Press Releases

Denis O’Brien’s speech to Caribbean regulators

16 Mins read
Digicel Chairman, Denis O’Brien

Digicel Chairman, Denis O’Brien

What follows is the speech given by Digicel Chairman, Denis O’Brien to regulators at a special conference held at the Cascadia Hotel on December 10, 2014 to discuss the region’s response to the proposed acquisition of Columbus Communications by CWC. The speech was released by SWF Associates later in the day for public consumption.

Good morning Ministers and good morning to all assembled guests from around the Caribbean region who have joined us this today for this very important discussion about the proposed merger of Cable and Wireless and Columbus.

First of all, I would like to thank Mr. Selby Wilson, Chairman of the CTU, and the staff and members of the CTU for allowing Digicel this opportunity to address all of you with our views about this proposed merger and about the critical issues raised.

I look forward to hearing the views of some of the other operators; and of course from our competitors at Cable and Wireless and Columbus. I am certainly looking forward to the Question and Answer session later on this morning. Hopefully we can all enjoy the benefit of a good, lively debate. But we will keep it civil!

No one in this room today is in any doubt about the significance of this proposed merger. No one here is in any doubt about the impact that this merger would have on the Caribbean telecommunications industry; and indeed on the wider economy right across the Caribbean region. This is a watershed day.

We are here in Port of Spain talking here about the most significant corporate merger ever to happen in the region; in any industry- not just in telecoms. The decisions that are made by Regulators, many of whom are present in this room, over the coming months will shape the telecommunications landscape in the region for the next decade and perhaps even beyond. The importance of the mergers review and approvals process which is underway cannot be overstated.

We find ourselves at a crossroads for the industry. We simply must get this process right. The consequences of getting this wrong are too dire to contemplate. The Telecoms industry will either go backwards in time to the dark ages of the monopoly provision of services circa the year 1990; or we can have vibrant and fulsome competition in the decades ahead.

Moving forward positively can only happen where there is real, effective competition; all of you know this. This preservation of competition in every one of your markets has to be the ultimate goal. By this we must mean actual competition; and not just promises about it. We cannot rely on assurances that ‘everything will be alright on the night’.

We are involved here in very serious business this morning. I understand that this discussion is being held under the Chatham House rules; and I welcome that. This is not a time for spinning; or for bluster or for unreliable, irrelevant statistics. This is not a time for deliberately clouding the issues or for introducing red herrings. This is a room full of serious people who have a serious duty and mandate to carry out and we must, all of us here, act accordingly.
I know that there has been quite an amount of media attention and PR activity about this merger; this perhaps is inevitable and probably is not entirely welcomed by all of you who have an important job to do. I do want to clarify one thing however; because I think it is quite important and it has been raised with me many times.

On the morning that this deal was announced in London, our friends at Cable and Wireless decided to tell the world that Digicel was suffering from ‘sour grapes’. This statement was made immediately when the deal was announced; this was of course before Digicel had any opportunity to consider the merger or say to anything about the deal; good, bad or indifferent. But Cable and Wireless thought it was appropriate to aggressively attack Digicel before a word was uttered by us. I think that this was highly unfortunate and really set a poor tone and basis for this debate from the get-go.
Yes, Digicel did engage in a confidential process looking at the possibility of acquiring Columbus many months ago; this is what happens in business all the time. What we certainly didn’t expect was that this confidentiality would be blatantly breached after the event in an effort to secure some perceived advantage. You really do not expect parties that you have signed Non-Disclosure Agreements to be involved in talking about you in an offensive manner before the cameras on the morning they announce a deal with someone else.

