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Introduction
The Public Utilities Commission (PUC) has concluded its hearing into an application by the Guyana Telephone and Telegraph Company (GT&T) for approval of a tariff establishing a change of rates in some instances and new rates in others to give effect to GT&TĘs entitlement of a minimum rate of return of 15% on its capital. At the hearings which concluded on Thursday January 17, Justice Prem Persaud, Chairman of the PUC stated that the Commission would announce a temporary rate pending a further investigation into GT&T's application for some dramatic increases in some cases.
Rate justification
In its submission to the PUC dated December 31, 2001, former executive turned Consultant Godfrey Statia, stated that the tariff revision is based on the following significant items:
* Recovery of costs of providing telephone service including a minimum return on capital, operating expenses, depreciation, income taxes, and other operating taxes.
* A 15% minimum rate of return on capital as specified in Sec. 33 of the PUC Act in conjunction with Sec. 6.9(b) of the Purchase Agreement dated June 18, 1990;
* The exclusion of cellular services including the associated costs and revenues derived therefrom;
* The decision by the Federal Communications Commission (FCC) of the United States of America to lower accounting rates from US$1.70 to US$0.46 per minute from January 1, 2002.
* Inclusion of advisory fees as a legitimate expense in keeping with the terms of the Purchase Agreement. GT&T claims in its application that ATN provides certain services in keeping with its advisory contract.
The application notes that without any increase it will earn a return of barely 1% and that to achieve the minimum rate of 15% it would need additional revenues of $5,556 million. The implications for this are quite substantial and the PUC can hardly avoid calling in a top economist to advise on its consequences.
Controversy in the industry
Earlier this month the company circulated a document, Telecommunications in Guyana Portrait of an Industry in Trouble, in which it traces its achievements since 1991 without any acknowledgement of the substantially different conditions under which its predecessor operated. Interestingly, throughout the period the company has continuously complained about a host of problems and one wonders how it has managed to record such outstanding achievements given all its complaints and the time and resources it has expended in litigation. One problem referred to on several occasions in this document is the depreciation of the Guyana dollar to which it is believed to have contributed on one occasion.
Time to change
In the Portrait the company acknowledges that "technological innovations have made competition in the provision of telecommunications services possible. The conventional telecommunications sector structure is in the process of being displaced. That Guyana's telecommunications sector structure will become competitive is inevitable." It then suggests "that the questions to deliberate now are a) how best we can manage this transition and b) how best might this country attract investment in this sector?"
It sought however to provide its own responses to these questions and set out as a precondition that "Nowhere does reform of sector regulations with a view to introduce competition begin without tariff rebalancing." It reiterates that their support for the IDB funded Telecom Reform Project is well documented. Ominously however it notes that it will decline any invitation to the negotiating table if the intention behind the postponement of tariff re balancing is to get them there "considerably weakened and less than equals."
This is an interesting statement and seems to ignore that the issue of rate rebalancing is a matter for the PUC while negotiations on a sector structure or more directly the issue of the monopoly arrangement is one for the Government.
The Portrait made a number of allegations about "illegal operators" and targeted I NET, a startup company licensed by the government to provide data services to end users in Guyana. I NET has not appeared before the PUC in the hearing of the application but has been engaged in the public exchange of accusations of illegality with GT&T which it accuses of violating its licence in the provision of audiotext service and internet services.
Eileen Cox
Opposing the application were the Consumers Advisory Bureau whose President is the indefatigable Eileen Cox and the Guyana Consumers Association whose Chairperson is also Eileen Cox. Assisting them in their brief were former Chairman of the PUC and telecommunications regulations expert Joseph Tyndall. In their closing written presentation the organisations state that the company has been operating without being systematically monitored for regulatory compliance. "In these circumstances, there can be no presumption that GT&T was being managed in a way that would not allow unjustified costs to be passed down." The company on the other hand claims that its request is based on a 2002 budget developed through a "zero based budget process."
The Private Sector Commission did not participate in nor was it represented at the hearings, but during the course of the hearings the PSC met with the management of GT&T to express its concern about the levels of the proposed hike. GT&T is of course a corporate member of the PSC and it would be in an awkward position in respect of any representation or concerns which it may otherwise have in relation to these rates and indeed the entire service provided by GT&T.
Conclusion
There is no doubt that GT&T has done a lot to enhance telecommunications in Guyana but in the process, and despite massive expenditures on advertising and promotion, it has made a number of bad friends and many people see it as wanting to own telecommunications in Guyana and as being prepared to hold the country to ransom in the process.
It has been described in a recent document as a 'Goliath' and when one looks at its legal team of three senior counsel against a leading member of the junior bar for the consumers, one cannot help but feel that there is some justification in this comparison. GT&T is a deep pocket operator with purchases of domestic goods and services at $11.3B and accordingly not many people would want to challenge it.
The challenge facing the PUC is indeed a formidable one. After all, GT&T like any other regulated entity expects and deserves a reasonable return on its investment. The FCC ruling will obviously hit not only the company, but also the tax base and indeed possibly, the quality of its service.
It is perhaps naive to believe that the revenue loss could be so easily compensated for by increases in domestic charges and an economic model is clearly warranted, while the company's argument that this problem should have been anticipated and addressed earlier has considerable merit.
Those who understand the genesis of the privatisation still feel that there is more than enough justification for this contract to be reviewed and re negotiated. The company by its own admission recognises that its monopoly nature cannot be sustained or justified and that the contract belongs to an era long gone. In considering the rate re balancing, the PUC should examine very closely the assumptions and projections of the company and the massive returns which many believe it has received by way of transfer payments not fully substantiated even to the regulators' satisfaction. As far as the monopoly situation is concerned, the Government cannot allow the company to dictate to it whether and on what conditions it is prepared to talk.
As an American owned company, GT&T should recognise that its monopoly rights are indefensible. It should therefore be willing to participate in discussions that can bring an amicable resolution to this uncertain situation.