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Lee Chin shakes up media foundations - Flow takes on Cable & Wireless
Claude Robinson
Sunday, April 09, 2006
Michael Lee Chin, the Jamaican-Canadian billionaire, made a big splash into the national media and communication pool this past week which could have a major influence on who swims or sinks in the highly competitive Jamaican environment and will also spill over into the larger Caribbean basin.
Claude Robinson
His acquisition of majority shareholding in the media properties of the CVM Group from Neville Blythe is expected to pump much-needed capital into these entities, thus giving them the opportunity to survive and grow in a market where competition for audiences and advertising dollars continues to intensify with the constant introduction of new players.
In the other major development of the week, Flow Broadband Network, a subsidiary of Columbus Communications in which Lee Chin has a 50 per cent stake, launched its entry into Jamaica's fast-paced telecommunications industry with the promise of faster, better and cheaper services for residential and business customers.
There are still significant regulatory issues to be resolved before the plan announced by Flow can take effect, but if the deal actually materialises the result could very well be a major shake-up and possible fallout in the telecommunications and subscriber television sectors.
For sometime now, Lee Chin has been eyeing media properties and was reported to be focussed on the RJR Communications Group, with its flagship TVJ station.
He acquired the 10 per cent maximum allowed under the company's articles of association and was known to favour a change of rules that would allow a majority shareholder. The argument was that companies controlled by a majority shareholder usually delivered better value than those controlled by management.
Lee Chin. has been eyeing media properties for some time now
The argument did not prevail. Industry sources say the opportunity to acquire CVM arose as part of a deal to take control of Blythe's cash-strapped UGI Group, which has reportedly been hit by new insurance regulations requiring significant increases in the company's asset base.
It was not immediately clear whether Lee Chin would now be required by regulations to sell-off his RJR holdings, but on the face of it, the clear possibility of conflict of interest suggests that the right thing to do is to divest himself from what will now be his main competitor.
Press reports put a $250-million price tag on the approximately 65 per cent of the CVM Group acquired by Lee Chin from Blythe. The Group includes CVM-TV, CVM Plus (a cable channel), HOT 102-FM, X-News and Teen Herald newspapers.
It has also been reported that Lee Chin will pump some $300 million into upgrading equipment at the TV station. The figure, incidentally, is slightly more than the $250-million spent by the RJR Group just over a year ago to provide TVJ with state-of-the art studio and production facilities to increase capacity for creating local content.
With the acquisition of CVM-TV, Lee Chin's growing media empire is poised to become a major player in the Caribbean, just as the region is embarking on a new wave of economic integration with the single market.
Picture it: Columbus Communication owns the major cable properties in The Bahamas and Trinidad and Tobago. They also own Arcos Network, the company building a fibre-optic network around the Caribbean and Central America. The Group includes Fibralink, one of two fibre-optic licensees, which has already successfully laid its underwater fibre-optic cable connecting Jamaica to the US.
It is not difficult to imagine CVM-TV quickly becoming a regional broadcaster since Arcos has the ability to deliver its content throughout the region on its cable systems.
It cannot be without significance that Flow sailed into Jamaica on the Columbus, just like another explorer of the same name stumbled on these Caribbean shores more than 500 years ago.
In the Jamaican context, Flow Broadband Network announced that they will be offering a 'triple play' of basic broadband Internet service for J$650 per month; basic telephone service for $495 per month, which includes free calls within the Flow network, and basic cable service for $650.
These prices are substantially lower than those currently being offered by service providers in the various sectors and should be attractive to consumers.
But there are still regulatory hurdles to overcome. In the case of the proposed cable service, Richard Pardy, CEO of Flow, said at the launch that the company had applied to the Broadcasting Commission for a licence to operate a subscriber television service.
He acknowledged that a decision had not yet been taken on the application, so I believe it is premature to represent the plan as a reality at this stage.
Nevertheless, the possibility of Flow as a new entrant offering more advanced services in the cable sector is something which many existing operators appeared to be anticipating, some of them with dread.
In an interview with Pardy on Nationwide Thursday night, host Cliff Hughes asked bluntly whether Flow's long-term strategy was to come in at a low price, gobble up the market and then raise prices when it becomes the dominant player.
Pardy's response was that in a market economy where there is competition, there will always be winners and losers. He believed that there will always be competition in the Jamaican cable business, but suggested that eventually the business will be shared among three or four major players.
If the prediction turns out to be accurate, it would turn upside down the policy carefully nurtured for more than a decade by the PNP government under P J Patterson's leadership to build the cable sector as small business enterprises.
When government sought to rein in the ramshackle, illegal cable sector with licensing and regulations in the mid-1990s, the island was divided into 241 small zones of approximately 2,500 households each, thus enabling the existing small operators to qualify for licences. Some 51 operators were licensed.
At the same time, the sole wireless licence was won by N5 Systems, a hitherto unknown player in the Jamaican media landscape, over bids by RJR, the then JBC and others. However, N5 is yet to build out the promised network.
