Vastly different approaches to competition

By Tammy Parker

Three countries in the Caribbean and Central America are taking divergent paths as they nationalize, liberalize or privatize their mobile industries, providing a fascinating microcosm for future study regarding which economic approaches will prove the most fruitful for investors and governments and deliver the best value to customers.

Belize’s government hopes that taking over incumbent operator Belize Telemedia (BTL) will ultimately mean that the company has more money to devote to its networks and enable it to provide better service. Costa Rica’s aim is similar, in that it hopes to bring in licensees to invest money and time in its newly liberalized telecoms market. And the Bahamas is convinced that privatizing its incumbent operator will attract fresh funding and pioneering business tactics that will benefit customers.

On the nationalization front, the government of Belize late last month expropriated BTL, taking over 94% of the company’s shares that had been held by companies controlled by British businessman Michael Ashcroft. The arguments between Belize’s current government and Ashcroft are convoluted. BTL was first privatized in 1984, and no single entity was supposed to hold more than 25% of the company. But BTL’s shares were bought up by Ashcroft’s companies, and the telco has since been accused of negotiating an anticompetitive contract with the nation’s previous government.

This so-called Accommodation Agreement is said to have required government agencies to use BTL services until 2015 and guaranteed the company a minimum rate of return, among other things. The London Court of International Arbitration recently awarded to BTL a US$38.5 million judgment against the Belize government, which lawmakers say they will not pay.

Now the government alleges that just prior to its late-August nationalization of BTL, Ashcroft’s people took US$8 million in “management fees” from BTL’s accounts.

In another twist, Belize’s government contends that Ashcroft-affiliated charitable trusts recently acquired a 77.38% shareholding in BTL rival Speednet Communications, giving Ashcroft’s businesses a monopoly on telecoms services in Belize. In 2Q09, Belize’s mobile market penetration reached 73%, according to Informa Telecoms & Media.

Of the nation’s 217,380 subs, 178,880 belonged to BTL, and Speednet had 38,500. The government and Ashcroft’s interests will, naturally, argue in the courts over BTL’s valuation and what should be proper compensation to Ashcroft’s group for the government takeover. The Hayward Charitable Trust, an Ashcroft affiliate that claims to own 70% of BTL’s shares, has said that recent figures place BTL’s value at US$300 million. The government, however, says the valuation is closer to BL$300 million (US$150 million). Belize’s legislators contend that the government takeover was in the best interests of the Belizean people, but some facts about the nationalization raise considerable questions regarding the nation’s approach to due process.

The entire expropriation process, from initiation in the nation’s legislature to the actual government takeover, took about two days. And BTL’s new board members include Anwar Barrow, the son of Belize Prime Minister Dean Barrow, and his mother, Lois Young, as secretary. Belize’s government has said that it hopes the full nationalization of BTL is temporary, since it would like to offer shares to other investors, to encourage investment and competition in the nation’s telecommunications market.

But potential investors will be wary of entering a country where the government so wantonly takes command of a private business and places the prime minister’s family members on the board, whether for seemingly good reasons or not. And Belize’s government still wants individual institutions and people to be limited to a stake in BTL of 25% or less, ensuring that none has majority control. The ownership restriction is likely to turn off potential investors, keeping major regional players, such as America Movil, Cable & Wireless and Digicel, far from Belize’s shores. Meanwhile, Costa Rica is moving in a completely different direction by opening its long-closed telecommunications market to new entrants, to comply with requirements in the Central American Free Trade Agreement, to which it is a party.

The country intends to issue three mobile network licenses, probably in 2Q10, bringing competition to ICE Telefonia Celular, a unit of incumbent operator El Instituto Costarricense de Electricidad. ICE excelled in building basic landline service in Costa Rica, and the nation’s fixed-line penetration exceeds that of much of Latin America. But ICE’s mobile service has lagged behind, and Costa Rica’s mobile penetration was merely 54% at end-2Q09, according to Informa.

ICE had nearly 2.48 million TDMA and GSM customers at end-2Q09, according to Informa, nearly 2.11 million of whom belonged to the GSM network that ICE launched in December 2002. Costa Ricans still don’t have 3G service. But in January, ICE signed Huawei Technologies to build a US$235 million 3G network, which is expected to be ready for operation by year’s end, as the operator prepares itself for competition.

Privatization is the word in the Bahamas, where, more than a decade after government leaders proposed the privatization of Bahamas Telecommunications (BTC), the commonwealth has finally launched a process to sell a 51% stake in BTC to a partner that will also gain operational control of the firm.

The Bahamas government intends fixed-line telecommunications services, cable TV, IPTV and Internet services to be liberalized first, with mobile services slated for liberalization two years after the privatization of BTC. BTC had 350,000 subs on its GSM network at end-2Q09, giving it 103% penetration, according to Informa. Many markets in the Caribbean have penetrations over 100%, due to multiple-SIM ownership and the purchase of SIMs by tourists for temporary use.

It will take time to assess which of these three countries will be most successful at bringing about the sought-after improvements in its telecoms market. Not only are their different approaches likely to yield vastly different results, but thorough execution of their plans will be paramount to generating the changes that they seek.