Having been attacked in this concerted, pre-conceived pre-emptive strike; we simply had no option but to clarify our position publicly. I want all of you to be clear on this. There are no sour grapes or anything of the kind on our part; far from it. The truth of this is that we valued Columbus as a certain price. It would appear Cable and Wireless were willing to pay a very significant premium on that price. It is clear to me that this premium reflected the fact that this merger presented monopoly creation options to them that would not be available to Digicel.
It has also been suggested that Digicel would have been happy to acquire Columbus and that somehow our present position on the requirement for full regulatory oversight and mergers approvals process in the context of a Cable and Wireless deal is unworthy and contemptible- this is the ‘sour grapes’ argument. Perhaps this was why Cable and Wireless and Columbus launched the ‘sour grapes’ offensive manoeuvre straight out of the blocks; it was a strategic play designed to somehow convince Regulators that we should be ignored. But this ‘sour grapes’ nonsense simply does not stack up.
The lessening of competition in specific product markets which you now see in the Cable and Wireless / Columbus merger are vastly different to the lessening of competition issues which would have existed in any Digicel / Columbus deal. The horizontal overlaps between Columbus / CWC in the main product markets of broadband access, fixed line services and Cable TV are miles apart from those involved if Digicel, primarily a mobile provider today, were to acquire Columbus.

I know that the people in this room are too experienced and too knowledgeable about distinct product markets and Caribbean telecommunications generally to have the wool pulled over their eyes like this. To say that a merger between Digicel and Columbus would be exactly the same as a merger between Cable and Wireless and Columbus is actually a silly position to take. I think you all can see the ill-conceived PR strategy that was being deployed here right out of the gate here; again it is all based on the fundamental conceit of misdirection.
That is not to say that any Digicel acquisition of Columbus would not have attracted regulatory scrutiny; of course it would have. We certainly wouldn’t have gone public and sought to dictate ridiculous timelines to regional regulators from the get-go. We certainly wouldn’t have told the ECTEL / OECS Markets that they had no role to play in any event and that we would close the deal regardless of their objections or otherwise.

 

We are here this morning to deal with objective facts and evidence. We are here to talk about the merger that was on the table; not the merger that might possibly, in some parallel universe, have been on the table or a merger that happened 5 years ago. Let’s not be the victims of elaborate schemes of misdirection.

You, as Regulators, will no doubt have to wade through the deluge of information presented to you and seek to identify fact from fiction; to identify substance from spin. Even in an industry where public relations and spin is perhaps commonplace, I actually have been very taken aback by the brazenness and audacity of some of the ill-founded claims which have been made around this deal.

It was US Senator Hiram Johnson who said in the aftermath of World War I that ‘….the first casualty of war is the truth….’. It does seem that Cable and Wireless and Columbus decided that the announcement of their deal on 6 November was a declaration of war; I don’t know if this was a declaration of war on competition in the region; or on the Caribbean consumer or on Digicel maybe; however the truth seems to have been sacrificed very early on in this debate which is highly regrettable.

Let us deal with some indisputable facts here. I have five facts for you; and let us deal in facts here this morning. Let’s leave the spin and the creative fiction writing outside this room.

Fact No. 1

The proposed merger will lead to a very substantial lessening of competition in at least six geographic markets. This is because, Columbus / Flow is essentially being taken out completely as an existing direct competitor to Cable and Wireless in these markets. These markets are Jamaica, Trinidad and Tobago, Barbados, St. Lucia, St. Vincent and the Grenadines and Grenada. These are the markets where the key impact of this proposed deal will most keenly be felt by consumers.

Fact No. 2

In these six markets, the proposed merger will lead to the creation of a complete monopoly or a near monopoly in the following retail or consumer product markets:

Broadband Internet Access (both Commercial and Residential)
Fixed Line Services
Cable Television Services
Facilities Based ICT Services

You all know this to be the case. No amount of fancy slideshows or skewed pie charts can hide what you know to be the plain obvious truth.

The deal, as presented, means a monopoly in these key product markets in these countries. A major competitor is being taken out; competition is being eliminated. This is what is being proposed; plain and simple. This is what Cable and Wireless and Columbus mean when they tell their investors that they are waving the white hanky in the face of price competition.

Fact No. 3

Monopolies almost always lead to higher prices, poor services, lower levels innovation and a reduction in investment. We will be right back to the 1980s or 1990s.

