2017 PUC Report reveals… GTT admits failure to uphold license obligations

Feb 09, 2020 News

---

– But collects massive profits from Guyana market

By: Kiana Wilburg

In Part 1 of this series, Kaieteur News focused on GTT’s parent company, Atlantic Tele-Networks Inc. (ATNI) and its generation of massive profits from the Guyanese market as a result of a monopoly.

It was also noted that in its filings to the United States Securities and Exchange Commission (SEC), that ATNI is concerned about the expected revenue loss that will accrue from the imminent telecommunications liberalization.
Today, Part 2 of this series will examine GTT’s approach to taxes and concessions, and related party transactions which could potentially enable reduced tax obligations to Guyana, as pointed out in a 2015 Order made in relation to GTT by the Public Utilities Commission (PUC).

The Guyana Telephone and Telegraph (GTT) is 80 percent owned by US-based Atlantic Tele-Networks Inc with Michael T. Prior as its current Chairman and Chief Executive Officer (CEO).
Financial analysts reported on December 4, 2019 that ATNI experienced a 28% decrease in share price over the preceding 12 months (see link to article: https://simplywall.st/news/did-changing-sentiment-drive-atn-internationals-nasdaqatni-share-price-down-by-28/).
A possible explanation for this subpar performance can be partially attributed, as referenced by ATNI in its SEC filings, to the impact of telecommunications liberalization in Guyana – a market that accounts for a significant portion of its gross revenues.
With a loosening hold on the Guyana market, potentially resulting in reduced revenues, ATNI (as discussed in Part 1 of this series) has opted to diversify its offerings in Guyana. This would be outside of its licence for the provision of international voice and data, to other unregulated sources of income (such as Internet and Mobile Money).
Observers have noted that the loss of this monopoly, which would force GTT to compete in an open market, can continue to negatively affect ATNI’s overall performance, and ultimately, how its shareholders and financial analysts view its stock.
ATNI’s SEC filings also reveal that the company has provisioned US$5 million to settle tax matters in Guyana – US$39 million less than the US$44 million in dispute by the Guyana Revenue Authority (GRA).
This shortfall in ATNI’s allocation must also be considered in the context of GRA Commissioner-General, Godfrey Statia’s recent declaration that he has no intention of reducing this tax assessment outside of established tax principles.
If GRA realizes this demand, it will undoubtedly impact GTT’s bottom-line and, by extension, ATNI’s financial performance.
GTT’S APPROACH TO TAXATION
GTT officials have repeatedly expressed in the media and other forums that the company is taxed highly at a rate of 45%, in comparison to other providers in other sectors.
This is, however, only one piece of the puzzle – with the wider picture showing GTT leveraging considerable benefits pursuant to its 1990 Purchase and Licence agreements to possibly shroud the true value of its operations and tax obligations to the Guyanese government.
This can be illustrated by statements made by the PUC in its Order No.1 2015 decision (“the 2015 Order”), (available on the PUC website).
In the 2015 Order, it was revealed that transactions with GTT and its related parties were not at arm’s length, therefore clouding the commission’s view of the company’s true finances. The 2015 Order stated:
“A few years ago (GTT) spent US$30 million to establish an underwater cable from Suriname (SGSCS cable). We had requested particulars of this transaction and were told that it had no business plan for that enterprise!!!
(GTT) also told us that the cable will not form part of the asset base in any tariff filing, that it does not plan to operate the cable system as any type of common carriage, and as such the cable system is not subject to the Commission’s approval or authority pursuant to Section 28 of the PUC Act.
(GTT) has, however, incorporated a wholly owned subsidiary in the British Virgin Island and has transferred to that subsidiary – its part of the submarine cable and the Americas II cable. This is really an investment by (GTT).
The business of the subsidiary is to sell bandwidth to service providers, and (GTT) has been that company’s only purchaser of bandwidth in 2011. Bandwidth is an essential component in the lucrative internet business and in which (GTT) is prominently involved. We are not aware that (GTT) has been earning any interest on the funds expended in the creation and functioning of the subsidiary.”
By bypassing the PUC in landing the SGSCS cable, the Commission said that GTT’s stated position is that its provision of services via this cable are outside of the PUC’s regulatory control and, by extension, the ambit of its 1990 licence.
The PUC also pointed out that GTT should separately account for regulated and unregulated services in order to allow for a true assessment of the company’s actual rate of returns on investments under its licence.
