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Price Changes under Price Cap PDF Print

Printed in the "Business Monday" newspaper on January 25, 2010 

There have been recent reports in the media about possible changes in residential telephone rates. This article will explain the rate adjustment process used by Cable & Wireless (Barbados) Limited (C&W) for telecommunications services regulated by the Fair Trading Commission (Commission).

These services include residential and business line access, installation, international direct dialed phone service, domestic private leased circuits, voice mail, call waiting and call forwarding.

Barbados utilises price cap regulation for these telecommunications services. Under price cap the prices charged to customers are capped whereby C&W has some flexibility in price adjustments up to a maximum price level set by the price cap and thus the company cannot exceed this cap. The price is derived from a mathematical formula which takes into consideration the company’s productivity, defined as the “X” factor and the inflation defined by the, “I” factor. In Barbados the inflation factor is measured by retail price index.

The Commission introduced price cap regulation into Barbados in 2005. In its decision the Commission divided C&W’s regulated services into four baskets, the first confined to Residential Line Access.

The Price Cap Mechanism 2005 was subsequently revised and the new system Price Cap Plan 2008 which saw a reduction in the baskets from four to three, became effective on August 1, 2008. Basket 1 is comprised of residential installation and residential access services, Basket 2 is comprised of business access, business installation, domestic private leased line circuits, voicemail and value added services, and Basket 3 is comprised of international telecommunications services and other retail telecommunications services.

The X factor for Basket 2 was determined to be 7.12% in the Price Cap Plan 2008. The price cap formula allows C&W to have price flexibility within Basket 2. Therefore prices for certain services may increase while others may be decreased within the constraint set by the formula.

Prices for the services in Basket 3 do not have price constraints because some of the services in this basket are considered relatively competitive as other service providers have been providing services such as international long distance telecommunications (International Direct Dialing - IDD) services to customers. However, as part of the price cap 2008 decision, C&W undertook to reduce prices for its residential IDD services on or before August 01, 2008 by 20%. Further reduction of 5% occurred on March 31, 2009 and further reduction of 5% on March 31, 2010 to March 31, 2012 on international calls. These reductions would not necessarily apply to each individual international rate but to the average revenue derived from the IDD service.

When the first price cap was introduced in 2005 Cable & Wireless still controlled significant portions of the telecommunications market. It was then and remains the only provider of landline telecommunications services in Barbados. The liberalisation of the telecommunications sector and the rapid growth of telecommunications services have resulted in the entrance of companies such as Digicel, TeleBarbados and Blue Communications Inc. into the market. These companies have provided competition in mobile, IDD and ADSL and in the provision of data services. Furthermore the addition of fixed wireless telephone services into the Barbadian market provides competition for the fixed landline service which C&W offers.

It should be noted that the Commission placed a freeze on increases in residential telephone access rates including line rental and installation rates from August 1, 2008 to December 31, 2009. As of January 01, 2010 C&W is allowed to increase these rates in line with inflation up to a maximum of 4.5%.

Even though C&W has discretion in Price Cap 2008 with regard to the timing of any price adjustments, the company is required to write to the Commission at least 25 business days before the effective date of any proposed rate increase of a regulated service. The general public must also be informed through the printed media at least 20 business days prior to the effective date. In respect of price reductions the company must advise the Commission at least three business days and the public at least one business day before the effective date of a decrease. Increases or reductions in rates can be implemented at any time during the current price cap period but only after the appropriate steps are taken.

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