Buying to bigger: The Massy Communications purchase

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Above: Celebrating the signing of the acquisition agreement at the Hyatt are Brian Jahra, Fenwick Reid, Emile Elias and Ronald Walcott. Photograph by Mark Lyndersay.

BitDepth#1092 for May 09, 2017

There’s no question that the announcement of the share acquisition of Massy Communications by TSTT was a surprising move by the state telecommunications company and one that raises several questions.

The purchase brings a $230 million investment in high-speed fibre networking to the home into TSTT’s fold. As TSTT CEO Ronald Walcott noted at the acquisition announcement, that fits in nicely with the multi-billion dollar five-year strategy of the company and is, he said, an expansion “by purchase rather than by building.”

TSTT finds itself in a curious place in the local telecommunications market today. Facing heated competition from Digicel in the local market a decade ago, it responded to the clear and present danger to its growth potential by throwing its corporate weight behind developing its presence in mobile voice and data, the communications medium that saw explosive growth over the last ten years.

The growth of the Flow brand opened another battlefront that proved a bridge too far for the incumbent local provider and for most of the last decade it has talked a much bigger game than it has been able to field in that market space.

The announcement that the two companies had agreed to collocate hardware sounded like a Massy courtship of the 49 per cent of TSTT owned by Cable and Wireless that nobody seems to want. 

It’s not as if other businesses hadn’t investigated the shares, but none of them seem to want to spend billions to watch the T&T Government run, via controlling interest, a modern telecommunications company, least of all one that’s been knocked on its back foot as long and as often as TSTT has. 

The share acquisition of Massy Communications will be funded, after approval is given by the Telecommunications Authority, from TSTT’s five-year development fund and may well prove to be the best money it spends out of that cash cache.

But what else is TSTT buying in Massy Communications?

This is clearly a time for consolidation in the local telecommunications market. 

The Columbus buyout by Cable and Wireless was ultimately revealed to be a play for regional scale which attracted the coffers of Liberty Communications and distributed golden parachutes aplenty to the executives who engineered the sequential mergers. 

The resulting management shakeups have rocked Flow and left the company floundering. 

There have been no major announcements of plan or positioning in the last six months from Columbus or Flow and complaints about the quality of the triple play provider’s service resonate on social media with alarming frequency.

Beyond hardware, it isn’t clear that Massy Communications has much to offer a beleagured TSTT.

The company was once 360 Communications, managed by Brian Jahra and apparently a quite successful B2B internet service (Disclosure: I accepted an executive portrait commission from the company in 2011). Jahra launched an innovative internet service in 2000 called eFREENET.

After the decision was made to amplify the company’s reach to consumers, TSTT veterans Lisa Agard and Trevor Deane were added to the team. It made little difference.

In two years, Massy Communications managed to muster just 34,000 “homes passed” for the new service, hardly a spectacular achievement, particularly since it is an industry term that measures homes that can be reached by the service, or network coverage, and not actual subscribers.

The build out and marketing of the service ground to a halt in the face of the steamroller scale deployment of Digicel Play.

Privately, some senior members of the IT team at Massy admitted to me that they were not ready for the heavy promotional footfall of the Irish telecommunications company.

In practice, Digicel Play comprehensively swamped any communication or presence by Massy Communications. Play was there earlier, more loudly and more decisively in virtually every market that Massy planned to enter.

Massy Communications could muster no significant response to the waves of purple shirts and retreated to Massy Stores, hoisting bunting, posters and massive hoardings on safe ground, but placed no presence within the stores to actually capture customers.

In the last few months, Massy’s Internet marketing seemed to consist largely of wishful thinking.

The company offered early if low-keyed warning in its 2016 annual report about the fate of its stillborn Internet venture.

President and Group CEO Gervase Warner noted that the service would attract one of two “significant one-off charges” and “may require some changes to the current operating model to remain sustainable.”

The other charge was for costs related to a disastrous effort at making inroads in Costa Rica, one of the most fiercely competitive technology markets in Latin America, through a partnership with I&G Technologies. The project bled cash.

Executive Vice President & CFO Paula Rajkumarsingh was rather more blunt, noting that “The Information, Technology & Communications Business Unit (ITCBU) recorded a revenue decline of 2 percent and a 99 percent reduction in profitability.”

“Our IPTV investment, which launched in March 2016, reported operating losses of $40 million, compared to startup losses of $2 million posted in 2015.”

Fenwick Reid is Group Senior Vice President & Executive Chairman of the ITCBU and while his group managed margins of 17 per cent in 2016, the Costa Rica debacle and the staggering failure of Massy Communications dragged his business unit toward the red.

To locate Reid in the hierarchy of Massy, it’s useful to note that of the company’s listed officers and directors holding company shares, his is the sixth largest block of Massy shares at 73,527, an indicator of either a savvy investor or a solid company man.

Massy is unlikely to be entertaining thoughts of buying the 49 per cent share of TSTT that remains like a canker sore after the CWC purchase of Columbus Communications.

A company that’s sensitive to a $40 million loss is unlikely to have the fiscal stamina to deal with TSTT’s wild swings of profitability and its massive wage bill, fortified by a commanding union presence.

The government has offered no indication that it is considering privatising TSTT.

Part of that is likely to be because in local political governance, controlling airlift (CAL) gas refining (Petrotrin) and communications (TSTT, CNMG) have been historically considered to be cornerstones of managing not just the institution that is T&T, but the perceptions of its citizens.

It takes a very special kind of courage (or true desperation) for a politician to trust to the free market what they have traditionally controlled by executive fiat through state agencies masquerading as businesses, some large enough to be considered constituencies on their own.

TSTT now finds itself in an interesting bind. For CWC to divest its 49 per cent shareholding, the share price and business prospects must be attractive to a potential investor, now most likely to come from outside of T&T.

This is an era of technology consolidation. The rapid-fire Columbus-CWC-Liberty deal and the purchase of Green Dot by CCN were the first.

If TSTT is successful in leveraging the assets of Massy Communications into tangible value and successfully counters resistance to job cuts, that’s only going to drive up the share price in a market that is close to hitting its ceiling for the commercial supply of digital services.

Almost exactly ten years ago in 2007, I wrote this evaluation of the state of broadband development for the Business Guardian.

[Since publication, this story has been updated with links to reference material and a correction to the term 34,000 “homes passed” error in the original story.]