Further to this, the 2015 Order states , “A utility company may have little incentive to minimize its own expenses while remitting funds to an overseas enterprise, be it parent or lateral subsidiary, which may result in significant increased profit to that entity with no regulatory limit on its permissible earnings.
“There must be dealings with affiliates at arm’s length. This Commission does not have the practicability to regulate transactions with affiliates which may involve the examination of their books and records.
“This can be very critical in tracing the bona fides of an affiliated transaction. The subsidiary does not come under our jurisdiction/purview thus making it impossible to review/examine its books, account papers or records kept by them.”
The PUC further stated that it has long held the view that GTT appears to inflate the cost of its capital acquisitions. This would effectively allow GTT to claim higher depreciation values and create lower taxable profits over time.
In June 2017, at GTT’s request, the 2015 Order was reviewed and revised in Order No. 2 2017 (“the 2017 Order”), in which the PUC stated:
“(It) would appear that (GTT) is consistently and conveniently overlooking the fact that the (licence agreement) provided that GTT shall have the obligation to provide universal services which meant that the business and development plans of GTT will have been designed to provide as many residents of Guyana as possible the benefit of a telephone service.
“As the Director of Regulatory Affairs of GTT told us at the public hearing it does not matter whether GTT gets 50% return, but they are entitled to earn not less than a guaranteed 15%.”
The 2017 Order continued, “They (GTT) have very importantly conceded that they are in default with their license obligations but require assistance to level the playing field to expand their services.”
In granting GTT’s request for rate review, the PUC applied certain obligations, including the requirement that GTT installs at least 1,000 landlines per quarter.
This, however, was not delivered by the company, and that number was later reduced by the PUC to 350 per quarter (see link to article: https://www.kaieteurnewsonline.com/2018/08/12/gtt-complying-with-order-for-350-new-landlines-every-quarter-puc/).
It is significant to note that GTT also benefits from preferential tax concessions under the 1990 Purchase Agreement, such as duty-free and other tax exemptions, including for the importation of vehicles and equipment.
In spite of the foregoing, it has been suggested that GTT is also seeking further benefits post-liberalization as part of its negotiations with the government. In a level playing field with new entrants and optimal competition, industry stakeholders posit that this should not be allowed.
With respect to GTT’s repeated claims of over taxation at a rate of 45%, which may, at surface level, seem like a high figure, observers believe it is important to take note of GTT’s inability to provide detailed accounting, especially to its regulator (the PUC), which is tasked with overseeing GTT’s benefits and obligations under its licence agreement.
Moreover, its operations are also driven by revenues mostly from the Guyanese market and therefore any taxes paid are directly passed on to the consumer. The question to be asked, after taking into consideration all the above-mentioned factors, is: what is GTT’s real, effective tax rate? It may very well be less than the tax rate paid by local companies.
GOVT.’S APPROACH TO LIBERALISATION
While the Government of Guyana, through the Ministry of Public Telecommunications, has been working on the liberalization process and negotiations with GTT, it is evident that the Government has enabled functional progress in the sector through the permissibility of certain developments.
One such example occurred when GTT repeated its calls for the blocking of U-Mobile (Cellular) Inc. (Digicel)’s trans-border microwave link from Suriname, which Digicel uses to provide capacity to its customers in Guyana, complaining that Digicel should be forced to buy its data capacity from them instead. (see link to article: https://demerarawaves.com/2017/04/19/gtt-govt-at-odds-over-calls-for-audit-of-digicels-alleged-illegal-bypass/).
The subject Minister, instead, suggested that GTT could also be cited for breach of contract as far as improving its landline service or meeting its obligations per the 1990 agreement.
The Government has also publicly supported the landing of E-Networks’ submarine fiber optic cable and issued 3G/4G spectrum to both GTT and Digicel to ensure reliable mobile internet access.
Through the National Data Management Authority (NDMA) and E-Governance Unit, the government has also delivered free internet access through ICT hubs to hundreds of communities in many unserved areas, particularly in the hinterland regions, in which GTT was unable to deliver connectivity.
The Government’s encouragement of the use of these alternative services using internet over the past four years can possibly reveal a strategy by the Ministry of Public Telecommunications to ensure that Guyanese are able to relinquish traditional means of communication in order to benefit from developing technologies – without being held hostage by protracted liberalization delays.

 

 

 

---

---