Business Page – Feburary 15, 2004

 

Telecommunications competition delayed - again

 

Introduction

In his feature presentation at the recent launching of the University of Guyana Information Technology Unit, President Jagdeo referred not only to the high advertising content of the speech given earlier on the programme by Guyana Telephone and Telegraph Co Limited's CEO Sonita Jagan, but also to the state of the telecommunications industry in Guyana. While there was some discomfort about the apparent lack of grace in his criticisms - given that Ms Jagan did not have the opportunity to respond to them - the President was expressing his, and no doubt his Government's, frustration at the lack of progress in the introduction of competition in the telecommunications sector in Guyana. Ms Jagan in her presentation did what GT&T does best - emphasise its continuing contribution to the country since January 28, 1991, when it commenced operations in Guyana following its acquisition of an 80% interest in the country's state-owned Guyana Telecommunications Corporation.

Even in a recent action brought by GT&T seeking an injunction restraining a small net café from providing "any international voice telephone or transmissions services including voice over the internet services or transmissions," the company notes in its Statement of Claim as a fact that "in 1989 Guyana had the poorest telecommunications services in the Americas," adding that "the technology used was old and the equipment antiquated." It went on to point out the "exponential expansion in operating lines including cellular phones and of international circuits," the company's investment of US$140M and the growth, expansion and modernization of telecommunication facilities in Guyana.

Need for balance

The President perhaps was trying to add some balance to Ms Jagan's presentation which continues a line consistently pursued by GT&T - tell Guyanese about how much they have done for Guyana while ignoring what they have received in return. The development has come at a huge price for the country and the consumer. The company receives a guaranteed rate of return on its investment in addition to massive advisory fees and reimbursement of expenses which the company has done a poor job at justifying. GT&T is hardly likely to be unaware that GTC was one of the country's most profitable businesses even with its old technology and antiquated equipment. And as any observer would know, by modern standards even in the US the technology used in 1989 would now be considered ancient. The President may also have felt that the government's contribution to the Centre was not sufficiently emphasised, while that of GT&T might even have been exaggerated. It has to be said, however, that that is hardly something for which GT&T can be blamed.

The President might also have been reflecting his government's frustration at the absence of any competition in the telecommunications sector in Guyana. The monopoly which GT&T enjoys hardly has a place in a modern business environment. It has been several years now since the Government announced its intention to bring an end to the monopoly which the company has exploited to the hilt by a combination of an aggressive marketing programme, a willingness to resort to the courts, the use of incumbency and an attempt to corner the market before competition is inevitably introduced.

Attitude

Even as the company expresses some willingness to discuss its monopoly, it demonstrates an attitude which many Guyanese find overbearing and arrogant. This was very clearly brought out in 2000 when Ms Jagan said, "We are open to talking but it must be on fair terms and we expect to be included in the process from the start." The openness was welcome and the principle of fairness most reasonable, but is GT&T not on slippery ground when it suggests that it has a right to participate in and set conditions to the formulation of national policy? GT&T is a stakeholder and its contribution to the process would of course be valuable, but for it to set terms for its participation seems to be going just a bit too far. When the redoubtable CEO added, "...as right now we hold the contract," it sounded less than conciliatory in tone.

The guaranteed rate of return does not require the kind of expenditure management which other profit-making entities find necessary, and GT&T goes to great lengths to win public support while not hesitating to go to the regulator or the courts to defend its monopoly even against small operators, as in the case of I-net and the internet service operator referred to above. Many, in fact, question whether the company uses the legal system to frustrate the attempts of other participants in the sector.

Cell service

Knowledgeable persons in the industry, for example, argue that GT&T is itself not authorized to provide the kind of cellular services which it currently does. More fundamentally, the monopoly has been challenged as unfair and unconstitutional, but when is this going to be resolved? The Guyana Government it seems, is committed to opening the sector to competition, but appears uncertain about how this can be achieved, and has not made adequate use of the technical assistance it has received from the IDB to achieve this objective.

