Analyst Angle: Thoughts on the Caribbean DTH Market

Over the past two decades, I’ve seen many telecom companies define their geographic reach as encompassing the Caribbean and Latin America. It just takes a few questions to notice that most of them fall into the large majority of entities that frequently use CALA as a nice surname, but with limited reach. The fact is that for most companies – e.g. sales force – the Caribbean has only five major markets: the Spanish-speaking islands (mostly wishful thinking when it comes to Cuba), Jamaica, and Trinidad and Tobago. The existence of other 30 markets doesn’t seem to be of interest.

The Caribbean is an extremely diverse region with a plethora of different languages and drastic extremes. The telecommunications landscape is no different. Some markets still maintain monopolies and extremely weak regulatory entities while others have operators that are more aggressive in new technologies adoption than their counterparts from Latin America. For example, some of the events that took place in the Caribbean before than they happened in Latin America: 3G, IPTV and the first market to surpass 200% mobile penetration.

On the other hand, there are still some areas of backwardness in the region’s telecom space. The most relevant example of a telecom sector where many Caribbean markets still need to play catch up is Pay TV services. In general terms, the Caribbean Pay TV market could be characterized as having a CATV operator being the sole local provider of services. Recent announcements by LIME (C&W) foresee increased competition in at least 13 markets through the offering of IPTV services — a service already being offered in several Dutch-speaking markets.

The Caribbean Pay TV problem does not derive from the terrestrial offers but from the regulatory vacuum that exists in a few markets for the provision of satellite TV: They lack specific regulation for direct-to-home (DTH) services. In other words, local CATV and IPTV concessionaries faced unfair competition from foreign satellite Pay TV providers — usually US-based Dish Networks or DirecTV. It should be noted that these same operators legally commercialize their services in other markets like Puerto Rico (both) and Trinidad and Tobago (DirecTV).

There are several key drivers for the proliferation of these “illegal” DTH providers: a) returning visitors from the U.S. bring with them the necessary equipment to install their satellite TV service and pay for it on the Internet using a credit card, b) local “dealers” that import the satellite dishes to satisfy local demand, c) lack of coverage by local CATV operators, d) regulatory authorities that condone the practice.

The most evident problem that arises from the proliferation of foreign satellite dishes is the lack of government capacity to collect taxes from these operators. Nevertheless, in most instances, foreign DTH operators ignore that their services are being rendered outside of their country of origin and subscribers do pay taxes for the service just not to their own government. A secondary but important issue in markets with a small number of inhabitants is the fact that foreign DTH services don’t create directly/indirectly local jobs (besides the occasional satellite dish importer).

Another problem created by not regulating the DTH space is the lack of investment incentive provided for already established competitors such as LIME or Digicel. These two pan-Caribbean operators have repeatedly mentioned their interest in entering the Pay TV segment in all of their operations to expand their service portfolio in an area that have already reach saturation of mobile services and where broadband household penetration surpasses 50% in many markets. In fact, Digicel already offers Pay TV services in Tonga and in 2008 acquired a Pay TV license in Jamaica (has yet to start offering services). On the other hand, LIME has been touring the region showcasing its upcoming Pay TV service with Jamaica and Barbados scheduled as the first two markets where it would launch IPTV.

Few would dispute that service providers’ evolution path is towards convergence and the offering of bundled services. These services have two main cornerstones: broadband and video, with differentiation being increasingly driven by the providing of higher broadband speeds. The lack of DTH regulation in several Caribbean so far has been widely tolerated but in the near future it could create numerous headaches for local governments. Following are some of the issues that sooner or later would have to be addressed:

• If a local operator decides to launch DTH service to complement its current telecommunications offer, licensed operators would certainly present a lawsuit. Who would be the recipient — DTH operator, regulator or both — is not clear.

• Lack of DTH regulation could lead existing operators to launch satellite Pay TV services and migrate their customer base in order to diminish their tax payments.

• The launch of DTH service by a locally established operator would drive licensed competitors to demand the enactment of a regulatory framework that allows the government to collect taxes from the new player. The question is: Does the government have the necessary resources to implement a fast-track DTH regulation?

• Any initiative directed at regulating the DTH market space must also consider the various steps that need to be taken to eradicate foreign satellite dishes, which would undoubtedly be an extremely unpopular measure.

These are just a few of the issues that most likely won’t be addressed by local regulators in the foreseeable future. On the meantime, some Caribbean governments continue wondering how to increase tax collection, promote investment and decrease the unemployment rate.

Jose F. Otero is  Signals Telecom Consulting’s  president.  Follow him at Twitter: @Jose_F_Otero