On Sunday, Cable & Wireless Communications and Columbus issued a fact sheet, which indicated that approval of the transaction would lead to a new company that would be able to offer customers new, world-class services such as:
• Blazing fast broadband at 100 Mbps along with fibre roll-outs and wider coverage
• Anytime, anywhere, anything TV to your mobile
• New bundles that bring fixed and mobile together
• Improved mobile data experience
• Access to 300-plus channels in more markets along with 85 high-definition channels
The two companies also stated that “our shared infrastructure will drive jobs and growth in the region” and to support that proposition, they argued that an IDB study had indicated that a ten per cent growth in broadband penetration in the region is equal to 67,000 new jobs and a three per cent growth in GDP (gross domestic product).
The study to which the companies referred is an Inter-American Development Bank report titled Socio-economic impact of broadband in Latin American and Caribbean countries. The paper was published in November 2012, its authors are Antonio García Zaballos and Rubén López-Rivas and it used data from 26 LAC countries, analysed year over year from 2003 to 2009.
The paper argues that Latin America and the Caribbean is “characterised by low broadband penetration, costly Internet connection, low usage and sporadic adoption of mobile technology.”
The authors presented an econometric model which shows that, in Latin America and the Caribbean, on average, a ten per cent higher broadband penetration is associated with 3.10 per cent higher GDP, 2.61 per cent higher productivity, and 67,016 new jobs.
“A complementary finding is that the higher the broadband penetration rate, the greater the multiplier effect of an additional increase of broadband on GDP, productivity, and employment,” according to the authors.
The report stated: “Our model, tested in different time frames, posits that, on average, a ten per cent increase in broadband penetration in 2005 was associated with a 1.34 per cent increase in GDP; in 2007, with a 2.29 per cent increase; and in 2009, with a 3.19 per cent increase.
These findings corroborate that the greater the number of broadband subscriptions per capita a country has over time, the greater impact that an additional increase in the number of broadband subscriptions will have on that country’s GDP.
“However, the pace of GDP growth decreases over time, which implies that the impact of broadband on GDP will reach a saturation point at some point in time.”
When I read the paper on Monday, my immediate reaction to it was that a study that attempts to derive an average from countries as diverse as Belize, T&T and Brazil is going to be a little problematic.
That’s because Belize has a current population of 331,900 people and a labour force of 130,717, T&T has a population of 1.3 million with a labour force of over 600,000 people while Brazil has a current population of 200 million and a labour force of over 100 million.
It seemed to me that the impact of a ten per cent increase of broadband penetration in Belize, which has a GDP per capita of US$4,834.29, as of 2013, would be different to T&T with its per capita GDP of US$18,372,90 in 2013 and to Brazil, with its per capita GDP of US$11,208.08 in 2013.
Anxious to get some clarity on the issue, I reached out to one of the co-authors, Antonio García Zaballos, who is the telecommunications lead specialist (and leader of the broadband programme in the Capital Markets and Finance department of the IDB).
Garcia Zaballos said on Monday afternoon: “It is important to keep in mind that this paper is not showing causality….Rather than talking about causality, we are talking about co-relation.
“This implies that in those circumstances where the penetration rate has been increased by ten per cent, it happens to be that the GDP has increased by 3.2 per cent and the productivity by 2.6 per cent.
“This is showing co-relation in all the terms and circumstances. It does not matter whether it is the IDB, the World Bank or the International Telecommunications Union.
“But we cannot say that if a country invests in broadband infrastructure, it is going to have a direct impact on GDP. It is not as simple as that, otherwise the solution would be for countries to invest in broadband infrastructure.
“By corelation we mean that those countries where the penetration rate of broadband is increasing somehow correspond to countries where the GDP is increasing as well. If broadband increases, then the GDP is increasing as well, but the broadband increase does not cause the increase in GDP.
Asked how the average should be interpreted among the Caribbean members of the IDB, the telecommunications economist said: “In all the cases, we are talking about an average for the entire region. We did not do a specific exercise for each and every country. This is the average that we have observed in the 26 IDB members.”
Asked about the relevance of a 67,016 growth in employment and a 3.19 per cent growth in GDP in a Caribbean context, Garcia Zaballos said: “I understand your point that it may be that in the case of small islands of the Caribbean where the total population may be close to the stated increment in the paper’s employment rate. Here we are considering an average for countries the size of Brazil and the size of Haiti. We are not considering a weighted average.
“For the case of the Caribbean, I can tell you that there should be an effect and we can conduct the same study if we have access to that information from the Caribbean countries.”
The paper also indicated that the impact on job creation and GDP growth in higher-income countries would be less than in lower-income countries.
Garcia Zaballos said that assumption would pertain to the Caribbean for the following reasons: “Here we have what is known as economies of scale. If we are talking about a country that already has a high level of penetration of broadband service, the increment of a further ten per cent is not going to make such a difference. Moving from 40 per cent to 44 per cent penetration is not going to make such a big difference.
“However in those countries that are jumping from zero penetration to ten per cent, the impact would be greater taking into account that the digital economy is starting to move, creating economies of scale, thereby generating growth, jobs and increases in productivity.”
Just as a matter of interest, T&T had 230,000 fixed broadband subscriptions, as at the end of June 2014, and a penetration rate of 53 per cent. Both the total number of subscriptions and the penetration rate decreased by one per cent in June 2014, compared with June 2013.
The fixed broadband to consumer market in T&T is currently divided between Flow and TSTT (with Green Dot as a niche player), while the corporate fixed broadband market has a number of additional players, including Digicel, which has already started selling its fibre-to-business offering to business clients in T&T’s main urban areas.
If the merger is approved, it seems to me that the enlarged Cable & Wireless Communications (CWC) will be the leading player in the fixed broadband to consumer market.
Will that position lead CWC to an attempt to drive fixed broadband penetration even further or does T&T’s income distribution create a ceiling for broadband penetration at this time?
Is there a correlation between higher broadband penetration and growth in T&T’s GDP, jobs and productivity?
It might be helpful if regional regulators were to hire the IDB’s Antonio García Zaballos and his colleagues to conduct a study of the implications of the proposed mega merger on these issues.