BitDepth#962 for November 11, 2014

The handshake that rocked the Caribbean. Chairman of Cable and Wireless Communications (CWC), Sir Richard Lapthorne (centre) and Phil Bentley, CEO of CWC (left) congratulates Chairman and CEO of Columbus International Inc. Brendan Paddick following the announcement of the proposed merger between CWC and Columbus in London. Photo by Mark Shenley, courtesy Columbus.

On Thursday, Cable and Wireless Communications (CWC) announced that it would be buying Columbus International, the quadplay, broadband backhaul upstart that matched the challenge to incumbent TSTT that Digicel mounted in the mobile telecommunications space on the ground.

Despite the keeness of Phil Bentley, Chief Executive Officer of Cable and Wireless Communications and Brendan Paddick, CEO and Chairman of Columbus Communications to characterise the deal as a big win for the customers of both companies, the driver of this deal is, ultimately, profit.

For CWC, it’s an opportunity to substantially change its faltering position as a telephony services provider in regional markets that are largely abandoning its landline products and offer a resurgent presence as a quadplay giant.

For Columbus, the prospects are far simpler. The buyout puts US$707 million on the table for its founders and fills a giant US$1.17 billion hole in the company’s cash registers, instantly monetizing its massive cable infrastructure buildouts over the last ten years.

It is not a done deal. According to the CWC statement on the acquisition, the company notes under “Risk Factors,” that the buyout is “conditional upon, among other things, approval from the US antitrust authorities under the Hart-Scott-Rodino Act, and relevant authorities in Barbados, Jamaica and Trinidad and Tobago.”

Regulatory approvals are also required from the governments of Barbados, Jamaica and T&T.

That these issues are lumped in with more practical matters related to the integration of technologies suggests that CWC considers these to be details, a notion robustly supported by the matter-of-fact declaration of the acquisition.

While the acquisition makes clear business sense for both parties involved, there remains the matter of everyone else involved in the regional technology dance.

Digicel, which has been on a bit of an acquisitions binge itself over the last two years, immediately issued a release registering concern, nothing that the “proposed transaction raises a considerable number of issues for telecommunications regulation and competition generally in the region.”

Central to that is the collapse of the three player market, which saw Digicel, CWC (a minority shareholder in TSTT locally) and Columbus jostling for customers in markets in aggressive though quite healthy flux.

Of the three, the 143-year-old CWC, once the communications hub of the British Empire, was the most measured and careful force, allowing Digicel to grab vast swaths of mobile marketshare in the Caribbean and diminishing CWC’s Lime brand to 16 per cent of the Jamaican market in 2013.

In T&T, the business proposition is even more delicate for CWC and TSTT. The government owns a 51 per cent controlling shareholding in the local telecommunications company through NEL, but the relationship between CWC and TSTT has been combative for years.

CWC’s Phil Bentley described TSTT as a “failing enterprise,” in a May Business Guardian interview. CWC would later be announced as one of the applicants for a third mobile telecommunications license for T&T.

“At the end of the day,” Bentley told the BG, “this is a business. We invest money and hope to get a return. If we can’t get a return, we will go somewhere else. We have got lots of options.”

Those options got exercised last week and TSTT is now in the curious position of having a potential competitor with detailed access to its five-year recovery plan on its board, not to mention knowing everything they need about their process and infrastructure.

TSTT’s Board of Directors and management, let by a chairman with no discernible telecommunications experience, must now face a business challenge of staggering proportions.

In the face of that, even the fate of the employees who built Columbus into a force to be reckoned with – and now look set to disappear into the considerable bureaucratic maw of the CWC machine – begins to pale.

Will the government buy CWC’s shares or bank on the Telecommunications Authority (TATT) demanding the conversion of those shares into a nonvoting investment a condition of its approvals?

TSTT is unlikely, in its current state of incremental recovery, to find a major buyer other than the Government capable of snapping up CWC’s shareholding and it’s doubtful that the public would be willing to finance an IPO on a scale that would cover it.

If CWC is granted a mobile telephony license, would it even need a business partnership of any sort with TSTT? In a business landscape dominated by Digicel and CWC and in most of the region, a two-player market would become the norm.

Locally, what would TSTT’s role concievably be? Is it destined to become another Caribbean Airlines; a quasi-State agency funded interminably on romantic notions instead of hard business principles?

Consolidation is good for business. It leverages costly installed assets over a larger customer base, reduces employee head count and dramatically improves procurement clout. But it also stifles competition, creating monoliths that crush startups and reduces customer choice.

TATT has already made it clear that it wants three-way competition in the local telecommunications sector. Now it must make sure that the playing field remains level and fair in this new dispensation.