This is as true today as it was when celebrated Economist Adam Smith penned the Wealth of Nations nearly 250 years ago. No one can reasonably come into this room and try to sell you the proposition that monopolies are good for consumers or for the industry generally. Monopolies only serve the monopolist.

Fact No. 4

The proposed deal will lead to an almost complete stranglehold on submarine fibre / international connectivity right across the Caribbean region. In Jamaica alone, this merger entity will own the 4 submarine fibre cables which go into the country. This is less easily understood by consumers given that it is a wholesale service; but it is actually hugely significant for consumers as well.

International connectivity is one the key input costs in the provision of telecommunications services. This deal will see Columbus and Cable and Wireless end their competition in the provision of international capacity right across the region. The impact of this will likely be highly significant in terms of the cost of providing telecommunications services.

Fact No. 5

Cable and Wireless have been publicly identified as having secretly provided access to foreign Governments and to foreign security agencies to submarine fibre systems under a commercial arrangement for which they were paid millions of pounds sterling. This access has been used essentially for spying on Governments and citizens in many countries around the world. It has been reported that facilities included in these secret spying arrangements were submarine fibre cables in the Caribbean region; including a submarine fibre between the Cayman Islands and Jamaica.

If anyone wishes to come up here and challenge these five facts, then I would be very happy to listen to their point of view. But these are the issues that we need to debate and consider here this morning.

No doubt you have heard a lot (and will probably here more later this morning) about Digicel’s apparent newly found dominance in the region. Well, I have known for some time that Digicel is the leading provider of mobile services in the Caribbean region and I am grateful that Mr. Bentley has finally found it in him to come clean and publicly confess this for the first time. This admission amounts to a complete turnaround on the part of Cable and Wireless who have represented, up to very recently indeed, that they were still the leading mobile provider in the Caribbean. He is singing a very different tune now it would seem.

This talk about the size of Digicel in the mobile market across the world is a complete misdirection. What relevance does it have to this discussion here this morning how many subscribers we have in Papua New Guinea or how many we have in Fiji? In the markets that are affected here in this region, Digicel and Cable and Wireless compete aggressively in the mobile market and the battle for market share is always nip and tuck; trends can go either way. Indeed, Cable and Wireless have recently been triumphantly announcing that they are taking market share from Digicel in mobile. Things cannot be too bad for them if that is the case.

This is not about the creation of a monopoly in the mobile product market. The product markets here which are being driven towards with this new proposed super monopoly are broadband internet access, cable TV, fixed line services and submarine fibre networks (a wholesale service primarily but a critical one). That is what we need to be concerned with this morning.

I have also heard the argument being made that Digicel competes in the Broadband market using its mobile network. This is entirely misleading here as everyone knows the mobile speeds up and down are limited when compared to fixed line broadband access. Mobile Broadband and fixed Broadband are different products and are used differently by consumers. Again, you must understand the individual product markets before you can assess issue such as monopolies.

This notion that Cable and Wireless and Columbus should be allowed to ring fence and create complete monopolies in broadband access, fixed line service and cable TV in the region simply because LIME have, over time, slipped behind Digicel in the mobile market is complete nonsense. Whatever about public relations exercises, media activities or even bar talk, that sort of loony bin logic should not be brought inside this room. We need to grapple with the real issues and not get dragged into the weeds of irrelevancy by those who wish to avoid the real issues.

I have also noted references being made to Digicel’s acquisition of Claro some years ago. Again, it would seem that there are those who would prefer to talk about Digicel, or talk about anything else indeed, rather than talk about the actual stark issues presented in this merger deal. Digicel entered in a deal with Claro a number of years ago in which Digicel entered into an agreement to sell its operations in Honduras and El Salvador to Claro; and acquired Claro’s operations in Jamaica.

As such, there was one single Caribbean market affected. As it happened, the Regulator in El Salvador refused to approve the transaction in their market. As such, to this day, Digicel continues to operate in El Salvador. This is an example of the power that Regulators have in these matters when it comes to assessing mergers.

