Thu | Dec 14, 2017

Flow takes OUR to court

Published:Wednesday | October 4, 2017 | 12:00 AMMcPherse Thompson
FLOW Jamaica Managing Director Stephen Price.

Cable & Wireless Jamaica Limited, which trades as Flow, has filed an application in the Supreme Court seeking to bar the Office of Utilities Regulation, the OUR, from implementing cuts to termination rates for fixed line calls.

The OUR had developed a 'glide path' to implement the rate cuts over six months, from October 1 of this year to April 1, 2018. But Flow, which is the top provider of fixed-line services in Jamaica and stands to lose the most, had been arguing for a longer glide path extending over two years or more.

At a hearing in the Supreme Court last Friday, OUR agreed to not implement the first rate cut before completion of the hearing of Flow Jamaica's application for an interim injunction on Thursday, October 5.

The OUR disclosed in a telecoms industry notification that Flow wants a judicial review of its rate decision and sought an interim injunction restraining the implementation of the decision pending the outcome of its application to the court for the review.

The OUR had initially determined that termination charges for phone calls that connect to fixed-line phones are to be reduced by 70 to 90 per cent, which would lead to cheaper phone calls for subscribers, starting on July 1, this year. However, that was pushed back on objections from Flow Jamaica, which began pushing for a glide path of two to three years and sought a stay on the initial price adjustment.

As a result, the OUR said it would make a determination in September on when the reduction in rates would become effective.

 

COMPETITORS WANT QUICK ACTION

 

In the meantime, telecommunications providers Digicel and Verge Communications said they wanted the proposed reduction in termination rates implemented as soon as possible, suggesting that it would unduly benefit Flow financially if done over an extended period.

In its 'Cost Model for Fixed Termination Rates' decision, the OUR said it is aiming for a more cost-based service, using long-run incremental cost, or LRIC, modelling.

It used a similar process to slash termination charges between mobile providers by more than two-thirds between 2012 and 2013. At the time, peak retail prices between networks were more than $14 per minute.

Under the OUR tariff schedule for fixed-line termination rates, the adjustments would be as follows:

- Local call wholesale rates would drop from about $0.41 to $0.25 per minute and to $0.09 effective April 1, 2018;

- National calls would drop from on average $1.15 per minute to $0.62 and to $0.10, effective April 1, 2018; and

- International rates would fall from, roughly $1.45 to $0.77 and to $0.10 per minute also effective April 1, 2018.

The determination followed industry consultations that began in 2015.

Flow Jamaica earned $5.08 billion in revenues over nine months ending December 2016 from fixed voice services, according to the company's financial report. The company's fiscal year end was adjusted from March to December last year to align with its new ultimate parent, Liberty Global.

In asking for a reconsideration of the OUR decision earlier this year, Flow argued that the regulator did not appear to have given consideration to the magnitude of such sharp reductions on its immediate cash flow, and the immediate and direct impact it would have on working capital, investment incentives and, potentially, the long-term welfare of the society.

The projected impact on the revenue from Flow's wholesale carrier services was apparently provided to the regulator, but redacted from the public report of its application to the OUR for a reconsideration of the decision on rates.

OUR granted the request but determined that the impact of the new interconnection rates would have limited impact on Flow Jamaica's network revenues. The regulator concluded that the potential impact on the telecoms' cash flow and on its investment incentives was not sufficient justification for a glide path longer than six months.

Asked whether it would be applying to be a party to the current legal action and in what capacity, Digicel said it had no comment.

mcpherse.thompson@gleanerjm.com