To be fair, GT&T had agreed some years ago to give interconnection to another cellular service in Berbice, but that too was only after an extended process involving the Public Utilities Commission. And more recently, there was much optimism when in April 2003, Cel*Star and GT&T signed an interconnection agreement. Large sums of money have been invested in setting up the infrastructure "to offer superior mobile services across Guyana."

Cel*Star

According to Cel*Star, however, GT&T has now put the interconnection agreement on hold pending the resolution of a legal dispute between two shareholders in the courts in Florida. Cel*Star argues that GT&T has no grounds for not going through with interconnection, and that GT&T has not responded to a letter requesting a meeting of the lawyers representing the two companies "to resolve the issue amicably." With this refusal and the pace at which the courts in Guyana operate, the resolution of this matter could take an inordinately long time, and by the time a decision would be finally given, Cel*Star would take an even longer time to get into the market. Meanwhile its equipment remains idle and it runs up otherwise unnecessary costs in keeping staff, facilities and offices. Cel*Star argues that GT&T is afraid of competition from a competitor whose business model and technology are superior to theirs. GT&T, according to Cel*Star, sees competition rather than partners, competition rather than customers.

Cel*Star's technology is GSM (Group Special Mobile) used in 75% of the mobile market around the world, while the technology used by GT&T - TDMA (Time Division Mulitplex Association) - is generally regarded as less than cutting edge, with no service available in many parts of Guyana. Anyone travelling to Berbice knows how frustrating it is to find the number of areas in which GT&T's cellular service simply does not work. Cel*Star claims that such limitations will not apply to its system, and that it will offer better coverage, better service and better pricing to its own customers.

Naturally Cel*Star will want to make all the favourable comparisons and claim a number of good things for its products. But that is where the regulator, the PUC, comes in, to set standards and rates and foster a better telecommunications sector in the country. Neither it nor the courts must underestimate the impact of technology and telecommunications on a company's productivity and economic performance, in addition to all the inherent social benefits. They must recognise that this is a public-interest issue which should be resolved in a timely manner if the public interest is to be served. Whether it is one shareholder or another, Cel*Star seems serious about investing in Guyana and claims to have spent over US$6M so far. Would the public interest not be better served by allowing the work to continue while the Florida case is resolved, assuming that that is relevant?

Investment and productivity

The President is right to be concerned about the delay in taking advantage of the Cel*Star investment, and the message this sends to other investors. There is much at stake, and the delicate balance we face is how to counter the natural tendency of the holder of a monopoly to frustrate attempts to prolong that monopoly, the right to due process and the public interest. The delay is costing the country and the consumer, and anyone who wants to see economic progress must also see the implications of the delay for whatever reason.

The benefits of competition are perhaps too obvious to bear repeating, but the evidence in terms of dollars and cents seems overwhelming. Perhaps surprisingly, the major beneficiary is the consumer, as service providers recognise that a choice is now available, that the quality of service counts and that unless they can compete on price, technology and service they simply will not succeed. In a competitive market, producers compete to win customers by lowering prices and developing new services that best meet the needs of customers. In a competitive environment, businesses that fail to understand and react to consumer needs face the loss of customers and declining profits.

As an article on the internet notes, "competition rewards entrepreneurship, responsiveness, and enthusiasm; it punishes sluggishness and indifference. Because of the increasing importance of the telecommunications sector to the overall economy, countries can ill afford the sluggishness and indifference that so often characterize the provision of products and services under monopoly conditions. As developments in technology continue to produce efficient and exciting communications services, societies may be significantly disadvantaged if they forego the rewards of entrepreneurship and responsiveness associated with open, competitive telecommunications markets."

Conclusion

In allowing the holding back of investments in the sector, the country may be acting against the constitution, and interestingly, be in breach of international trade rules which require governments to remove legal barriers that protect existing monopoly providers from competition by new entrants. The President needs to demonstrate more than pique, and to move expeditiously to formulate a policy that promotes competition, the introduction of competitive safeguards to protect against the exercise of market power by incumbent carriers, and an efficient legal and regulatory framework. GT&T will do itself immeasurable benefit if it were to engage in constructive discussions with Cel*Star, while the government would be doing a major service in bringing GT&T's monopoly to an end and appropriate reforms to the sector.

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