Although Digicel remains the biggest player, competition in the Jamaican mobile market remains vibrant. These references to the Claro deal therefore amount to yet another attempt at misdirection; and really add nothing to the task that falls to all of you here today and over the coming months.

I must also point out that the required regulatory approval in Jamaica for this Claro deal took well over 8 months to receive. This is the normal timeframe for such matters. I simply do not understand how Cable and Wireless and Columbus think that they can dictate timelines to regional Regulators in the context of this proposed merger. It is not for merger applicants to tell all regulators across the Caribbean how long they have to do their job.

I am sure that these parties would not seek to tell the FCC in the United States or OFCOM in the United Kingdom how to do their job or how long they had to do it. I also do not understand at all the position publicly taken that the Regulators in the ECTEL markets can be avoided or side-stepped completely in this process.

Again, the real issues here are the creation of near monopolies in broadband internet access, subscription Cable TV and fixed line services; as well of course as submarine fibre access. These are the product markets which are hugely affected by this deal. The issues raised in these product markets cannot be answered by whining on about having lost top spot to Digicel in the competitive mobile market. The mobile market is, at best, tangential to the key issues here.

You cannot, seriously, go to a Regulator and say ‘well I have slipped behind a little bit in a highly competitive market after having a monopoly for decades; do you mind giving me back my monopoly now in the other key product markets to make up for this?’. You only need to stand back and look at the logic of that proposition for one second to see how daft it is.

I have also noted references made relating to certain acquisitions made by Digicel in recent years; as though somehow these equate in some way to what Columbus and Cable and Wireless are now proposing in this US$3bn deal. A few short comments on this misdirection are merited:

Digicel has recently acquired Cable TV operations in Jamaica (Telstar), Anguilla, Montserrat and Nevis (CCCH) and in Dominica (SAT). We also acquired a submarine fibre network in the Eastern Caribbean region known as GCN. The first point I would make is that the combined value of those recent Digicel acquisitions amounts to a mere fraction of the Columbus / Cable and Wireless deal; actually less than 5%. So you need to consider scale.

We are very happy with these investments and are doing our very best to realise their potential; but to somehow equate them in scale terms to what is being proposed here in this US$3bn merger is preposterous in the extreme. These were all quite small acquisitions and nothing at all comparable to in size, scale or regional expanse as what is being proposed here by Columbus and Cable and Wireless.

In fact, what we have done is bring real competition to Cable and Wireless in these countries in the product markets for Broadband access and for Cable TV. These acquisitions have meant that these markets are now competitive and getting more competitive. I am happy for you to check in with your colleagues in those markets to confirm this.

Secondly, the key issue in any mergers approval process is the impact on competition. Will competition be lessened in the relevant product market? This is the issue. There was no lessening of competition in these Digicel transactions because Digicel was not acquiring a competitor. Digicel was seeking to enter into new product markets and actually drive competition in those product markets. All required regulatory approvals were properly applied for and properly granted.

To put this in some context, the submarine fibre network that Digicel purchased last year has 3,000 Kms of sub-sea fibre. This submarine fibre network that this enlarged entity will own post-merger is over 42,000 Kms. This deal took over 10 months to receive all required regulatory approvals. This is despite the fact that the transaction involved no lessening of competition or elimination of competition.

Digicel’s deals were driven by a desire to compete; this merger here between Columbus and Cable and Wireless is about eliminating competition and creating a super monopoly; a key competitor is leaving the stage completely. This was not the case in any of these Digicel acquisitions in Cable TCC in Jamaica or in the Eastern Caribbean.

Again, the issue is what does this deal do to competition? If every acquisition was the same; then you would never need mergers approval processes at all. This is completely apples and oranges; this is another complete misdirection. Our deals clearly increased competition. This merger is taking players out of the market and is, quite clearing, reducing competition.

There really is only one question that concerns the people in this room that are charged with protecting competition and protecting the consumer and ensuring that the telecoms industry is vibrant and moves forward; not backwards. The question is; what do we do in the face of this merger to protect competition?