Given the large capital outlays required to build and maintain the high technology cable networks required by today's demanding markets and consumers, Pardy may be right that convergence and consolidation will see a dramatic reduction in the number of players. The times, they say, are a changing!
With respect to Flow's other promise of cheap landline telephony, this will depend substantially on the outcome of another major unresolved issue, namely, the terms and conditions of interconnectivity with Cable and Wireless, which has invested billions into the national landline system.
As Camilo Thame reported in the Business Observer last Wednesday, the Rodney Davis-led C&WJ is objecting to a proposal that would mandate it to allow other telecoms to connect to its existing landlines. The Office of Utilities Regulation (OUR) believes the move is necessary to quickly increase the number of players in broadband and fixed lines.
But C&WJ says the plan will damage its revenue base and its business model. The OUR is expected to make a ruling April 14.
The body language from people at senior levels in the Portia Simpson Miller administration suggests that the ruling will go against Cable and Wireless and the former monopoly is about to face challenges from Flow not seen since Digicel broke the monopoly and gobbled up most of the cellular market.
Cable and Wireless, in newspaper advertising and comments to journalists all week, affirmed the company's strengths, including "the highest bandwidth available in Jamaica" and its islandwide coverage. They say they are ready for the challenge.
Apart from the lucrative business sector, major battles can be expected in a drive to sign up households for broadband Internet service, the basic requirement to get on the information superhighway and move the country on the road to the so-called 'knowledge economy'. Only some three per cent of Jamaica's 750,000 households are connected.
Phillip Paulwell, the minister of industry, commerce, science and technology, promised in 2000 that the country would raise that threshold to 40 per cent in five years. It did not happen. He repeated it at the launch of Flow Wednesday night, hoping it will happen this time.
Flow say they can deliver genuine high speed broadband (at least one megabit per second) for the equivalent of US$10 per month. This is one-third of what C&WJ now charges for one-quarter of that speed.
"We aim to drive down the telecommunications prices in Jamaica to make the country more competitive and to help to provide huge growth in the local market which will benefit both corporate and residential customers," said Pardy.
C&WJ, which has been cutting prices over the past year, will, I believe, make deeper cuts. The war is truly on, and prices will begin to tumble soon. And, of course, traditional mass media (especially newspapers and TV) can look forward to an advertising bonanza as cable tries to tie up the flow.
Claude Robinson is Senior Research Fellow in the Mona School of Business at UWI
[email protected]
Lee Chin shakes up media foundations - Flow takes on Cable & Wireless
Claude Robinson
Sunday, April 09, 2006
Michael Lee Chin, the Jamaican-Canadian billionaire, made a big splash into the national media and communication pool this past week which could have a major influence on who swims or sinks in the highly competitive Jamaican environment and will also spill over into the larger Caribbean basin.
Claude Robinson
His acquisition of majority shareholding in the media properties of the CVM Group from Neville Blythe is expected to pump much-needed capital into these entities, thus giving them the opportunity to survive and grow in a market where competition for audiences and advertising dollars continues to intensify with the constant introduction of new players.
In the other major development of the week, Flow Broadband Network, a subsidiary of Columbus Communications in which Lee Chin has a 50 per cent stake, launched its entry into Jamaica's fast-paced telecommunications industry with the promise of faster, better and cheaper services for residential and business customers.
There are still significant regulatory issues to be resolved before the plan announced by Flow can take effect, but if the deal actually materialises the result could very well be a major shake-up and possible fallout in the telecommunications and subscriber television sectors.
For sometime now, Lee Chin has been eyeing media properties and was reported to be focussed on the RJR Communications Group, with its flagship TVJ station.
He acquired the 10 per cent maximum allowed under the company's articles of association and was known to favour a change of rules that would allow a majority shareholder. The argument was that companies controlled by a majority shareholder usually delivered better value than those controlled by management.
Lee Chin. has been eyeing media properties for some time now
The argument did not prevail. Industry sources say the opportunity to acquire CVM arose as part of a deal to take control of Blythe's cash-strapped UGI Group, which has reportedly been hit by new insurance regulations requiring significant increases in the company's asset base.
It was not immediately clear whether Lee Chin would now be required by regulations to sell-off his RJR holdings, but on the face of it, the clear possibility of conflict of interest suggests that the right thing to do is to divest himself from what will now be his main competitor.
Press reports put a $250-million price tag on the approximately 65 per cent of the CVM Group acquired by Lee Chin from Blythe. The Group includes CVM-TV, CVM Plus (a cable channel), HOT 102-FM, X-News and Teen Herald newspapers.
It has also been reported that Lee Chin will pump some $300 million into upgrading equipment at the TV station. The figure, incidentally, is slightly more than the $250-million spent by the RJR Group just over a year ago to provide TVJ with state-of-the art studio and production facilities to increase capacity for creating local content.
