CUSTOMER?CALLS?and?demand for the regulated services of British-owned telecoms giant Cable & Wireless (C&W) dropped by more than expected during the four years of the current Price Cap Plan (PCP), which ends next month.
But according to the Fair Trading Commission (FTC), the August 31, 2008, to?March 31, 2012 version of the PCP would remain as the regulatory mechanism for Cable & Wireless (Barbados) Ltd, now trading as LIME.
“The commission has reviewed the market developments of relevance to the price cap review,” the FTC said in a consultation paper preparatory to a four-week review of the PCP that began Friday, February 10, “taking into consideration submissions made by C&W on recent trends in competitive pressures in the fixed telephony market and future expected technological changes.
“There has been a continued competitive constraint on C&W’s pricing for international outgoing call services, but the commission is of the view that C&W is not sufficiently constrained in all other regulated services to allow removing the price cap.”
The FTC originally established the price cap in 2005 to replace the rate of return as a system for the economic regulation of C&W’s regulated services: domestic voice and international telecommunications services, services in respect of interconnection charges, leased circuits; and international simple resale.
Its general principle is to allow flexibility in pricing, provided that the average change in prices charged by the company, and measured by the Actual?Price Index (API), does not exceed the Price Cap?Index (PCI).
This public consultation, which ends March 9, is to help the FTC determine whether the PCP 2008 has achieved the seven objectives for which it was designed, as well as to decide on the approach for the next price control, that is, whether it should modify the principles, rules or parameters of the mechanism.
As part of the review, the FTC is also undertaking a comprehensive analysis of C&W’s financial information – which it said remains confidential – to determine whether it has met its objectives.
The 2012 PCP has six elements, among them being the price cap formula; service baskets; and the duration of the plan.
In its assessment of the company’s recent performance relating to forecasts for the PCP 2008, the FTC reported that fixed call volumes of regulated services declined during the period and exceeded the forecast reduction used to set the current plan, while fixed access lines remained broadly stable in line with predictions.
Traffic volumes
However, it said most traffic volumes declined over time, in many cases by more than forecast, in particular the regulated domestic traffic, while international outgoing call traffic volumes initially increased but eventually declined slightly below the forecast level and payphone traffic also declined, compared to an expectation of constant traffic volumes.
Price changes of selected regulated services during PCP 2008, showed that over the three-year control period, retail prices for key residential fixed telephony services in?Basket 1 (domestic residential line access and residential installation services) increased relative to their price levels at the beginning, but they were less than the maximum allowed.
Residential exchange lines (exclusive of VAT) moved from $34.30 to $36.98, or $2.68, an increase of 10.2 per cent, while the installation charge remained at $98.
The FTC said prices for business fixed services remained constant – $80 (VAT excluded) – implying an effective price reduction in real terms, that is, when taking inflation into consideration.
However, domestic private leased circuit (DPLC) services declined.
In line with declining demand and retail prices, C&W’s total regulated revenues decreased, while operating costs increased slightly, relative to the 2006-2007 levels, while absolute profitability of the services fell, according to the FTC.
Fixed services
The regulator noted that the use of mobile services had grown, while access services and (unmetered) domestic call services in a single bundle showed declines for both services.
“While there is potentially some mobile substitution,” the FTC said, “it is unlikely to be a sufficient constraint on the pricing behaviour of these fixed services.”
It also said total call volumes from payphones were in decline and “now appear to play a limited role in the overall market.?However, they remain serving an important social role”.
The FTC said TeleBarbados had entered the private leased circuits market and C&W faced some competition, “although competitive constraint in the domestic leased line service on many domestic routes is limited”.
“However, there may be changes in the market environment in the short and medium term,” it added. “In particular, Digicel has applied for a fixed line service licence and both?Digicel and C&W have recently launched 4G mobile data services.
“The commission is of the view that these developments are unlikely to have a significant impact on services covered by the price cap regulation during the next price cap plan.”
