Satisfactory first quarter
The Guyana Telephone and Telegraph Company, generally referred to as GT&T, was formed in 1991 after the Government of Guyana (GOG) under the late President Desmond Hoyte sold an 80 per cent share of the state-owned entity Guyana Telecommunications Corporation (GTC) to Atlantic Tele-Network, or ATN. The remaining shares were retained by the Guyana Government.
The sale gave ATN, and by inference GT&T, exclusive rights to provide domestic wireline local and long distance service in Guyana for 20 years. It also gave it the exclusive right to sell, lease, or service various kinds of telecommunications equipment. At the same time, GT&T received a non-exclusive license to provide cellular radio telephone service in the country for an equal length of time. During the 20-year periodthat would have ended in 2010, GT&T proved to be a very lucrative company for its shareholders, including the GOG. Consequently, there was nothing in the performance of GT&T that warranted the disposal of the shares at a time when ATN was about to conclude a very satisfactory first quarter in 2012. ATN was so pleased with its first quarter results that it announced in its Press Release of May 2, 2012 that “Net income attributable to ATN’s stockholders more than doubled to US$9.3 million …”.
Upbeat environment
It was in that upbeat environment that the GOG decided to rid itself of ownership of a highly profitable company. Except for a few conflicting statements from the administration, Guyanese appear indifferent to the sale price of the deal. This is perhaps because the price can at least be tied back to the book value of the enterprise. On March 15, 2012, three weeks before the sale, ATN submitted its Annual Report for 2011 to the Securities and Exchange Commission (SEC) in which it reported that the Minority shareholders, the GOG being one of them, were worth US$58.3 million at December 31, 2011. When distributed in proportion to ownership, Guyana’s share should be worth at least US$30 million given the impact of ATN’s acquisition of M3 Wireless Limited of Bermuda in May 2011, and its earlier acquisition of Alltel, Sovernet and Commnet, on the distribution of the value of the shares among the minority shareholders.
However, the sudden and hurried disposal of the shares of GT&T does not make sense, except when put in context of the feud between the GOG and the management of ATN, and the former’s fervent desire to liberalize the telecommunications industry. This writer believes that ATN was likely to abandon GT&T and the GOG does not want to be saddled with the burden of repossession when that happens, a move that could be triggered by the anticipated loss of the protective status that ATN enjoys in the Guyana market. But for the administration to give up a performing asset without seeking the best deal is surprising to say the least. The sale of the assets at the equivalent of a seven per cent discount might be considered an indication that the GOG might be banking on Datang to take over ATN’s share when it sells, and that GT&T might be fully owned soon by Datang which is now well placed to take advantage of any offer, pursuant to the agreement that ATN signed in 1990.
Shadow of doubt
A shadow of doubt had been cast over GT&T’s future ownership long ago with its declining influence within ATN, its entangled and protracted legal battles with the Guyana Government, the rough competitive wireless environment around it, and the notable shift in strategic focus of its parent company, ATN. With GT&T contributing less than 5 per cent of the revenue of the International Telephony segment last year, in contrast to 85 per cent seven years ago, it had fallen from the commanding heights of the consolidated organization to a position of marginal influence. The expectation, therefore, was that ATN would eventually end its relationship with GT&T in favour of Alltel, Commnet and Sovernet, three of its enterprises operating in the larger and more lucrative US market, in order to get out of an apparent endless and increasingly futile conflict with the GOG. This likely outcome has become clearer as the pressure on GT&T mounts with the GOG digging in its heels on the issue of liberalizing the telecommunications industry.
Pressure
The pressure on GT&T came from the GOG not as a shareholder, but as sovereign over Guyana’s economy. With very little façade, the GOG moved to expose GT&T to greater competition by seeking to deprive it of its exclusive rights and by reducing the bandwidth available to it. There was a standoff between GT&T and the GOG on spectrum fees, as a result of which GT&T had not received an invoice for spectrum fees for at least three years. Moreover, the guarantee of a 15 per cent return on investment given to GT&T when it signed its contract in 1990 was being ignored by the GOG.
This latter issue leads one to wonder if GT&T is paying a political price for having been born during a different political era. Formal discussions to modify the exclusive rights were started in 2002, but remain at a stalemate. Since then, legislation to reform the telecommunications industry was drafted and introduced into the National Assembly. The GOG was not ready to back down from its desire to liberalize the telecommunications industry and with the sale of its shares is free to fight that battle without appearing to be in conflict with itself.
Freedom
It is that freedom that the GOG has that might push ATN to sell its share of the company. In its 2011 Annual Report, the company repeated its concern about the impact that liberalization of the sector would have on its investment in Guyana. ATN expressed its concerns this way “We are dependent on GT&T for a moderate portion of our revenues and profits. A loss of exclusivity on international voice and data service would result in a reduction in the international call traffic and as a result, a loss in wireline revenue. Any modification, early termination or other revocation of the exclusive domestic fixed and international voice and data license could adversely affect our revenues and profits and diminish the value of our investment in Guyana.”
Giveaway
ATN could not make itself any clearer. It has put its cards on the table in discussing the risks and threats to its business, and most likely will have to carry through with its threats since none of the factors undermining its position in the Guyana market seems to be letting up. To this end, it notes that illegal bypass activities have gotten worse and that continued loss of revenue, whether through competition or otherwise, would deprive it of critical foreign currency. That problem could be compounded by rate reductions that could be imposed by prior decision of the US Federal Communica-tions Commission (FCC) in its own quest to see competition in the global telecommunications industry. ATN knows that it cannot depend on its own government to protect it from the inevitable loss of exclusivity. Still, the sale of GT&T at a price of US$30 million might not be a justifiable hedge against the likely loss of ATN’s investment. As a consequence, the giveaway looks like a guarantee to Datang in anticipation of a favour yet to be performed.
