Has GT&T a case?
January 14, 2000
The privatised telephone company Guyana Telephone and Telegraph Company Limited has had its critics from the outset. Their case has been many pronged. Some said the price was too low, the monopoly granted was too long and the deal was generally a bad one. As a prime example of the latter they point to the six per cent payment off the top to the parent company overseas, Atlantic Tele-Network Inc (ATN), similar to the head office expenses beloved of multinational companies everywhere which tax authorities throughout the world have had to restrict and contend with in various ways. This, they say, amounts to a virtual levy on the company and the creaming off of income, which would have been part of the company's profits, by the parent company. Certainly it has been clear from the outset that the services provided did not begin to justify this large amount of money. One per cent might have been more to the point. The critics also said that other revenue was drained away for training, travel (at very high cost) and so on. The parent company, in other words, extracted funds from the local company in a number of ways other than by dividends, which were never declared.
There were many other criticisms, the company had not maintained the commitments in its business plan (it said the rates were inadequate), it used the services of top lawyers to virtually stymie the proceedings of the Public Utilities Commission by tying them up in high court actions, it got involved in the audiotext business including sex calls though it was not authorised to do so. Now, however, attention is concentrated on two main issues. First, is the company's monopoly legally enforceable and even if it is should it agree to end it given developments in the region where Cable and Wireless has agreed to surrender its monopoly in Jamaica. And secondly, can the company justify its refusal to agree to a reduction in the accounting rate for incoming calls from the USA.
On the first issue, GT&T argues that competition doesn't make sense at this stage as it will only benefit the top end of the market and local rates, now very low, will probably rise making it harder for lower income earners to own a phone. Competition may be more feasible, it suggested, when the phone penetration rate rises from the present low 8 per cent (it used to be 2 per cent) to 25 per cent.
On the second question the company argues that if the accounting rate decreased the rates for overseas calls from Guyana will have to more than treble to compensate and there would also have to be large increases in domestic rates to enable it to earn the l5% it is entitled to under the contract of acquisition. But it has been pointed out that accounting rates have already been reduced in most other countries in the region, and that the decreases are mandatory by January l, 2002.
Does GT&T have a case on these two issues? Mr Joseph Tyndall, an expert on telecommunications and a regular correspondent in our letter columns, has challenged Dr Roger Luncheon's contention that GT&T has an iron-clad monopoly. Mr Cornelius Prior, the chairman of GT&T has argued that the contract with the government was entered into in good faith and that Guyana has benefited from it (there is no doubt that the telephone service has been vastly improved) but he has hinted that GT&T may be open to agreeing to competition and has had discussions with the government "on how this will play out over say a l0 year period". Developments in the region and elsewhere have put telecoms monopolies under enormous pressure, legal and otherwise. As argued before we do not believe this monopoly can be maintained. A reasonable transition period should be negotiated to full competition as was the case in Jamaica.
On the question of the accounting rate it must be remembered at the outset that the Federal Communications Commission (FCC) of the USA ruled that the accounting rates be reduced because they found that the international accounting rates paid by US carriers to foreign carriers were well above cost. They adopted new benchmark rates and required US carriers to file reports on progress in negotiating lower rates. ATN had sought reconsideration of this order on the basis that developing countries had fundamentally different cost structures and the new benchmark rates were inappropriate. Their petition was denied by the FCC. GT&T's case now is based entirely on the effect it says the new rates would have on the local customers, namely much higher charges. However, to prove this, the closest scrutiny of its accounts will be required. How much exactly will it lose by the rate reduction, are all its overseas expenses justifiable, what about the audiotext point tellingly raised by Mr Tyndall.
We believe that a settlement should be negotiated between ATN and the government for the phasing out of the monopoly over a three year period (though technological progress may make even this period unrealistically long). We also believe that in the interest of credibility and as part of any settlement ATN should reduce its fee to l% of annual revenues and should undertake to review all overseas expenditure. In that context, the settlement could embrace adjusting to the new US accounting rates and any increases that might be required for local customers.
A © page from: Guyana: Land of Six Peoples