If all goes well, by this September the Bahamas will inaugurate a new era in telecommunications services that could revolutionise the way we do business.
The benefits could include a revitalised and reliable broadband Internet service, the latest digital roaming technology for cell phones, and world-class customer service. But that benefit potential doesn’t eliminate a lot of questions about the timing of the deal and the long-range financial payoff.
The four groups seeking to buy 49 per cent of the Bahamas Telecommunications Company (BTC) must submit their financing and operating arrangements to the government’s tenders commission by this Friday. And May 30 is the deadline for delivery of the final documents to close the bidding process.
A winner will be chosen based on a point system, which takes account of other factors in addition to the dollar offer. Though the sale price point is said to be around $150 million, there are both analysts and politicians who say price may be a sticking point when it comes to doing the deal.
The successful bidder will have another month to reach a signed agreement with the government, after which there will be a two-week closing period.
This means the country could have a privately-operated telephone company by September.
It will then be nearly seven years since the government first said it would “privatise” the lethargic state-owned monopoly that has supplied our phones for more than half a century; a timeline that one observer close to the scene described as “ponderous.”
The former Free National Movement government began restructuring the utility in 1998, so that somebody might find it an attractive investment. The process started with the hiring of the London-based financial advisers, Deutsche Morgan Grenfell. The following year an estimated $80 million was paid out in separation packages to about 500 BaTelCo employees.
The divestiture then bogged down in a secretive process of detail, consultation, administration and assessment, involving large numbers of bureaucrats and consultants. The procedure for the sale itself was not announced until last October, and the government has still not decided on the final conditions of sale – such as how long BTC will be able to keep its monopolies on cellular and fixed-line services (currently, the thinking is no more than two years).
Unfortunately, the final drive to the auction block over the past several months couldn’t have come at a worse moment. There was the collapse of WorldCom, and other major meltdowns in the telecommunications world as the whole industry shed profit, then value. And that’s what has the doubters questioning whether this is even a good time to be trying to do the deal.
They say that by waiting for a firmer market, when telecom prices and profits have improved, the divestiture could both bring a lot more money to the government’s coffers and command a lot more cash upfront. The amount of cash put up by the successful bidders is also being questioned by both politicians and analysts, who ask whether the public is truly benefiting if the selling process allows what amounts to a leveraged buyout.
“There are those in many political quarters who say this is not a time to sell and that there should have been a reserve bid,” according to one Bahamian analyst who has been following the process. He even went so far as to predict there might be no deal at all, because the cons would outnumber the pros.
After several government-sanctioned delays in the privatization process, only four of the original nine groups ended up doing due diligence and jockeying for a successful bid at the end of February this year: Cable & Wireless, Bahamatel, Blu Tel and Trans World Telecoms.
Some backed out and others just disappeared, but analysts pointed out that the $10,000 entry fee to get a look at BaTelCo’s books was corporate pocket change given the value to current and future competitors of getting a peek at all that business intelligence.
In March, the government said three of the four had qualified to complete the bidding process. Cable & Wireless was ruled out.
Meanwhile, BaTelCo stopped issuing new cell phones as its antiquated analog network reached capacity, resulting in frequent call drop-offs and less-than-acceptable levels of toll-quality voice services. A $28-million plan to upgrade cellular services to new digital standards, using state-of-the-art GSM roaming technology, was put on hold while the bidding process continued.
That and a not-unrelated e-commerce bill became both a matter for debate in the House of Assembly and a matter of at-least-professed concern on the part of potential bidders as the process headed into spring.
The government also shelved a $90-million plan to connec the main islands of the Bahamas with subsea fibre-optic cable, which would offer significant communications bandwidth and make foreign investors, such as the owners of Exuma’s new Emerald Bay Resort, very happy. Some analysts have criticised this move as retarding the country’s development while others have said it could not be justified.
“There is no business case for this proposal,” said one observer. “It is more of a social programme and obviously the bidders don’t want a $90-million-plus spend in the middle of the privatisation process.”
The three surviving bidders are Blu Tel, whose leading spokesman is Lindbergh Smith; BahamaTel, which is represented by JP Morgan financial analyst Tom Bain; and Trans World, whose spokesperson is IBM Bahamas executive Felix Stubbs.
* Bahamatel is a consortium of the JP Morgan and Citigroup investment banks, the Canadian telecommunications firm Nortel, and a $12-million mutual fund raised from local institutional investors, including pension funds and unions.
* Blu Tel is an alliance of the German telecommunications firm Deutsche Telekom, the management firm Detecon & Diebold International and three unidentified financial institutions.
* U.S.-based Trans World Telecoms Corp. is competing with Cellular One, AT&T Wireless, Digicel, and Sunbeach Communications for a cellular licence in Barbados. It has already won a licence in Grenada, beating out Cellular One.
It has formed an alliance with a group of Bahamian investorsthat include Barry Rassin and Robert Lotmore.
At the end of April, the government said Bahamians will soon have to pay higher phone line rates for the first time in 30 years, in order to move BaTelCo toward a sounder business footing. This so-called “tariff rebalancing” will put an end to illegal but widely used call-back services and make long-distance rates more competitive.
“This rebalancing act is one of two key variables in the bidding process,” said one industry observer. ” The other being the length of the monopoly period, which could add or subtract millions from BTC’s value.”
Earlier this year, Finance Minister James Smith said the privatisation of BTC was the government’s first step out of the business sector, and Minister of Works Bradley Roberts said Bahamasair and BEC may follow.
Analysts say the BTC sale is an unprecedented transaction for the Bahamian economy, representing more than two per cent of the country’s gross domestic product. The largest and most successful public offering up to this point was Cable Bahamas in 1995 which raised some $30 million from local investors.
“So it is important that the process be as transparent as possible,” one observer said. “It is also critical to future success that the government’s ability to control the company is removed, with legal guarantees.”
“If we can make sense of this one, others will soon follow and the nation will emerge from a long nightmare,” he said.
By Larry Smith,
reprinted from The Nassau Guardian
