Liberalisation of the telecoms sector in Trinidad and Tobago brings customer benefits and operator competition

The liberalisation of the Trinidad and Tobago telecoms industry, which has been under way since 2004 under the guidance of state regulator the Telecommunications Authority of T&T (TATT), has been one of the major successes of the non-oil economy of the last decade. The country now boasts a number of high-quality fixed-line, internet and cable TV providers, and two mobile operators, which have invested in developing infrastructure and delivering competitively priced, high-tech services.

In the World Economic Forum’s “2016 Global Information Technology Report”, T&T scores highly in terms of mobile and internet infrastructure, and for the affordability of service. In the coming years the sector look to consolidate, as the incumbents trim the fat on their operations in anticipation of increased competition from a third mobile operator.

Fixed Line

The fixed-line segment in T&T has a total of four operators, but the market has been in decline since 2011, when it registered 291,500 subscriptions. By the end of the fourth quarter of 2016 this figure had fallen to 272,000, of which 216,000 were domestic lines and 56,000 were business lines. As a result, penetration rates of fixed-line telephony have fallen from 22% in 2011 to 20% in 2016, which places T&T in the median range for the region, well ahead of Jamaica (8.9%) but behind Montserrat and Barbados, which both registered a rate of 48%.

Unsurprisingly, fixed-voice revenues are also in decline, falling from around TT$778.4m ($116.3m) in 2011 to TT$713.8m ($106.7m) in 2016. The average revenue per fixed-line user stood at a total of TT$2654 ($397) as of December 2016.

Mobile

The central reason for the stagnation of the fixed-voice market is the same as in many Caribbean and developing countries customers are spending more time on their mobile phones in lieu of fixed-voice services. By December 2016 there were a total of 2.2m mobile phone subscriptions in T&T, of which 1.7m were prepaid and 432,000 were post-paid contracts. This gave T&T a total mobile penetration rate of 160%, up from 155% at the end of 2015, when T&T was the CARICOM country with the highest mobile penetration rate — compared to Jamaica and Haiti’s penetration rates of 106% and 78%, respectively. By the end of the fourth quarter of 2016 the penetration of mobile internet subscriptions had risen to 52.2% of the population, up from 47.8% 12 months previously.

Although TATT does not provide data on the number of subscriptions and revenues of bmobile – owned by national company Telecommunications Services of T&T (TSTT), and Digicel, a regional player – it does report the Herfindahl-Hirschman Index (HHI), which measures the degree of concentration of the telecommunications industry from zero, where there are theoretically thousands of competing companies, to 10,000, which would be a state of total monopoly. In December 2016 T&T registered an HHI score of 5104, down from 5141 in 2015, representing an almost perfect duopoly between the two most significant mobile players.

Number Portability for Mobile

Nevertheless, there is substantial competition for market share between bmobile and Digicel. One of the main reasons for the high penetration rate of mobile subscriptions in the country has traditionally been pricing schemes and promotions aimed at retaining customers and their closest friends and family. Over time the price of calls to on- or off-network lines have been standardised, however, special offers continue to remain a significant factor in the competition for Trinbagonian talk time.

“We have seen a myriad of promotions launched by the operators in recent years,” Annie Baldeo, executive officer at the Office of Policy, Planning and Market Economics at TATT, told OBG. “For example, we have seen more on-network promotions for current customers in the months building up to the arrival of mobile number portability,” Baldeo added.

Following the signing of an agreement between TATT and operators in February 2016, number portability for mobile subscriptions was introduced in October 2016. Under the new regulations customers can simply complete a porting request form from the operator they want to move to, and within three days they can be with the new provider with their existing number. “Number portability is good for competition and good for the consumer,” Baldeo told OBG. “In the months following the introduction of mobile number portability we kept all working committees in operation to deal with any teething problems, and there has been a stream of mobile customers moving between the operators.”

As both operators look to gain market share and maintain retain clients, investments in infrastructure and services are on the rise – such as the introduction of TSTT’s advanced 4G LTE mobile broadband technology – and the push to move more clients to post-paid contracts. In addition to competing against each other, the two operators are looking to build a firm advantage over new entrants. “The coming years will see a transformation of TSTT at multiple levels,” Miguel Garcia, CCO of TSTT/bmobile, told OBG. “We’re investing heavily in new infrastructure, rolling out fibre cables to provide high-quality fixed broadband and introducing 4G LTE mobile broadband services. But we are also investing heavily at the people level as we seek to optimise our business.” When complete, TSTT’s fibre broadband will be available to over 200,000 homes in T&T. In 2014 TATT began the process of requesting proposals from mobile operators for a third mobile licence. In 2016 there was speculation from some local media outlets that Flow, the mobile arm of pan-Caribbean operator Cable & Wireless Communications (CWC), would likely become the third entrant.

