In the past decade the Trinidad and Tobago telecoms and broadcasting industry has expanded into a dynamic sector of the economy. Until 2004 majority state-owned company Telecommunications Services of T&T (TSTT) had an almost complete monopoly on the sector, holding the country’s only fixed and mobile operating licences and competing with only a handful of small providers in the internet space. However, the Telecommunications (Amendment) Act of 2004 acted as a catalyst for the industry, with all segments of communications and entertainment liberalised simultaneously on the principle of fair competition.
T&T has four fixed-line and two mobile telephony companies, seven international incoming and outgoing phone companies and eight internet service providers. In addition, there are 13 subscription television companies, seven free-to-air TV channels and 38 radio stations. Overseeing this diverse and shifting market landscape is the Telecommunications Authority of T&T (TATT), the industry regulator.
In 2015 the country’s already high mobile phone penetration rate reached 160%, from 149% the previous year, according to Annie Baldeo, executive officer of policy, planning and market economics at TATT. To an extent this is a common feature for small nations with large numbers of foreign workers, but this penetration rate is still behind Suriname and the Cayman Islands in the Caribbean region, according to World Bank data. Given high roaming charges in T&T, visitors to the islands often choose to buy SIM cards to use for the duration of their stay. Nevertheless, it is common for people in T&T to have more than one phone, either to separate work and personal calls or to take advantage of promotions offered by the country’s two mobile operators: Bmobile – owned by TSTT – and Digicel – a Bermuda-based firm, owned by Irish businessman Dennis O’Brien, with a presence in the regional Caribbean mobile telephony market. “In T&T most people have more than one phone,” Baldeo told OBG. “Each operator has unique promotions that target on-network calls. However, with regard to standard pre-paid rates, in 2015 both operators removed the price differential for on-network and off-network calls. This may have some influence on phone ownership.”
Shift To Post-Paid
The mobile market is split relatively evenly between the two main players. Pre-paid contracts still dominate the T&T mobile telephony market. By the fourth quarter of 2015 there were 1.75m registered pre-paid subscriptions compared to 374,000 post-paid contracts, meaning that prepaid accounted for 82% of the market, according to the latest data from TATT. However, post-paid has been gaining ground in recent years. Since 2010 the number of pre-paid contracts has remained steady at around 1.7m. By comparison the number of post-paid plans expanded 76% during the same time period. It has long been accepted wisdom in the telecoms industry that post-paid customers represent the most profitable clients, and that the shift from prepaid to post-paid is a sign of healthy development for an emerging economy and a major opportunity for telecoms firms. However, revenue data from TATT doesn’t bear out this theory.
First, despite higher mobile penetration, total gross revenues from domestic mobile voice services showed a slight decline in the last couple of years. From 2010 to 2013 total revenues grew from TT$1.96bn ($301.8m) to TT$2.32bn ($357.3m), but they slipped to TT$1.99bn ($306.5m) in 2015, according to the latest data from TATT. Average revenue per user (ARPU) for mobile services is also in decline. In the fourth quarter of 2013 ARPU was TT$352 ($54.21) but by the fourth quarter of 2015 this figure had fallen to TT$318 ($48.97). Total revenues from mobile voice pre-paid services have continued to rise, from TT$1.47bn ($226.4m) in 2010 to TT$1.53bn ($235.6m) in 2015. Of concern to the mobile companies is that, despite the growth in the post-paid model, total revenues from mobile voice post-paid services have shrunk markedly, from a high of TT$600m ($92.4m) in 2012 to TT$360m ($55.4m) in 2015, a fall of 40%. Total mobile internet revenues, however, have risen significantly, from TT$102.7m ($15.8m) in 2010 to TT$578.6m ($89.1m) in 2015. There are concerns, although, that over-the-top services, such as Skype, Viber and Whatsapp that use voice over internet protocol (VOIP), are replacing traditional phone calls, at the expense of mobile operators’ margins.
Three's A Crowd
With revenues remaining stagnant and a mobile penetration rate that is already among the highest in the region, it is unsurprising that the incumbent players view TATT’s plans to open the way for a third mobile operator, and award two 4G licences, with some trepidation. In 2014 TATT released a request for proposals (RFPs) for a new mobile operator – to use the existing infrastructure of the incumbents with bids to be considered on four main criteria: the speed of rollout, indicative pricing, coverage of national territory and the nominal speeds of packages. At the same time it invited applicants to bid for two blocks of 700 MHz bandwidth. TATT received three bids for the third licence that met the qualifying criteria as well as bids from TSTT and Digicel for the 4G spectrum. In September 2014 it presented its recommendations on both RFPs, but the decision of who will be recommended as the third operator is still sitting with the new government, elected in September 2015. Under the previous government support for the third licence was strong. In April 2015 the previous minister of science and technology, Rupert Griffith, told local press he was confident that a third entrant would be announced “very soon”, adding that “this third mobile service provider will boost competition and yield to the consumer greater affordability, wider choice and faster speeds among other benefits”.
