Govt aims to allay telecoms reform concerns
Government yesterday revealed it has taken into account the telecoms industry's concerns about the potential tax burden of regulatory reform.
KeyTech, the owner of BTC and Logic, had expressed alarm that its combined effective tax rate on profit could have risen to more than 50 percent based on proposed fees in the 2010 draft reform document.
But the Ministry of Energy, Telecommunications and E-Commerce told
The Royal Gazette: “We have received the comments from the consultation and there were concerns regarding the Regulatory Authority fees that were proposed in the draft bills.
“The Ministry has taken a new look at these concerns and is confident that we have allayed these concerns in a fair and reasonable manner.”
It is expected that the bill, which will tear down licensing restrictions that currently limit what services each carrier can provide, will be tabled in the next parliamentary session.
KeyTech chief executive officer Sheila Lines said she has not seen the latest draft of the reform document.
However, she said: “We have consistently highlighted to METEC our concern regarding the additional cost of the original proposed regulation on businesses already operating in a challenging economic environment.
“For example, for KeyTech's telecommunications licensed subsidiaries, the current effective corporate tax rate to the Bermuda Government for the combination of telecommunications licence fees and employers' payroll tax is 37 percent of net income before taxes and totals millions of dollars. This does not include customs duty on equipment imported for capital projects.
“In the 2010 draft reform it was proposed that the new regulator will charge fees to cover their newly formed administration costs, of up to three percent of licensed carriers' revenues. If there is no reduction in the existing telecommunication fees contributed to the Government Consolidated Fund, our combined effective tax rate would on that basis increase to 53 percent of net income before taxes.
“Our concern is that the cost of additional taxes will fall on jobs in our industry and reduced capital investment as domestic demand is not increasing.”
She continued: “However, we are hopeful that the Government has listened to the concerns of the industry on the issue of additional taxation costs due to regulatory reform and look forward to seeing the next drafts in November.”
Cable and Wireless Bermuda Holdings CEO Ann Petley-Jones said it was the company's understanding that the Ministry is looking “to implement creative solutions to keep costs at a minimum for all concerned”.
Last summer, the Ministry decided to delay the passage of the telecoms reform legislation to allow more time for dialogue with the industry.
This after industry leaders had raised major concerns about the tax burden on them arising from a new Regulatory Authority said to cost up to $9 million a year. It was revealed the Authority would be funded from fees levied on the industry.
Ms Lines said KeyTech welcomed the opportunity afforded by reform to “move from facilities-based competition to one where carriers can deploy products based on wholesale services purchased from another carrier”.
“Effective leveraging of capital investments in our industry will enable competition, innovation and provide the best possible pricing to customers,” she said.
“We also agree that changing from the current system to one which enables each carrier to offer all services needs to be achieved in a managed process that affords equal opportunity to all participants and to ensure some market players are not unfairly held back while others quickly enter new service areas. All existing market players have invested in the Bermuda market to build their current businesses, and should to be treated on an equal basis.“
Ms Lines pointed out that while KeyTech has been awaiting reform, it has also “chosen to continue to invest in Bermuda's infrastructure with capital expenditures totalling $117 million in the last five years alone”.
“BTC has started a multimillion dollar upgrade of its Hamilton fibre network to a complete Metro-Ethernet network capable of delivering higher speed Ethernet corporate data services and also the rebuild of the fibre core of BTC's island-wide network,” she said.
“The investment in the core network is a prerequisite to building higher speed facilities to the home. These are exciting investments for BTC and the customers it serves.
“It is our expectation that shareholders will receive a reasonable risk based return for investments made. In a regulated industry this is inextricably linked with the regulatory environment and actions by the regulator. “