Bundling

CWC already provides fixed broadband and cable television to T&T through its Flow brand, but in February 2017 the US-based firm announced that the country was its worst-performing market, following the loss of some 12,000 video subscribers over the course of 2016. The decline of pay television is a concern for all providers. Between December 2015 and December 2016 the total number of pay-TV subscriptions fell from 232,762 to 206,662, an 11% drop as Trinbagonians follow the global trend towards streamed internet content and over-the-top services such as Netflix and Hulu.

However, CWC currently stands at a competitive disadvantage in the home entertainment segment because it cannot offer the three-in-one packaged bundle for fixed-line voice, mobile and home broadband services available from Digicel and TSTT, which also provides home security technology as a fourth option. “Cable TV providers are confronted with a challenge, as fibre rollout means broadband internet speeds have moved from 5-10Mbps towards the 100-Mbps mark,” Baldeo told OBG. “Over-the-top services such as Netflix and the growing popularity of Android TV boxes may be affecting demand for cable services, with the main growth opportunities lying in the bundling of triple-play services.”

Third Entrant

A competitive process to introduce a third entrant began in 2014 when TATT made the original request for proposals (RFP). The terms of the RFP were based on the bidders’ ability to ensure a speedy rollout and provide wide coverage, as well as their proposed data speeds and indicative pricing. TATT announced that four operators – CWC, Telesur, Flow and Star Mobile – had put in bids to be selected as the third entrant.

At the same time, these new bidders and the incumbents – bmobile and Digicel – were invited to put in bids for 700-MHz spectrum, which is considered ideal for the latest 4G LTE mobile data technology (see analysis). However, since the announcement no official pronouncement has been made on the identity of the third mobile operator or, indeed, the timeline for implementation.

In an August 2016 interview with local media, Brian Collins, manager of Flow T&T, urged the regulator to make its recommendation to the minister of science and technology public, highlighting that delays to the announcement were detrimental to consumers in the country.

“I think people are demanding a higher-quality mobile data product and service. The onus is on the regulator and the minister to step up and issue the licence quickly,” he said. “T&T is falling behind. Jamaica has started LTE. Barbados is going to be rolling it out. Caymans launched it. The telecommunications world moves very quickly. You could be ahead three years ago, and suddenly you find yourself behind, so it’s that constant, continual movement that’s required. We are ready willing and able to invest significant money, and employ a lot of people in the construction and the launch of it.”

The decision to award the third licence has been criticised by a number of stakeholders. The day after Collins’ interview, Emile Elias, the chairman of the TSTT, reaffirmed his position that the entrance of a third mobile operator in a country with a penetration rate of nearly 160% was unnecessary, and expressed opposition to the decision to bundle the 700-MHz spectrum. “We have always maintained at TSTT that it was completely wrong to commingle the third mobile operator licence, which was contained in the RFP, with a spectrum licence,” Elias told press.

Wait & See

No further progress on the issue is likely until the issue of TSTT’s ownership structure is resolved. CWC has held a 49% stake in the national telecoms company since the 1960s; however, in April 2015 its $1.85bn acquisition of Barbados-based Colombus Communications – then-owners of the Flow brand in T&T and across the region – put the firm in a potential position of conflict of interest. It was decided the four CWC representatives sitting on TSTT’s board were to resign with immediate effect, and the firm was given 12 months to divest from its position in the national company.

Following a delay brought about by the change in government, which necessitated the change in government appointed board members of National Enterprises Limited – the holding company with shares in public firms – CWC was itself purchased by US-based IT and telecoms firm Liberty Global for $7.4bn in May 2016. By mid-2017 there was still no new news on the sale of CWC’s stake. If, as some observers suspect, Flow is the winner of the third licence, then it is understandable that the rollout of its mobile services cannot begin until the divestment from TSTT has been completed.

According to media reports, there are five local groups interested in purchasing CWC’s stake in TSTT: Massy Group, ANSA McAL, the Unit Trust Corporation and two partnerships, one headed by Arthur Lok Jack, chairman of Associated Brands, and the other by Ronald Harford, chairman of Republic Bank.

In October 2016 it was reported that the five parties interested in the purchase had received a confidential informative memorandum outlining TSTT’s past performance and future plans. However, the memorandum is understood to not provide clarity on one of the most important aspects of such a deal – namely, the proposed path to control of the company for the successful bidder.

Given its excellent infrastructure and customer base, TSTT’s assets are attractive, but there is a possibility this will not be enough to entice private players unless they are guaranteed control of the company, potentially through the acquisition of a further 2% of government shares at a later date. A likely future conflict between TSTT’s powerful trade union over redundancies coupled with continuing uncertainty over the details of the third mobile licence are also obstacles facing interested bidders.

