The entry of a third mobile operator is set to invigorate Trinidad and Tobago's telecoms market

The telecoms and broadcasting markets in Trinidad and Tobago are both dynamic and profitable, and are expected to continue expanding in the years ahead. According to the Telecommunications Authority of T&T (TATT), the industry regulator, “The telecommunications and broadcasting sectors continue to present growth opportunities for established economic hubs and provide an invaluable platform for new creative industries and growth poles.” In the fixed-line market the main battle for market share is between the dominant (majority state-owned) Telecommunications Services of T&T (TSTT), and Flow, owned by Barbados-based Columbus Communications. In the mobile market the main rivalry is between Digicel, the leader, and TSTT, operating under its Bmobile brand. Digicel was awarded a fixed concession in 2014 and is currently building infrastructure to provide fixed services. In the fixed-line internet market the dominant player is Flow, followed by Green Dot and TSTT. Both major mobile operators are also benefitting from rapid growth in mobile broadband internet access more generally.

Caribbean Dimension

Many of these key players in telecoms are seeking to compete not just within T&T but also across the Caribbean, and some of their strategic moves must be seen in this wider context. One of the most important issues at present is that Cable and Wireless Communications (CWC), which holds a minority 49% stake in TSTT (the 51% controlling stake is held by the government), has received regulatory approval for its $1.85bn takeover of Columbus Communications, on the condition that it divest itself of its minority stake in TSTT within the next year. Digicel is also following through on a pan-Caribbean strategy.

As convergence between different media platforms and technologies continues to gather pace, further merger and acquisition activity can be expected to take place, along with shifting strategic alliances at both the national and the regional levels.

Telecoms and broadcasting are regulated by TATT, which, under the terms of the Telecommunications Act, is responsible for granting concessions to operators under the auspices of the Ministry of Science and Technology. Full-year TATT data for 2014 shows that total telecoms and broadcasting revenues were TT$5.6bn ($881m), or 3.1% of GDP, and that this was dominated by mobile (39.2%), followed by fixed and mobile internet services (21.0%), fixed-line voice (13.4%), pay TV (12.4%), international voice services (4.7%), radio (3.2%) and free-to-air TV (2.4%). As of 2014 a total of 126 operating concessions had been granted to 97 service providers.

Market Concentration

In its analysis of the degree of market concentration, TATT employs a widely adopted measure, the Herfindahl-Hirschman Index (HHI), which ranges from zero – the closest to theoretical perfect competition when thousands of companies each have tiny market shares – up to 10,000, where there is only one company in the sector with a complete monopoly. The US Justice Department considers industries with an HHI score of over 1800 as being highly concentrated.

According to TATT data, in December 2014 the highest HHI scores were in fixed-line telephony (8346), pay TV (4883) and mobile telephony (5098). Fixed-line internet services had an HHI score of 4874, and free-to-air TV was 3419. According to most criteria, therefore, the industry as a whole displayed high levels of concentration. The exception was in radio, where the HHI score was 479.

TATT also tracked HHI scores over time. In most cases there were only small changes (plus or minus 1-2%) year-on-year (y-o-y). The exceptions were in pay TV, down by 5% y-o-y (meaning competition had increased), and free-to-air TV, where the HHI score rose by 22% (meaning competition decreased).

Number Portability

TATT has intervened in the market on various occasions for technical reasons or to maintain competition. The regulator told OBG that fixed-to-fixed number portability will be offered by commercial operators during 2015/16, and that mobile number porting will follow by January 2016, although discussions were still ongoing as of early May 2015. In July 2014 TATT stepped in to prevent Digicel from blocking its subscribers from using voice over internet protocol (VoIP) services such as Viber, Skype and Tango. TATT said it needed time to consider the implications of the decision for free competition. “Whilst the authority has made no determination or decision in the matter, we believe that the maintenance of the provision of these services in the interim period would be in the best interest of all stakeholders and would allow the authority time to engage in this process in a calm and constructive manner,” the regulator announced. Digicel agreed to the request to put the ban on hold, while TSTT said it would not block VoIP services, which it considered to be an “inescapable feature of modern telecommunications”, comparable to email and games.

Mobile

With many Trinbagonians now owning two mobile phones, revenue growth from voice only is levelling off, and the operators are seeking to boost data and value-added services (VAS) across all platforms. VAS opportunities are supported by the spread of smartphones and 4G technology (see analysis).

