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Cable & Wireless US$3B Deal to Acquire Columbus Exposes Vulnerabilities in Caribbean Telecom Sector

When Cable & Wireless Communications (CWC) announced an agreement to acquire Columbus International, news of the deal sparked widespread concerns about the impact of reduced competition on consumer pricing, infrastructure investment and wider economic development in the Caribbean.

If approved, the deal will make CWC the Caribbean’s largest wholesale and retail broadband service provider. At the same time, it will return several Caribbean territories into monopoly or near-monopoly markets for telephony, cable TV and broadband services.

Game Changer

The acquisition is a major win from the perspective of the once dominant, 143-year-old telecommunications giant. The company previously enjoyed monopoly protection across much of the English-speaking Caribbean. Since de-monopolization began in the late nineties, however, CWC’s slowness to adapt contributed to its market position being steadily eroded by new, nimble players such as Columbus and Digicel.

Publicly traded on the London Stock Exchange, CWC now makes US$1.12 billion in revenue each year from the Caribbean, or about US$48 per customer per month. It has spent the better part of the past decade shedding costs, restructuring and centralizing decision-making in an attempt to escape stagnation.

The acquisition is still dependent on shareholder consent and also requires regulatory approval in Trinidad and Tobago, Jamaica and Barbados. If it goes through, CWC will have immediate access to a more modern, more extensive network infrastructure and greater market reach through ownership of Columbus’ three operating divisions—its lucrative subsea wholesale network, operated by Columbus Networks; its business solutions division, trading under the brand Columbus Business Solutions; and its consumer-brand Flow, which currently services households in the Caribbean with cable TV, broadband and landline voice services.

Columbus, registered in Barbados yet managed from Ft Lauderdale, Florida, has grown over the past ten years to serve forty-two countries in Latin America and the Caribbean. Canadian billionaire John Risley, American billionaire John Malone, and founder and CEO Brendan Paddick together hold 84.8 percent of the privately owned company. The three would own 36 percent of the new CWC, worth nearly US$800 million. Both companies are now doing their best to make the case that this full-blown acquisition is good for the market and good for consumers. Brendan Paddick, Columbus’ CEO, claimed that “combining our businesses makes both companies stronger, faster and smarter in competing with larger competitors.”

Here’s the catch: there won’t be two companies after the acquisition, and there won’t be any larger competitors. Combining the businesses will make CWC the largest wholesale broadband provider, and a dominant or outright monopoly “quad-play” provider, commanding the markets for the four principle communications services—mobile, broadband, cable TV and landline—in the Caribbean.

Unanswered Questions

With the proposed acquisition, CWC can consolidate its service footprint in the region, profiting handsomely in the process. The benefit to CWC and financial rewards to a handful of Canadian and American investors, cannot distract from the fact that the acquisition directly threatens all aspects of economic development within the region, raising many concerns:

Gaps in Regulatory Structure

The deal exposes in the most extreme manner the limitations of the present situation of optional, ad hoc cooperation among national and sub-regional regulatory authorities. The acquisition agreement adds fuel to a growing debate on whether national regulatory bodies can stand up to the might and reach of firms trading at a multinational level. It also brings fears of a return to the days of high prices, poor service and general arrogance that defined CWC in the heyday of its monopoly in the region.

The potential for monopoly behavior is compounded by the absence of competition regulation in several countries and lack of any effective regional body to regulate competition. Also, none of these countries, individually, have the leverage to impact a CWC near-monopoly by way of regulation. Given than these markets are simply too small to wield individual influence, will it be possible for them to pool their resources and collective resolve?

Challenges to Innovation

The acquisition would bring the more than three thousand Columbus employees into the CWC fold, almost doubling CWC’s current staff. CWC may be hoping for the Columbus culture to energize its operations, but it is difficult to imagine that the latter’s enterprising culture and appetite for fast-paced innovation will rub off on CWC’s time-honed bureaucratic, top-down approach.

If CWC is unable to inspire or retain key Columbus staff, the integration of Columbus into their fold could leave the company a larger, slower and more debt-laden version of its current self. This would stymie growth and curtail innovation, not merely of the corporation but of Caribbean economies. How much this reverses the gains of the de-monopolization process of the past fifteen years remains to be seen.

Service Disruptions and Layoffs

CWC in its filings indicated that it expects to achieve cost savings of approximately US$85 million, of which more than two-thirds will come from “rationalization of overlapping headcount in back office, sales and marketing and customer service roles, renegotiation of vendor rates, reduction of real estate costs and harmonization of IT systems.” If these “savings” are realized through staff layoffs, service cuts, elimination of market choice, fewer business continuity options and cancelled future development projects, how much greater is the cost to the economy as a whole?

The merger of the employee groups will also have to include integration of CWC’s highly unionized environment with Columbus’ largely non-unionized employees, restructuring of staff and possibly harmonization of employment terms. This process can result in labor-related actions, employee flight and other disruptions to core business. It remains to be seen how many staff and projects of either company will survive the acquisition.

Obstacles to Future Infrastructure Investment

Prior to the acquisition announcement, CWC had promised a US$1 billion “capital investment led strategy” while Columbus had spent nearly US$500 million on actual network build in the prior three years. It is uncertain whether the region will benefit from the same level of infrastructure investment and all of its follow-on economic benefits or see it diminished as the companies consolidate their portfolios.

Safeguarding Regional Interests

Given the strategic importance of telecommunications and Internet connectivity to the Caribbean’s economic and social development, concerns created by the proposed acquisition need to be addressed quickly and comprehensively.

The companies’ shareholders and owners have no particular reason to evaluate these concerns from the perspective of the Caribbean stakeholders. The responsibility falls to Caribbean governments, regulators, businesses, and consumers to make their voices heard.

The disparate expressions of disappointment, disquiet, fear and concern being raised across the region must be focused into strong statements of objection to Cable & Wireless. This will underscore the seriousness of the situation and is the first step toward more robust oversight of the critical Caribbean telecommunication sector. It will also be a strong signal to Caribbean regulators that they must act in concert to meet the challenge of multinational monopolization and limit the damage it will otherwise impose upon regional economies.

By Bevil Wooding, Director of Caribbean Affairs, ARIN

Bevil provides strategic advice and operational support on cybersecurity, public policy and critical Internet infrastructure. Follow Wooding on Twitter: @bevilwooding and Facebook: facebook.com/bevilwooding or email .(JavaScript must be enabled to view this email address)

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