Govt mulling new telecoms tax to create fund for telecoms development

6 Jul 2004

The government of Jamaica is reported to be considering the introduction of a new telecoms tax through which it hopes to raise USD150 million over three years to pay for the rollout of a nationwide broadband IP network. Under the plan, which was devised by the Office of Utilities Regulation (OUR) but would require approval from both the cabinet and Ministry of Commerce, Science and Technology, the nation’s operators would start paying a tax of 5% on all sales from September 2004, raising approximately JMD3 billion (USD50 million) per year for state coffers. The government claims the introduction of the tax is vital if broadband services are to be made available across the island as it would act as a kind of universal service fund to help new operators develop services covering the less densely populated areas of the country. However, its plans have not found favour with Jamaica’s two main operators, wireline operator Cable & Wireless Jamaica (C&WJ) and cellco Digicel, who argue that the proposed tax is too high and will ultimately force up the price of services to consumers. In an interview with the Jamaica Observer, Digicel DEO David Hall said the levy being considered was not in line with global industry norms, claiming that ‘5% seems extremely high and out of sync with the worldwide average of 0.25% to 0.5%’. OUR director general J Paul Morgan has dismissed the operator’s complaints by pointing out that its proposals are enshrined in the country’s Telecommunications Act (2000); ‘The law provides for up to 5% (taxation) per annum, over a three-year period, so our proposal is within the context of the law. If we are to achieve broadband technology, we have to aggressively seek it’.

If the government’s proposals are approved the Jamaican telecoms market is likely to witness the ingress of a number of new operators keen to take advantage of the country’s low wireline penetration rate. The market has theoretically been liberalised for several years, but C&WJ continues to dominate proceedings. In March 2000 the international call market was opened up to allow wholesale operators to provide services via C&WJ, and eighteen months later the local telephony market was liberalised. Fixed wireless service provider Gotel Communications, a subsidiary of Index Communications, is C&W’s main competitor. It holds a local telephony licence and provides voice and broadband services to residential and business customers over its nationwide network. Gotel has an interconnection agreement with C&W for domestic traffic.

C&WJ, formerly known as Telecommunications of Jamaica (TOJ), launched services in May 1987 and has been undergoing a modernisation and expansion programme since 2000. During 2003 it invested around JMD6.6 billion in its networks, expanding coverage across the country and improving the quality of services, particularly via the deployment of an ADSL offering. In January 2004 it secured loans worth JMD92 million to help finance further investments in its networks from the Export-Import Bank of the US and Export Development Canada (EDC). The company has witnessed a dramatic decrease in its customer base over the last three years; falling from 500,000 at the end of 2001 to 430,000 two years later. It has attributed the drop to a subscriber shift from fixed line to mobile services, which have taken off since competition was introduced to the sector in 2001 when licences were granted to Digicel and Centennial Digital Jamaica (Now Oceanic Digital Jamaica). In November 2003 OUR entered into talks with US mobile operator AT&T Wireless over the award of a fourth mobile licence. Three months later the US company agreed to purchase the 15-year GSM licence for JMD300 million (USD4.97 million), although it had previously stated that it would only be prepared to pay JMD50 million. The operator, which already has operations elsewhere in the Caribbean, hopes to launch services by September or October 2004 in the resort towns of Montego Bay, Ocho Rios and Negril.

PriMetrica's GlobalComms Database