Kwesi Prescod, of consultancy Prescod Associates, draws a parallel with peak oil theory, which says that oil production must, in the long run, reach a high point and then decline. “Mobile voice creates most money,” Prescod told OBG. “However, mobile voice used to be the king, and we have now moved past ‘peak voice’. How people use networks is changing.” New alliances will likely be formed in 2015 and new services developed, such as more entertainment offerings and e- and m-banking.

According to TATT, in the year to December 2014 total mobile subscriptions reached 1.98m, a y-o-y increase of 1.9%. Of that total, prepaid subscriptions were 1.71m, or 86.2%, with post-paid running at 273,000, or 13.8%. The split between prepaid and post-paid had been 87.3:12.7% a year earlier, therefore showing growth, albeit slow, in the share of post-paid subscriptions, which are often described as more profitable for the operators, as they tend to have higher average revenue per user (ARPU).

Pre-Paid Customers

TSTT’s management said the company questions the widespread view that prepaid subscribers are less profitable than post-paid customers, challenging the notion that this segment should be given lower priority. With no fundamental preference for one subscriber type over another, the management told OBG, it has found that prepaid subscribers can be just as loyal as post-paid subscribers, often purchasing data services as well.

Nonetheless, the operators have a challenge on their hands when it comes to selling additional VAS. For the industry as a whole, while gross revenues rose by 0.7% year-on-year (y-o-y) to TT$680m ($105m) in the fourth quarter of 2014, ARPU for domestic mobile services was down by 1.4% to TT$347 ($54).

Roaming Changes

One indication of the relative profitability of different Caribbean markets comes from the way operators focus on roaming charges. In much of the Caribbean, the aim is to capture a share of the roaming charges generated by travellers and tourists, TSTT’s management told OBG. However, since most travellers to T&T are not “sun and sea” tourists but business travellers and returning friends and family, the roaming revenue generated by telecoms companies in T&T is mainly driven by outbound roamers to the US, Canada and other Caribbean islands, so TSTT’s focus is on capturing a share of this revenue. In terms of market share, there are some gaps in available data. Bmobile subscriber data is available through its minority stakeholder CWC, but it is compiled on a different basis to TATT numbers (it is based on 60-day active subscribers, while TATT counts “activated SIM cards”). However, Business Monitor International estimated that in September 2014 Bmobile had 851,000 subscribers, a market share of 44%. It also estimated that Digicel had 1.08m subscribers, giving it a 56% total share.

Penetration

In the fourth quarter of 2014 mobile penetration relative to T&T’s population reached 149%, up 19.9% on a year earlier. This means that, on average, each inhabitant had 1.5 mobile subscriptions, with many consumers having two or even three mobile phones. This reflects a number of different types of consumer behaviours. For example, sometimes subscribers have a work mobile and a personal mobile, or two phones with different service providers, so as to be able to take advantage of discounts and “free minutes” marketing offers.

Market Shake-Up

A possible shake-up in the duopoly is expected, following a government announcement in 2014 inviting bids for a third mobile operating licence, as well as offering spectrum in the 700-MHz, 800-MHz and 1900-MHz bands. Six companies have expressed interest of one sort or another. The identities of four of the bidders for the third mobile operating concession were revealed by TATT via public notice – CWC, CCTL, Telesur and Star Mobile. In addition to these four, the two current mobile operators, TSTT and Digicel, submitted applications for spectrum. CWC’s takeover of Columbus has altered the line-up and led to the regulatory requirement that it should sell its minority stake in TSTT. A decision on the licence was expected by the end of 2014, but as of early 2015 it had not yet been announced. In the current market conditions, the introduction of a third mobile operator could put new pressure on profit margins and ARPU levels.

Take Over

Shortly after bidding for the third operator licence began, CWC made the bigger move of agreeing on a takeover of Columbus, a multi-platform operator that is active across the Caribbean and especially strong in internet and TV services offered under its Flow brand. “This is a transaction that transforms CWC, providing a step change in growth and returns,” said the CEO, Phil Bentley. “Columbus offers complementary TV, broadband and business-to-business capabilities in complementary markets.”

Regulatory Approval

The takeover required regulatory approval in various countries. Digicel was particularly vocal in criticising its potential effect on competition. At a meeting of the Caribbean Telecommunications Union in Trinidad in January 2015, Digicel’s chairman, Denis O’Brien, said CWC should be forced to divest some of its holdings. “The answer is divestiture,” he said. “CWC and Columbus will have duplicate fixed-line, cable TV and submarine fibre infrastructure in your markets if this deal is approved.” T&T’s Communications Workers Union was also unhappy with the deal.

