Is cost really outstripping revenue?

By Randy Howard

IS the actual cost of providing domestic residential fixed line service to Barbadians really more than the revenue that is being generated from the retail price for this service?

This was the question asked by Chris Halsall, Director of Ideas 4 Lease (Barbados), an independent consulting group, at the Fair Trading Commission’s “Educational Forum on the Price Cap Mechanism” held last Tuesday.

During the presentation section of the forum, the Commission stated that the domestic residential fixed line service was set at a fixed 7 percent increase per year so that consumers would be able to know they can expect the expense will be. But during the question and answer section, Halsall asked if the reason might also be “because Cable & Wireless are claiming that the cost of providing the service is currently less than the retail price”.

“So my question to the Commission is, do you know what the actual cost is? As in, how many more years of 7 percent increases are consumers going to suffer before those curves cross?” These curves being representative of the cost of providing the service in relation to the revenue generated from customer use.

The Commission representatives admitted that they did not know the value being asked. Halsall asked the Commission if they could, during the current exercise, determine this value.

Speaking to the Business Monday, Halsall, a voting member of the Telecommunications Act Revision Committee (TARC), argued that this value was critical. “It ties in critically to both Local Loop Unbundling and the Universal Service Obligation, both matters currently before the TARC.”

He made the point that “under the Barbados Telecommunications Act, there is a defined Universal Service Obligation for Cable & Wireless to provide,” which includes basic telephony “to all people in Barbados on an equitable basis wherever they reside or carry on business”. However, there exists a number of persons across the island who have not been able to obtain such service.

“These numbers are also sensitive, nobody will actually speak to it, but there is estimated to be between 1,000 to 1,500 different households that are wishing telephony service and have not been able to receive delivery of this.” He stated that vernacular used by Cable & Wireless is called “waiter”, which is someone who has requested service but has not received it.

Within the Act a Universal Service Fund is defined, however, according to Halsall, this “was never funded”.

“In the Act it specifies that the designated carrier has the right to draw from the fund in order to recover what are called ‘net recoverable costs’, and that it is basically the difference in the value between what is the nominal cost of delivering the service, and what it would be for one of these individuals.”

Therefore, “without knowing the nominal average cost of one of these lines Cable & Wireless cannot speak to whether a particular ‘waiter’ falls under the value, as in there should be no net recoverable cost associated therein.”

As a result, because these values are not known, C&W cannot be held to their universal service obligation. Additionally, Halsall made the argument that C&W are using this claimed subsidization, or cross-funded, as justification for their exorbitant international rates.

Published in the Barbados Advocate Business Monday 2007.10.15. Reprinted with permission.

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