Members of this Honourable House would be aware that telecommunications providers, Digicel and Claro, have entered into an agreement under which Digicel would acquire 100% of Claro's shares and, hence, assignment of Claro's licences.
This agreement, as required by section 17(3) of the Telecommunications Act, is subject to ministerial approval and a joint application to this end dated March 17th 2011 was submitted to me. The proposed acquisition is part of a tri-country deal with reciprocal arrangements for a similar transfer of ownership from Digicel to Claro of Digicel’s assets in Honduras and El Salvador.
A number of issues arose in consideration of the application. These include:
· the impact that this acquisition would have on the level of competition within the mobile telecommunications market and, in this regard, concern about the wide disparity in termination rates among the carriers;
· credible indication that Claro would have exited the market whether or not the acquisition was approved;
· the service options that would be available to the approximately 517,000 Claro subscribers;
· the statutory provisions and limitations governing the exercise of ministerial discretion in relation to the application.
Section 17(3) of the Telecommunications Act states that the Minister shall grant approval of an assignment of a telecommunications licence or transfer of control of operations “if he is satisfied that the assignee satisfies the requirements of section 11 (1)(a) to (b) as regards the obligations imposed on a licensee by this Act or the licence".
Section 11 (1)(a) to (b) states:
“(1) An application for a licence under this Act shall be made to the [OUR] in the prescribed form and shall be accompanied by the prescribed application fee and contain a statement that-
(a) the applicant undertakes to comply with the provisions of this Act relating to the type of facility or specified service to which the application relates, including –
(i) interconnection obligations;
(ii) universal service obligations;
(iii) licence limitations; and
(iv) network expansion requirements
(b) the applicant is not disqualified from being granted a licence by reason of any legal impediment;”
The Attorney-General’s Department advised that, under the law, the Minister has no expressed authority to impose conditions in the transfer of the licences. The transfer, however, carries with it all the obligations contained in the licences unless by mutual agreement the terms of the licences are modified.
In this regard, Digicel, while stating that it will honour all interconnection agreements currently held by Claro, would have the same right as Claro to alter or terminate those agreements in accordance with the provisions of existing contractual arrangements between it and other providers. That commitment is therefore of little value to the subscriber.
Further, Digicel indicated its intention to effect a seamless migration of Claro’s existing subscribers to Digicel through the consolidation of core networks. Pursuant to this business plan, its intention is to decommission the Claro network and operate both licences through a single network. This would radically alter the existing configuration of the two networks.
Given Digicel’s stated intention to vary the obligations embedded in the Claro licence, the opportunity was taken to enter into discussions with Digicel toward a voluntary agreement on a number of issues, most notably, more uniform interconnection rates between it and other mobile telecommunications providers on the basis of which, by mutual agreement, modifications would have been made to the Claro licence to accommodate the operational plan outlined by Digicel.
Currently, interconnection retail charges vary widely:
For peak pre-paid rates
Digicel to Lime Mobile $17.70
Digicel to Claro Mobile $17.70
Digicel to Digicel Mobile $10.00
Claro to Lime Mobile $9.99
Claro to Digicel Mobile $9.99
Claro to Claro Mobile $9.99
Lime to Digicel Mobile $12.00
Lime to Claro Mobile $12.00
Lime to Lime Mobile $8.00
For off-peak pre-paid rates
Digicel to Lime Mobile $15.80
Digicel to Claro Mobile $15.80
Digicel to Digicel Mobile $8.00
Claro to Lime Mobile $7.00
Claro to Digicel Mobile $12.00
Claro to Claro Mobile $7.00
Lime to Digicel Mobile $12.00
Lime to Claro Mobile $12.00
Lime to Lime Mobile $8.00
The voluntary cross-network rate reduction of $3.00 from the peak rate (from $17.70 to $14.70) and $2.00 from off-peak rate (from $15.80 to 13.80) offered by Digicel in relation to interconnection retail charges with the other major provider, LIME, was unimpressive. Termination rates are a major component of interconnection retail charges and ideally the termination rates should be cost-oriented and uniform across all networks.
Given these circumstances and the statutory constraints placed on the Minister in the exercise of his discretion, I have approved the acquisition of Claro by Digicel and the assignment of the relevant licences without any modification to the licences and the obligations contained therein. This means that Digicel will be required to fulfil all of the obligations contained in the Claro licences with regard to the type of facility and specified service that must be provided, its interconnection obligations, licence limitations and network expansion obligations. Digicel will, therefore, be required to maintain a separate network and complete a separate build-out of 90% penetration of the island as required under the original Claro licences. Fulfilment of these obligations will be vigorously monitored and enforced.
This issue has brought into sharp focus the need to strengthen the legal and regulatory framework for the telecommunications industry to bring it in line with contemporary best practices and ensure that the interest of the consumer is held paramount.
The House will recall that a new Information and Communications Technology Policy was presented to Parliament in April. It received the support of the Opposition which had been consulted during its preparation. The policy requires far-reaching amendment to the existing Telecommunications Act and work is proceeding to have the appropriate Bill brought to Parliament. However, it is considered necessary to fast-track specific elements of these amendments to enable the Regulator to discharge its obligations more effectively. These include:
(1) empowering the Regulator to obtain information from licensees without a formal enquiry or the burden of proving reasonable grounds for requiring same;
(2) the application of the provisions of the Act regarding interconnection to not only voice but also data and other services;
(3) the positive right of licensees to submit their interconnection disputes to the Regulator for resolution and the power of the Regulator to prescribe the procedures for the arbitration and settlement of disputes;
(4) the automatic amendment of the terms and conditions of all interconnection agreements to conform to the most current Reference Interconnection Agreement authorized by the Regulator including applicable rates and charges as approved from time to time by the Regulator;
(5) enabling the Regulator, in determining applicable rates and charges, to take into account all relevant factors including cost orientation and local and international benchmarks;
(6) the power of the Regulator to prescribe, after consultation with the Fair Trading Commission, competitive safeguards aimed at preventing anti-competitive activity in the telecommunications market;
(7) special provisions to protect small service providers in utilizing services offered by large carriers including the power and responsibility of the Regulator to examine and approve customer contracts for wholesale and retail services;
(8) provisions to protect non-facilities-based licensees and other wholesale customers against discriminatory and unfair treatment by service providers and carriers;
(9) in addition to judicial remedies that may be pursued, enabling the Regulator to secure quick and efficient compliance with statutory rules and directions by giving it direct enforcement powers to impose behavioural remedies including
§ financial penalties on licensees;
§ orders for compensation to persons adversely affected by actions of licensees that are in contravention of the Act;
§ orders to terminate, modify or nullify agreements.
(10) the power of the Regulator to prescribe, by order published in the Gazette, rules that are of a purely regulatory nature;
(11) the power of the Regulator to determine the terms and conditions of access to and sharing of telecommunications facilities and infrastructure by telecommunications providers;
(12) regulations to govern the efficient use and operation of spectrum frequency and the authority of the Regulator to take decisions and give directions in relation thereto.
Given the urgency of the need for these amendments, efforts are being made to have the appropriate Bill brought to Parliament within the next six weeks.
The Fair Trading Commission is considering specific steps that may be taken within its statutory functions to ensure that the acquisition of Claro by Digicel does not adversely impact on the consuming public.