However, the incumbents are unconvinced of the logic of awarding a third licence and are concerned that awarding only two 4G licences to three operators would have consequences for the operator left out. “The experience of Jamaica shows that in small markets a third mobile operator is not viable,” Ronald Walcott, CEO of TSTT, told OBG. “The T&T mobile market is saturated and we have the lowest prices in the region. We have a settled duopoly with fierce and aggressive competition. In addition, offering only two 4G licences to three operators could, in essence, destroy the company that misses out.”
To boost its own competitiveness, TSTT is looking to cut costs by focusing on procurement processes. In December 2015 Emile Elias, chairman of TSTT, told the Trinidad Guardian that the company’s 2300 staff was around 1000 people in excess of requirements. Rather than make redundancies, the firm will look to reduce the volume of services it currently outsources, retraining current staff and redeploying them to new departments to perform those services.
Power Of Two
Power Of TwoThe sense of a settled duopoly is confirmed by TATT statistics. The regulator uses the Herfindahl-Hirschman Index (HHI) to measure the degree of market concentration of the communications sector. Ranging from zero to 10,000 – where the former is a theoretical state of thousands of individual companies and the latter a complete monopoly – the T&T mobile telephony segment scored 5,141 in the fourth quarter of 2015, up 1% year-on-year (y-oy), indicating a very even split between the two mobile companies. A further factor set to increase competition between the two incumbents is the introduction of mobile number portability – the ability to switch between networks while maintaining the original phone number. This is important because it removes a key barrier to switching networks, and should promote even greater competition between operators. Number portability was scheduled for introduction in the second quarter of 2016 but in April TATT announced that both fixed and mobile number portability will be launched in the last quarter of 2016.
A Protracted Goodbye
In addition to the decisions on the third operator and the 4G licences, telecoms companies are waiting on a further decision that could have major implications for the market. In April 2015 pan-Caribbean operator Cable and Wireless Communications (CWC) announced that it had agreed to take over Barbados-based telecoms conglomerate Columbus Communications, in a deal worth $1.85bn. Columbus owns a number of internet and fixed-line businesses in the Caribbean, including Flow – a rival internet service provider with TSTT – and CWC has held a 49% stake in TSTT since the 1960s. The deal was therefore subject to regulatory approval in T&T as well in Jamaica and Barbados. T&T was unique as it was the only country where CWC was not operating under its own name. TATT ruled that the four CWC representatives of the TSTT board resign their positions immediately, and gave TSTT a 12-month timeline to sell its stake in the national company. However, the divestiture was complicated by the change of government in 2015. The government’s participation in TSTT is held through National Enterprises Limited (NEL), the state-owned holding company that controls shares in a variety of national companies. The majority of seats on NEL’s board of directors are appointed by the government, and the change in government has set back the process with the deadline for selling the stake being set back a further six months. In May 2016 CWC was itself acquired by US TV and broadband firm Liberty Global for approximately $7.4bn. Yet it appears the takeover will have few repercussions for the process of divesting CWC’s stake in TSTT. Questions remain about how attractive a minority stake in a government-controlled company will be to local or international investors, especially since the mobile market appears saturated, revenues are falling and a third operator looks set to enter the market. Speculation that the sale could involve TSTT relinquishing some control of the running of the company have been put to rest by the new government, although the possibility remains that a firm could acquire CWC’s stake and hope to pick up more shares at a later date. However, Rakesh Goswami, executive vice-president of strategic alliance, enterprise & Tobago operations for TSTT, told OBG that there remains compelling reasons to invest in TSTT. “First, the business is profitable. Second, the new government is strongly patriotic and has clearly stated that it would like national entities to avail of services provided by other national companies. Most importantly, we are the only full service provider in the market.”
Bundle It All
In T&T, as with many other telecoms markets, service providers tend to bundle mobile, fixed-line, internet and entertainment packages into a single plan. TSTT continues to hold over 90% of the fixed-line telephony market, with its principle rival in this sphere being Flow, the internet service provider now owned by CWC that offers fixed-line as an add-on to its broadband services.
The T&T fixed-line market had a HHI score of 8267 in the fourth quarter of 2015, meaning it is a highly concentrated market. With the rise in mobile phone usage, fixed-line penetration has fallen significantly over the past six years. In 2010, 68% of households had a registered fixed line, but this figure had fallen to 53% by December 2015. Of the country’s 270,000 fixed-line contracts, 59,000, approximately 22%, were linked to businesses. Nevertheless, in 2015 business fixed-line calls accounted for more than half of the segment’s TT$740m ($114m) in revenues, according to the latest data from TATT.