The Eastern Caribbean Telecommunications Regulatory Authority said it would give the takeover “rigorous regulatory attention”, and members of the Organisation of Eastern Caribbean States have expressed concerns over the merger’s implications for competition. St Lucia’s minister for sustainable development, energy, science and technology, James Fletcher, said, “We have agreed to join with TATT in the conduct of an analysis to see how this impacts our region and how we can ensure the rights of our consumers are safeguarded. We want to ensure that access to the services that are primarily affected by this merger – fixed broadband, subscriber cable television and fixed telephony – is maintained, and that the prices for these do not go up.”

Notwithstanding those concerns, in January 2015 the authorities in Jamaica granted approval for the merger, with the country’s science, technology, energy and mining minister, Phillip Paulwell, saying that he had secured a number of concessions from CWC, including guaranteed access by competitors to Flow/Columbus undersea fibre cables.

This was followed in March 2015 by regulatory approval in Barbados and from TATT itself in T&T. TATT made its approval conditional on the sale of CWC’s 49% stake in TSTT within a year, and on the submission of full written details of financial investment, sources of funds, projects and expansion plans for Columbus for the next five years to ensure the competitiveness of the operator before it can grant final approval of the acquisition.

Fixed Line

Only three players were offering fixed-line voice telephony in 2014: TSTT, Flow/Columbus and Three Sixty Communications. Given the strong growth of mobile subscriptions in recent years, fixed-line connections had been falling. According to TATT data, the total number grew slightly in 2013, after four years of consecutive contractions.

It appears that the decline has been partially halted because of the trend of bundling broadband services with fixed-line connections. In December 2014 there were 288,000 fixed-line subscriptions, down by 1% y-o-y. Of these, 227,000 – or 78.8% – were residential connections and 61,000 – or 21.2% – were business subscriptions. The fixed line telephone penetration rate was 22% of the population, or 57% of the total number of households, meaning that approximately six out of every 10 homes have fixed-line telephone connections. This penetration rate placed T&T eighth in the Caribbean. Gross revenues from fixed-line phone were up by 4.1% y-o-y to TT$196m ($30.2m). The ARPU per fixed line increased by 5% to TT$684 ($105.47).

Fixed Line & Mobile Internet

The number of fixed-line internet subscriptions was 250,000 in December 2014, up 7.8% y-o-y, according to TATT. Of these, 99.4% were broadband subscriptions, meaning that some 18.8% of the population was connected to the internet, or 58% of homes in the country. Mobile internet connections were the strongest growth area. Mobile internet users (both prepaid and post-paid) rose by 27% y-o-y to reach 43% of the population. Internet revenues were also healthy: gross revenues for fixed-line internet services rose by 7.4% y-o-y to TT$183m ($28.2m) in the fourth quarter, while ARPU was up 0.4% to TT$744 ($115).

Broadcasting

According to TATT, the broadcasting sector generated TT$1.01bn ($155.7m) in 2014, or 17.3% of telecoms and broadcasting revenues. The sector breaks down into three segments: pay TV, free-to-air TV and radio. The largest of the three by revenue was pay TV, which accounted for 68% of the total in 2014, followed by radio (18%) and free-to-air TV (13%). Pay TV subscribers were estimated to number around 224,000 in the fourth quarter of 2014, according to TATT data. Flow is the main pay TV provider, with a 62% market share. Direct TV and Green Dot follow with 16% and 8%, respectively. Free-to-air TV stations include the private TV6, which is owned by the Caribbean Communications Network, and C TV, which is run by the state-owned Caribbean New Media Group.

The country’s broadcast media has a representative trade body – the T&T Publishers and Broadcasters Association (TTPBA) – formed alongside the print media. According to the TTPBA, the industry is made up of 37 radio stations (one of which is in the AM band), 11 local television stations (of which one is the parliament channel and two are state-owned), and three daily newspapers and several weeklies.

The TTPBA has campaigned on a number of issues, such as media freedoms and the need to ensure that the Data Protection Act does not place unwarranted limits on the practice of investigative journalism. Among the radio broadcasters, four groups are dominant: Guardian Media (six radio stations), OCM (five), CL Communications (four) and Radio Vision (two). There are three government-controlled radio stations as well.

Outlook

There is certain to be repositioning in T&T’s telecoms and broadcasting sectors in 2015. The most important development will be the announcement of a third mobile operator licence, which may act as a catalyst for other strategic moves. While industry revenues are likely to continue growing at a moderate rate, the move from a duopoly in the mobile market to one with three main players is expected to exert downward pressure on rates and accelerate the move from voice to VAS, with operators seeking new ways to promote mobile usage.