Cuts

In July 2016 TSTT announced a loss of TT$316m ($47.2m) for the financial year ending March 2016. This compared to a TT$166.6m ($17.4m) profit in FY 2014/15 and a TT$226.1m ($33.8m) loss the previous year. The day before the release of the results TSTT published a statement explaining that its new investment plan had necessitated a review of its existing broadband technology, which led to an accelerated depreciation of some assets and impairment of others due to impending obsolescence. In total the telecoms firm wrote down TT$375m ($56m) in impairments and the accelerated depreciation totalled an estimated TT$200m ($29.9m). According to the company’s statement financial statement, “These TT$575m ($85.9m) in charges resulted in an after-tax loss of TT$316m ($47.2m), which eroded the otherwise normal profitable operations.”

Both TSTT and Digicel are set to streamline their operations and cut payroll in the coming years. In May 2017, appearing before the Public Accounts Enterprise Committee (PAEC) - a parliamentary committee dedicated to examining the audited accounts of state enterprises – TSTT’s CFO, Gerrard Cooper, said the firm had annual operating costs of TT$1.5bn, with staffing costs rising unsustainably. According to Cooper, the firm had an average personnel cost of around TT$420,000 ($62,800) per employee, representing half of operating costs and a quarter of revenues compared to an average staff outlay of 33% of costs and 16% of revenues in comparable telecoms firms globally. At the same hearing, TSTT ‘s Elias announced that such figures made redundancies unavoidable following the rollout of fibre and other upgrades. “We have to recalibrate the whole workforce,” he told PAEC. “Where we had perhaps five people doing something, we may need nobody there again, and therefore we can expect that there will be redundancies in the future... it is happening over the world.” 

Digicel, too, envisages cutbacks of around a quarter of its global workforce before the end of 2018. Under the firm’s business plan to make it “fit for purpose for 2030 and beyond”, it will reorganise its 6000- strong staff in the 31 markets in which it operates, focusing its operations on four regional centres of which two are earmarked for the Caribbean. A voluntary separation programme for staff was introduced in March 2017. In May it was reported that the Ireland-based telecoms firm will refinance to the tune of $935m, and shift its capital structure from bonds to term loans.

Investment

In late 2016 and early 2017 the two incumbent mobile providers appeared to take different strategies in terms of their plans for future earnings. Digicel has focused on marketing its Play home entertainment package, and has recruited a new sales teams. The company recorded its 50,000th subscriber in January 2017, one year after its launch, TSTT has announced major infrastructure investments. In December 2016 the national firm declared that it would invest TT$3.7bn ($552.9m) in the next five years – funded in part by a loan of nearly TT$2bn ($299m) from Republic Bank.

In January 2017 TSTT selected Ericsson as its digital transformation partner. The Swedish telecoms equipment firm will provide operations and business support systems to TSTT, unifying the Trinbagonian firm’s billing and revenue management systems for its mobile, fixed-line and broadband subscribers.

TSTT’s legacy billing system – which previously happened in silos – will be replaced with an all-inone bill for customers. “This transformation will help us to standardise and modernise our IT systems,” TSTT’s CEO, Ronald Walcott, told local press outlets. “We will be able to introduce innovative offers for customers and effectively manage differential converged offers.” The company will also begin to address its human resources issues. “We are going to invest in upgrading and training our personnel,” Garcia told OBG. “The idea is to become more customer-centric, not just through improving automation, but by cutting out unnecessary bureaucracy.”

Consolidation Moves 

For much of 2016 the T&T telecoms sector seemed to be in a state of paralysis, with CWC’s delayed divestment from TSTT and disagreements between authorities and operators over the allocation 700-MHz spectrum and the third licence holding up progress.

However, by May 2017 a potential path forward was beginning to emerge. First, changes at the top tier of TATT led to the guarantee of 700-MHz spectrum for all players (see analysis). Then, in May 2017 TSTT announced that it had purchased Massy Communications – the broadband internet arm of the local Massy conglomerate – for a total of TT$255m ($38.1m). The purchase allows TSTT to gain access to the 34,000 homes in Port of Spain, Diego Martin, San Fernando and Amira that are already hooked up to Massy’s fibre, taking its total number of fibre subscriptions to around 59,000.

Moreover, the deal prompted media speculation that Massy Group could be the eventual buyer of CWC’s TSTT stake. If the theory is correct, then the T&T market could swiftly become neatly divided in three between Digicel, CWC-Flow and a TSTT-Massy partnership. However, for such a scenario to play out, it is likely that Massy would require a clear path to control over TSTT, which remains far from certain.

Outlook

Since 2015 the pending decisions over the awarding of the third mobile licence and the divestment of CWC from TSTT have stalled development of the telecommunications industry in T&T. While the situation remains somewhat of a black box to observers, recent mergers in the sector and reorganisation of TATT suggest that efforts to align the sector continue behind the scenes, and major changes could be imminent in 2017 and 2018.

Following years of rapid competition for market share, the incumbent players in T&T look set to streamline their operations to better compete with increased competition in the years to come.