THE FAIR TRADING COMMISSION has determined that the new Price Cap Plan 2016 (PCP 2016) will govern the adjustments of rates of regulated telecommunications services of Cable & Wireless (Barbados) Limited from April 1, 2016 to March 31, 2019.
This will supersede the current Price Cap Plan which was introduced in April 2012 and which will expire at the end of March 2016. For the avoidance of doubt, the PCP 2016 will apply to all customers of the company, including those acquired as part of the acquisition of Columbus Telecommunications.
The PCP 2016 will be based on two service baskets, one for “competitive” services and the second basket for “non-competitive” services. In addition there will be a sub-cap on residential fixed line services (access and installation).
Basket 1 (“competitive” services) will include all regulated services for which the level of competition is deemed to be sufficient to prevent excessive pricing by the company. These services will not be subject to an overall price cap; however, the advance notification requirements as set out in the forthcoming Compliance Rules and Procedures will be in place.
Basket 2 (“non-competitive” services) will include all remaining, regulated services (that is, all regulated domestic voice, fixed access, associated value added services and domestic private leased circuits). This includes access and call services previously offered by Columbus Telecommunications.
During the PCP 2016, prices across these services will be restricted such that any price increases across the basket will be below or equal to the level of inflation or three per cent per year in case inflation exceeds three during that year. In case of when the inflation rate is less than zero (that is, negative), then the allowable price increase in that year will be set to zero for that year.
Residential fixed line access services are included in Basket 2 and will therefore be subject to the price control applied across all of these services. Further to this price cap, the Commission has determined that an additional pricing constraint, a sub-cap, should be applied to residential access services, taking account of the importance of these services to consumers.
In each year, the company’s ability to raise the prices of these services will be restricted, such that annual price increases will be below or equal to the level of inflation or three per cent a year in case inflation exceeds three per cent during that year (that is, the same price cap as applied to the overall Basket 2).
In case of a negative inflation rate in any given year, the allowable price increase in that year will be set to zero. Applying this additional pricing constraint ensures that prices for residential access service cannot increase beyond inflation during the PCP 2016, irrespective of the price changes applied to the remaining price capped services.
It is considered reasonable to set the overall cap at the level of inflation which implies an X factor equal to zero based on expected merger efficiencies during the PCP 2016. The price cap formula sets the maximum allowable average annual price change across the capped services.
The formula applied under the PCP 2016 remains unchanged relative to the price cap formula, underlying the previous price cap plan. The price cap formula allows the company to only change its retail prices on average within each basket by less than the predetermined Price Cap Index (PCI).
