GT&T loses bid to hike domestic rates

-PUC signals probe over questionable asset base

The Public Utilities Commission (PUC) has dismissed an application by the Guyana Telephone and Telegraph Company (GT&T) to raise domestic rates for some of its services and may consider an investigation of the company’s asset base due to suspicions that it may be inflated.

The March 13th, 2015 decision, which was signed by Chairman Prem Persaud and Commissioners Badrie Persaud and Maurice Solomon, also highlighted GT&T’s reliance on the terms of its licensing agreement to support its claim, despite its failure to fulfil its obligations to provide a universal landline service under the same agreement for over two decades.

In what appeared to be a move to pre-empt a new telecoms bill, which was expected to liberalise the sector and force the reduction of the rates for international calls, GT&T had applied in June last year to reduce international rates, while seeking to increase rates for the domestic market. It based its submission on its June 18th, 1990 licensing agreement, under which it is entitled to “a minimum of 15% return” on “capital dedicated to public use”—that is, capital infrastructure used or applied in the provision of the services for which the public or the consumers of the service pay.

GT&T claimed that it suffered a $738M deficit and needed the increases to maintain its 15%.

However, while noting that the revenue requirement shall be calculated on the basis of GT&T’s entire properties, plant and equipment, the PUC pointed out that it has long held the view that GT&T appears to inflate the cost of its capital acquisitions. “This will increase the asset base of the Company resulting in higher profits to which it is not entitled. If this is so then the depreciation figures stated in the financial statement would be overstated. We are also concerned about the valuation of the Company’s assets and its reluctance to respond to our requests for the acquisition costs of assets for specific periods. We also have a difficulty reconciling the company’s test year data and investigations must be conducted seeking explanations on the computation of property, plant and equipment, and working capital,” it said, while noting that in view of doubts relating to the true value of GT&T’s asset base it may consider an investigation.

GT&T’s application proposed increases for services, such as installations, transfers, additional jacks, wake-up call, 3-way calling, voicemail, call forwarding and reconnection. It also sought to increase rates for intra exchange calls during peak hours by 40% and during non-peak hours by 60%. The current intra-exchange call rate is $.60 (peak) and $.30 (non-peak). For inter-exchange calls (calls from one zone to another), it proposed increases by 20% for both peak and non-peak hours. The current rates for peak hours, per minute are Zone A-$3, B-$4, C-5$ and D-$7. During non-peak hours the rates are $2, $3.6, $4.8 and $5, respectively.

 ‘Entitlement is not a guarantee’

In its decision, which was issued after four hearings were conducted, the PUC highlighted the fact that GT&T has two aspects of business—one regulated by the PUC and the other non-regulated. This presented a problem for the Commission, which noted that all the revenues “are merged so we do not get a true picture what it costs, say, for the regulated sector to function.”

It also pointed out that numerous requests made for separate financial statements have continually been denied by the company. The absence of segmented accounting therefore made it difficult for the Commission to ascertain which sector is responsible for the 10% rate of return GT&T claimed to be making as of October, 2014.

It was noted too that GT&T’s specialist overseas auditor “reluctantly admitted” that the company had been in receipt of a rate of return of over 15% for many years.

“The GT&T tells us that anything earned in excess of 15% is permissible—even if they earn 40-50%. They rely on the agreement to demand their pound of flesh—a minimum of 15% on capital dedicated to public use,” the PUC said.

However, it noted that an “entitlement is not a guarantee” that must ensure the company gets its 15% irrespective of how it operates. “It strikes us that GT&T is proceeding with its application on the basis that it has a “guarantee,” come hell or high water, to collect their “no less than 15%.” We want to disabuse the minds of GT&T’s officials that this is not so…. If the return is to be guaranteed then there could be no protection of the consumers’ interests, and the utility company would be given its return regardless of say, negligence, inefficiency or even fraud,” the PUC explained.

Section 32(2) of the PUC Act provides that in determining the rate a public utility may charge for any service provided by it, the Commission shall have regard to “consumer interest and investor interest” and to the rate of return obtained in other enterprises having commensurate risks, provision of safe and adequate service at reasonable costs and to assuring the financial integrity of the enterprise.

As a result, the PUC questioned how citizens could pay for a service when it is not made available to them. “The agreement in which GT&T relies to extract their minimum 15%, dated 18th June 1990 provides that GT&T establish facilities permitting telephone service along the entire coast from Crabwood Creek to Suddie and in the interior at several locations within three years,” it noted.

Further, addressing GT&T’s explanation that it is awaiting the grant or release of spectrum to provide the telephone service to many persons who are not yet recipients, the PUC pointed out that the company has been in operation, by way of monopoly, for the past 24 years but could not fulfil the obligation which it undertook when the licensing agreement was signed. (According to a presentation to the PUC by Leonard Craig, a consumer rights advocate, about 8,000 citizens have applied for the landline service and have not yet received it.) “There was no condition for the provision of spectrum—and being a monopoly for the landline service they choose to ignore the requests of potential consumers, blaming it on “spectrum.” They must be blissfully aware that no other entity or company can enter the market to offer the land line service. This is where one aspect of the Commission’s responsibility kicks in—to protect the interest of consumers. We do not feel inclined to abandon that aspect of our duty,” the PUC said.

The PUC also addressed the perception that GT&T was attempting to use domestic increases to offset the loss from reductions for outbound calls in order to compete with the other provider that offers the outbound service. “It this is so, and the Commission acquiesces, then the interests of the consumers will fade into insignificance. This ought not to be and the Commission must be alert to ensure that the scale is evenly balanced,” it said.

In addition, the PUC noted that even GT&T, in its application, indicated that ATN/GT&T and the Government of Guyana were engaged in negotiations of its licence in light of the prospective telecoms bill. As a result, it questioned the propriety of invoking the provisions of the current licensing agreement.

It also considered the submission from the Guyana Consumers Association (GCA), which argued that it would be a contradiction for the PUC to allow rates manifesting monopoly profits to be injected into the new liberalised structure, since such action would negate liberalization.

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