Caribbean phone companies suffering from “market failure” due to Over-The Top services, Social Media

Last Updated on Tuesday, 18 July 2023, 14:45 by Denis Chabrol

A recent study shows that telecommunication companies in the Caribbean are operating at a loss due because people are making more calls, mostly international calls,  via Over-The-Top (OTP) services and the majority of data are being consumed through Social Media, according to a senior representative of the Caribbean Association of National Telecommunications Organisations (CANTO).

“As Caribbean people, we should reject the notion that 14 or 15 million of our people must remain unconnected because of this market failure and we should reject the notion that we ought to be left behind in this digital age,”  CANTO6 Committee Chairman, Lisa Agard told CANTO’s 38th annual conference and trade exhibition being held in Florida.

The CANTO C6 working group is made up of Digicel, Flow, Tele SUR, ATN International, Inc (GTT’s parent company)., Telecommunications Services of Trinidad and Tobago (TSTT) and Cable Bahamas.

She said the “crisis” was being driven by OTT operators and the high levels of traffic that big-tech is generating on networks. That, she said, was triggering increased consumer demand for new services and data to be provided by telecoms companies.

OTTs include WhatsApp, Facebook Messenger, Skype, Facetime, Google Meet, Teams and Zoom.

Against that background, Ms Agard recommended that the Internet model be updated to take account of changes since the 1990s. Referring to a study by Axion Consulting on major telecommunication providers in the Caribbean, she said the findings show that six big-tech companies – Meta (formerly Facebook), Alphabet, TikTok, Netflix, Amazon and Microsoft- are responsible for 67 percent of the total Internet traffic in the Caribbean and “making zero contribution to network investment.” Collectively, telecoms companies in the Caribbean have invested more than US$500 million annually in network upgrades and improvements since 2017. Mobile traffic data has increased by more than 500 percent over the past four years on top of a significant improvement in the quality of service and Internet penetration to consumers, resulting in a more than 100 percent improvement in mobile broadband speeds. She said taxes and regulatory fees by Caribbean telecommunication regulators amounts to about 30 percent.

With Caribbean telecommunication providers having invested about 18 to 20 percent in Long Term Evolution (LTE) technology and network capacity for OTT and unrecovered investment in 45, she said investment in 5G technology does not make business sense. “We say unfortunately there isn’t,” said Ms Agard who is also the Chief Executive Officer of TSTT.

In fact, she said available figures show that the prospects for 5G in the Caribbean by 2030 amount to 2 percent compared to North America (51 percent), Europe (35 percent), Greater China (48 percent) and Asia-Pacific (12 percent). “A two-tier world is developing with the US and Asia dominating the Internet sphere and Africa and the Caribbean predictably being left behind,” she said.

Touching directly on the situation in Trinidad and Tobago, she said data from the Telecommunications Authority (TTTA) revealed a “significant decline” of 74 percent or 143 million minutes annually in fixed line calling over the past 10 years and mobile voice calling dropped by 22 percent due to OTT applications between 2009 and 2021.

International outgoing and incoming calls, once regarded as a guaranteed stream of huge foreign exchange earnings, the TSTT official said “that sector has collapsed.” The statistics show an 81 percent decline in international incoming calls  between 2009 and 2021 and an 83 percent decline in international outgoing calls- from 259 million minutes annually to 41 million minutes. “As operators know, that used to be a source of US currency for us. That has disappeared.

Ms Agard said the 22 percent increase broadband earnings were not sufficient to offset the 46 percent loss in switched-voice revenue, and a 39 percent decline in mobile voice revenue. “Is there not market failure? Is there not a need for intervention? We posit that there most certainly is,” she said.

The  CANTO official appealed to governments encourage “in the best ways that they can” investments  in network infrastructure or there would be no basis for economic development and growth through a robust and ubiquitous infrastructure. She said if “good faith” discussions and negotiations fail, Caribbean governments should intervene to ensure governments an opportunity to survive and thrive.

Founder and Chairman of Digicel , Denis O’Brien, in discussing

the topic ‘Perspectives on the Caribbean’s ICT Sector’ at CANTO’s  conference and trade exhibition described OTT and big tech’s impact on Caribbean telecoms companies as “modern day slavery” by earning revenues in a tax-free zone without contributing to community and people development. “In my mind, and I’ve been thinking about this a lot: This is modern day slavery because big tech generates $5 billion of revenues in the Caribbean and employs nobody, they pay no taxes. The telecoms industry represented by C6 they have the equivalent of $5 billion of revenue, they pay all their taxes every month and they contribute to society,” he said.

In the Caribbean, Mr O’Brien said Google earns US$12.00 per person monthly, Netflix US$7.99, Meta US$5.05  and TikTok US$2.25 in contrast and they have no relationship this region. “We are ploughing money in every year, about 18 to 20 percent of our revenue. They’re not doing that and they don’t have any commitments at all to the Caribbean so you have a relationship which is completely imbalanced,” he said. Mr O’Brien said return on capital deployed in the Caribbean is 3 percent and the cost of capital is 14 to  15 percent.

If OTTs and big-tech contribute modestly to the Caribbean to recover US$500 million in investment, the Digicel Chief predicted that 5G or 6G and more fibre to the home would be rolled out. At the moment, he said telecommunication companies were not being allowed to invest more than 18 to 20 percent of their revenues. Mr O’Brien said should there be no solution to market failure, companies would refuse to invest in small companies and eventually countries could end up with only one regulated company.

He recommended that the Caribbean countries unite and lobby OTTs an big tech companies to secure a “fair share” or risk incurring their wrath. He cited the example of Meta turning off it news access to Canada after that country had demanded a similar revenue sharing deal like Australia had done. “They’re very thuggish in their behaviour . They turned it off and I think they probably turned it back on now. They always make a threat but they can’t make a threat to CARICOM because these are small island developing states,” he said. Arguing that there is strength in numbers, Mr O’Brien was confident that CARICOM could reach a conclusion that “will save the day very quickly.”

At the end of a ministerial meeting with CANTO representatives, the Digicel Chairman said he was optimistic that “we’re on a path” that would see each member state reaching a position for CARICOM to implement.