The answer is the big D; Divestiture. This is the answer. Cable and Wireless and Columbus will have duplicate fixed line, Cable TV and submarine fibre infrastructure in your markets if this deal is approved. If this merger is to be approved, Regulators in the region will have to insist on the conditions precedent that these duplicate assets are sold. This is what will preserve competition.

Why will LIME / FLOW need two networks in your markets anyway? I am not saying that they need to be sold to Digicel; but they do need to be sold to some third party so that competition can prevail. This is the only answer and the only effective solution. This spinning off of assets, as it can be known, happens time and time again in merger processes; particularly in Telecommunications. This is what is required to preserve competition; that the long and short of it. Divestiture is your answer.

The time to protect the consumer is now. The time to protect competition in the telecommunications industry in your market is now in the context of how you approach this merger and the conditions that you insist on applying. It will not be possibly to regulate this right after the event. As is the case with all mergers approvals frameworks, it is for the Regulator to highlight where the concerns exist. It is for the parties applying for the permission to merger that must put forward solutions to address these problems. I think we would all greatly benefit here this morning is Cable and Wireless and Columbus would talk about what solutions that are proposing to address your concerns. I would invite them to please do so.

Digicel is not saying that this merger cannot happen. We are not saying that the merger necessarily means Armageddon for the Caribbean telecoms industry. But the risks are huge. It is only with a comprehensive and thorough economics driven merger impact analysis and the imposition of proper approval conditions and safeguards that we can prevent our industry sliding back to the dark days of a monopoly services. Divestiture is your answer.

I am not asking anyone here to go about protect Digicel’s interests or to do what is right for Digicel per se. I am asking that all of you focus on the consumer and on the maintenance of real competition. All of the focus needs to be on the consumer. If you never lose sight of what is good for the consumer, then you will not go wrong. What we all know is that monopolies are not good for consumers. The memories of the people of the Caribbean are sharp enough not to want to ever go back to monopolies in telecommunications, least of all a Cable & Wireless monopoly. But this is the challenge that we all face here this morning.

I know that our team at Digicel have engaged with all of you in this process to date. I have asked all of them to engage with every Regulator and appropriate body in a constructive and responsible manner. I have asked our team to provide each affected country with a detailed brief of all the product markets and what we believe the impact of the proposed merger will be in those markets and what steps are needed to foster competition. These country specific briefs will be supplemented by independent expert economic analysis provided by one of the world’s leading authorities on telecommunications. I would respectfully ask that each of you would give some consideration to these documents as relevant to your own markets.

As I have said, we need to deal in facts; and not these spurious propaganda LIME ‘fact sheets’ which have been doing the rounds. Making up statistics (which we have seen); setting about to deliberately misrepresent issues or engaging in misdirection manoeuvres has no place in this room. This is a room for serious business and the people in this room deserve to see the plain, unvarnished truth about what is being proposed here. Let’s please deal with the real issues and let’s front up to the challenges that we have to meet. The future of the telecoms industry in the Caribbean depends on it.

Thank you all very much for your kind attention here this morning.

🤞 Get connected!

A once weekly email notification of new stories on TechNewsTT. Just that. No spam.

Possible UI Glitch. Click top right corner to dismiss 👉

Get Connected!

A once weekly email notification of new stories on TechNewsTT.

Just that. No spam.

Related posts
Press Releases

Digicel announces "consensual" restructuring of group debt, new chairman

2 Mins read
Completion of the restructuring enhances the group’s ability to compete and thrive now as a substantially deleveraged company with a right-sized balance sheet.
BitDepthFeatured

How Denis O'Brien lost control of Digicel

3 Mins read
O’Brien had extracted millions from the company as dividends on his shareholding, which Moody’s described as “debt-funded shareholder payouts,”
FeaturedOpinion

50 Things I learned about the RansomEXX group

3 Mins read
Shiva Parasram’s list of factoids about the RansomEXX group.
Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
1
0
Share your perspective in the comments!x
()
x