Revenue from overseas calls tumbles 39% in 2002
-GT&T forgoes US$18.5M
By Gitanjali Singh
Stabroek News
January 19, 2003
The reduction in international settlement rates is costing the local phone company US$1.7M per month in lost operating profits, according to a filing with the US Securities and Exchange Commission (SEC).
The settlement rate for calls between Guyana and the US moved from US$0.85 to US$0.23 at the start of 2002 and this has seen the Guyana Telephone and Telegraph's (GT&T) net income falling by 24% or G$4.2 billion at the end of September 30, 2002. At the current volume of traffic out of the US and into Guyana, the loss in revenue to the firm is estimated at US$1.7M.
The company had anticipated that the reduced settlement rate would result in reduced prices for calls to Guyana out of the US which would send the volume and/or length of calls up. It was also hoping to offset the reduction with increases in local services.
But a year after its application, the Public Utilities Commission (PUC) is still to give a final adjudication on the rate application. The body expects to make a final ruling in the coming weeks.
PUC Chairman Prem Persaud told Stabroek News that the last set of responses by GT&T were being studied by the commission's consultants and they were expected to advise the commissioners soon on the issue.
GT&T had applied for large increases in local phone services at the start of last year to give it a 70.7% increase in revenues or an extra $5.5B to $13.3B.
The PUC granted interim relief by hiking intra-exchange rates by 200% and rounded the inter-exchange rate upward. It also reduced the rate for international calls to the USA and the UK. In the case of the former, the rates went down by more than what the phone company had asked for. In effect, the interim ruling yielded a 5.1% increase in revenue for GT&T and at the end of June 2002, the company said it had only earned a 9% rate of return on its investment against a guaranteed 15 per cent. Inbound traffic revenue was down by 53% at that time. The lowered settlement rate was also expected to adversely impact on the company's ability to meet its obligation because of the reduced foreign exchange earnings.
"While the company [Atlantic Tele Network - GT&T's parent company] believes that it has and will continue to have adequate cash flows denominated in hard currency to meet its current operating, debt service and capital requirements, there can be no assurance that GT&T will be able to convert its Guyana currency earnings into hard currency to meet such obligations," the report with the S&EC said, alluding to the lack of liquidity in the foreign currency market in Guyana. As of September 30, 2002, US$7M of GT&T's US$28M cash balances were in Guyana dollars.
The filing for the third quarter of 2002 showed that for the nine months ending September 2002, GT&T's net income was US$6.9M or G$13.4B, a reduction of US$2.2M. The decrease in international settlement rates saw a sharper decline in international long distance expenses than revenues.
According to the statements filed, international long distance revenue for GT&T was reduced by 39% (US$18.5M) to reach US$29M at end September 2002 compared with US$47M the previous year.
International long distance expenses were reduced by 41% or US$5.3M to reach US$7.4M at the end of the third quarter.
But local exchange service revenues increased by 54% to reach US$20M against US$13M for the same period in 2001. This was because of additional lines in service and sharply increased cellular phone operations. Cellular lines have increased from 25,862 a year earlier to 67,931 units at the end of September. Fixed lines moved from 77,497 to 83,791 for the period under review.
Other revenues also increased marginally from US$1.96M to US$2.3M for the comparative periods.
Total revenues for the phone company declined to US$51.5M or by 17% and this was being partly attributed to a decrease in international inbound traffic revenues as a result of the lowered settlement rates.
Telephone and operating expenses increased in the period from US$19.7M to US$20.8M while general and administrative expenses declined marginally from US$4.4M to US$4.1M.
Total operating expenses were down by US$4.4M reaching US$32.2M at the end of September last year. The reduced expenses were in part due to the lowered settlement rate for calls to the US. Partially offsetting these decreases were increases in telephone operating expenses.
The other operations of GT&T saw expenses increasing while revenue fell, showing a loss of US$3.7M compared with a loss of US$2.2M at the end of September 2001. This was because the company took a reserve of US$793,000 against an advance made to a telecommunications company.
The company's income before taxes and minority interests at the end of Sep-tember 2002 were US$17M compared with US$24M in the previous period. Income taxes of US$9M were due at the end of the third quarter 2002 compared with US$12.8M in the previous year's third quarter.
Telephone operating expenses were 63% of GT&T's revenues compared with 59% at the end of September 2001. Income from telephone operations was $19.2M at the end of the third quarter in 2002 compared with US$25.8M at September 2001.
A substantial part of the international telecommunications traffic for the period under review consisted of traffic with MCI, a subsidiary of World Com which filed for bankruptcy in the US but this, the filing said, did not appear to have had any material adverse impact on GT&T.