With the acquisition of CVM-TV, Lee Chin's growing media empire is poised to become a major player in the Caribbean, just as the region is embarking on a new wave of economic integration with the single market.
Picture it: Columbus Communication owns the major cable properties in The Bahamas and Trinidad and Tobago. They also own Arcos Network, the company building a fibre-optic network around the Caribbean and Central America. The Group includes Fibralink, one of two fibre-optic licensees, which has already successfully laid its underwater fibre-optic cable connecting Jamaica to the US.
It is not difficult to imagine CVM-TV quickly becoming a regional broadcaster since Arcos has the ability to deliver its content throughout the region on its cable systems.
It cannot be without significance that Flow sailed into Jamaica on the Columbus, just like another explorer of the same name stumbled on these Caribbean shores more than 500 years ago.
In the Jamaican context, Flow Broadband Network announced that they will be offering a 'triple play' of basic broadband Internet service for J$650 per month; basic telephone service for $495 per month, which includes free calls within the Flow network, and basic cable service for $650.
These prices are substantially lower than those currently being offered by service providers in the various sectors and should be attractive to consumers.
But there are still regulatory hurdles to overcome. In the case of the proposed cable service, Richard Pardy, CEO of Flow, said at the launch that the company had applied to the Broadcasting Commission for a licence to operate a subscriber television service.
He acknowledged that a decision had not yet been taken on the application, so I believe it is premature to represent the plan as a reality at this stage.
Nevertheless, the possibility of Flow as a new entrant offering more advanced services in the cable sector is something which many existing operators appeared to be anticipating, some of them with dread.
In an interview with Pardy on Nationwide Thursday night, host Cliff Hughes asked bluntly whether Flow's long-term strategy was to come in at a low price, gobble up the market and then raise prices when it becomes the dominant player.
Pardy's response was that in a market economy where there is competition, there will always be winners and losers. He believed that there will always be competition in the Jamaican cable business, but suggested that eventually the business will be shared among three or four major players.
If the prediction turns out to be accurate, it would turn upside down the policy carefully nurtured for more than a decade by the PNP government under P J Patterson's leadership to build the cable sector as small business enterprises.
When government sought to rein in the ramshackle, illegal cable sector with licensing and regulations in the mid-1990s, the island was divided into 241 small zones of approximately 2,500 households each, thus enabling the existing small operators to qualify for licences. Some 51 operators were licensed.
At the same time, the sole wireless licence was won by N5 Systems, a hitherto unknown player in the Jamaican media landscape, over bids by RJR, the then JBC and others. However, N5 is yet to build out the promised network.
Given the large capital outlays required to build and maintain the high technology cable networks required by today's demanding markets and consumers, Pardy may be right that convergence and consolidation will see a dramatic reduction in the number of players. The times, they say, are a changing!
With respect to Flow's other promise of cheap landline telephony, this will depend substantially on the outcome of another major unresolved issue, namely, the terms and conditions of interconnectivity with Cable and Wireless, which has invested billions into the national landline system.
As Camilo Thame reported in the Business Observer last Wednesday, the Rodney Davis-led C&WJ is objecting to a proposal that would mandate it to allow other telecoms to connect to its existing landlines. The Office of Utilities Regulation (OUR) believes the move is necessary to quickly increase the number of players in broadband and fixed lines.
But C&WJ says the plan will damage its revenue base and its business model. The OUR is expected to make a ruling April 14.
The body language from people at senior levels in the Portia Simpson Miller administration suggests that the ruling will go against Cable and Wireless and the former monopoly is about to face challenges from Flow not seen since Digicel broke the monopoly and gobbled up most of the cellular market.
Cable and Wireless, in newspaper advertising and comments to journalists all week, affirmed the company's strengths, including "the highest bandwidth available in Jamaica" and its islandwide coverage. They say they are ready for the challenge.
Apart from the lucrative business sector, major battles can be expected in a drive to sign up households for broadband Internet service, the basic requirement to get on the information superhighway and move the country on the road to the so-called 'knowledge economy'. Only some three per cent of Jamaica's 750,000 households are connected.
Phillip Paulwell, the minister of industry, commerce, science and technology, promised in 2000 that the country would raise that threshold to 40 per cent in five years. It did not happen. He repeated it at the launch of Flow Wednesday night, hoping it will happen this time.
Flow say they can deliver genuine high speed broadband (at least one megabit per second) for the equivalent of US$10 per month. This is one-third of what C&WJ now charges for one-quarter of that speed.
"We aim to drive down the telecommunications prices in Jamaica to make the country more competitive and to help to provide huge growth in the local market which will benefit both corporate and residential customers," said Pardy.
C&WJ, which has been cutting prices over the past year, will, I believe, make deeper cuts. The war is truly on, and prices will begin to tumble soon. And, of course, traditional mass media (especially newspapers and TV) can look forward to an advertising bonanza as cable tries to tie up the flow.
Claude Robinson is Senior Research Fellow in the Mona School of Business at UWI
[email protected]
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