, MCI WorldCom and Sprint.
C&W's best option is to increase revenues on local calls since
it already has the infrastructure such as the telephone lines,
etc. However, it will have to cut costs associated with its overseas
and long-distance calling service if it wants to retain a significant
part of its market share when the market opens up.
Its strategy still has to get past consumers, the most important
variable in the business equation.
Dominican businessman, Yvor Nassief, operating in Bermuda,
called on the Edison James government to review Cable & Wireless'
books before allowing the company to up its local rates.
"Must we simply accept their offer or investigate whether
they cannot do better? We must see their books and only then will
we know the true scope for rate reductions," he said.
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