TSTT has upgraded its services from fixed-line and mobile to broadband internet, in which it holds a 60% market share through Blink, and cable TV, where it accounts for 10% of the market. The firm has also added security services to its bundle and homeowners can now get an armed response for break-ins. Meanwhile, Flow has moved from its starting point as a broadband provider to offer home phone and television packages. In 2016 Digicel ventured into fibre and TV through its Digicel Play service that it rolled out across the Caribbean. In April Digicel Play doubled its Jamaican subscribers to 20,000, just two months after hitting the 10,000 subscriber figure, while in T&T the 10,000 subscriber mark was passed five months after the January 2016 launch.
In an already crowded market, pan-Caribbean conglomerate Massy Group launched its own double play fibre-internet and television service in February 2016. “T&T now has the most competitive telecommunications market in the Caribbean, which is a positive turn for the country as all players will now be urged to deliver a superior product and efficient customer care at affordable prices,” Garvin Medera, CEO of Digicel Play, told OBG.
The home entertainment segment is more diverse than the telephony sector. As well as TSTT, Flow, Digicel Play and Massy, the international satellite TV provider DirecTV is active in the market, along with local firm Green Dot and Tobago-focused Trico Industries. In December 2015 the segment registered a HHI score of 4,493, an 8% y-o-y decrease. Additionally, 16.8% of T&T’s population had a subscription – penetrating 57% of households – had a pay TV subscription in December 2015, up 2% y-o-y, with total subscriptions standing at 233,000, up from 179,000 in 2010. ARPU increased from TT$2773 ($427) per year in 2010 to TT$3328 ($513) in 2013, before declining to TT$3173 ($490) in 2015.
The entrance of Digicel Play and Massy Communications, a subsidiary of Massy Group, into the pay TV segment suggests that the firms see potential in the as yet unconnected households. Other players say that potential growth of pay TV may be more limited. “Companies are jumping into the market, but it could be a dicey situation,” Bernard Pantin, general manager of DirecTV T&T, told OBG. “It is important to take a macro view. I look at the US where pay TV penetration is 85%, but we have to accept that T&T is far less developed. I can not see the country getting past 75% penetration. We may see 250,000 subscribers by the end of 2016 and 300,000 by the end of 2018 but I can not see it going much higher than that.”
Pantin also draws on the example of the US, where cities of equivalent size to the whole of T&T in terms of residents have only one or two cable or fibre pay TV operators. T&T now has six, and promotional competition is extensive. “I think the competition is going to be intense, I think it will be tough for the new players to meet their business plans unless they can win customers from the main incumbents TSTT and Flow.”
As of May 2016 Medera confirmed that a lot of the new Digicel Play subscribers had been won over from the incumbents, but a more extensive infrastructure rollout throughout the country might bring a shift. “We are aiming to roll out affordable fibre optics in over 50% of T&T’s populated areas in 2016 and aggressively increase this penetration in the following year. In Tobago, which had a high concentration of unconnected households, 90% of the island is already covered by fibre connections,” he told OBG.
Back To Pre-Paid
The alternative to bundling internet, TV and telephony services is to make these services optional to lower-income residents by mirroring the mobile phone segment and offering prepaid services for internet and TV. Bundled packages offered by the main players focus on the TT$200 ($30.80) to TT$500 ($77) per month price range, which may be out of reach for some.
In response to this, Blink has introduced pre-paid broadband and DirecTV offers pre-paid pay TV subscriptions for under TT$200 ($30.80). “Pre-paid TV first took off in Venezuela, but initially we were sceptical of the potential in T&T because the recharge companies were charging a 17% fee, which cut into the providers’ margins,” says Pantin. “However, by the time we introduced pre-paid TV two years ago, using a non-immediate recharge system, the number of local billers had expanded and that reduced the recharge fee significantly.”
In an effort to make telecoms accessible to every Trinbagonian, TATT is focussing on bridging the digital divide for the 10% of the population that is visually or hearing impaired, talking with mobile providers to offer handsets with functional features that are usable by people with disabilities. “We have met with the main organisations representing visually and hearing-impaired people,” Baldeo told OBG. “What we have learned is that people with disabilities want to live a full active life, not be confined to home, and that means focussing on providing access to services and devices in the mobile market. We have identified a number of different features for handsets that could help these groups.”
The T&T telecoms market could end 2016 in a very different place from where it started. The sale of CWC’s stake in TSTT and the final decision on a third operator, as well as the awarding of 4G licences, have the potential to shake-up the sector. Competition for clients across the mobile, broadband and entertainment segments looks set to intensify, providing benefits to consumers, but posing new challenges for existing telecoms companies as well as the raft of new entrants. They will also have to adapt to the global trend that has seen revenues shift from voice calls to data services, and evolve their strategies to take advantage of a rapidly changing industry.
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