Tue | Sep 19, 2017

Flow Jamaica gets reprieve on fixed-line cost cuts

Published:Friday | June 30, 2017 | 6:00 AMSteven Jackson

Telecommunications provider Cable & Wireless Jamaica Limited (C&WJ), which trades as FLOW, has urged its regulator to reconsider plans to slash fixed-line charges, saying it could have a deleterious effect on its cash flow.

And the Office of Utilities Regulation (OUR) has responded by placing a stay on its decision.

Termination rates, the fees that networks charge each other, were set to 'glide' to lower levels over a three-year period, initially set to begin July 1. A reduction in wholesale termination rates is expected to lead to cheaper phone calls for subscribers.

The OUR now says it will stay the effective date of the first rate adjustment until it issues a final decision due around mid-August, according to a notice on its website that also invites public comment on the proposed 70-90 per cent cuts in wholesale rates.

"The OUR does not appear to have given consideration to the magnitude of such sharp reductions on the immediate cash flow of the company, and the immediate and direct impact this reduction will have on working capital, investments incentives and potentially the long-term welfare of the society itself," FLOW Jamaica said in a letter to the OUR dated June 21 and signed by the telecoms' legal and regulatory counsel, Sola Hines.

In the letter posted on the regulator's website, the impact on FLOW's revenues were redacted.

The proposal, as initially published by the OUR, is for wholesale rates to fall from roughly 41 cents to 25 cents per minute next month, and to nine cents by year 2020; national rates would drop from, on average, $1.15 per minute to 62 cents next months and to 10 cents in three years; and international rates would fall from roughly $1.45 to 77 cents and then to 10 cents per minute in the same time periods.

The first set of cuts was proposed to take effect over six months, July to December.

FLOW Jamaica is the largest fixed-line provider. It earned $5.08 billion in revenues from termination services over nine months ending December 2016, its latest disaggregated financials show.

FLOW said if it forced to accommodate such a "drastic" reduction in revenue over a six-month period, it would have a "deleterious effect" on its ability to maintain and invest in its wholesale carrier services operations.

FLOW argued that the quick glide path was a "wrongful exercise" of the discretion of the OUR and frustrated its legitimate expectation of a longer adjustment period. Together, these factors provide arguable grounds that the OUR's decision was an error of law under the Telecommunications Act, Hines stated.

The telecoms wants the glide path lengthened from the July-December timeline to a "minimum of two years and a maximum of three years".

OUR issued its determination on the proposed rate cuts - Cost Model for Fixed Termination Rates - in early June, after consultations that began in 2015.

The bulk of the fixed-line customers are on FLOW Jamaica's network, around 221,000 active customers up to December 2016, according to information published by parent company Liberty Global. The number of fixed-line customers held by rival telecoms provider Digicel is unknown.

steven.jackson@gleanerjm.com