GOJ taxes Telecom Providers and OUR sets Cross Network and International Calling Rate at JA$5.00

In the past week and six days since Monday May 27^th 2012AD, we were hit by several surprises that have left Jamaicans on a whole reeling!!

It was a week where additional taxes were announced as part of the GOJ (Government of Jamaica) Budget Debate on several food items and other things and then altered due to “public outcry” as noted in the article “No GCT on raw foods at markets”, published Thursday, May 31, 2012, The Jamaica Observer and  “Tax package softened”, published Thursday, June 07, 2012 by Balford Henry, The Jamaica Observer

One Tax stood out for me personally: The Tax on Telecom Providers. 

Despite the alterations in the Tax packages, the Public is wary of the GOJ as they know that the missing money has to be found elsewhere in the Budget. Worse, no final deal has been yet announced with the IMF (International Monetary Fund), making many wonder with half of the year already gone, where are the fund to come from.

Already, thanks to the delaying tactics by the GOJ, the Growth rate as recorded by the PIOJ (Private Sector Institute of Jamaica) has declined for the First Quarter of 2012 to 0.6% as stated in the article “Mining Sector Fizzles But Economy Grows 0.6%”, published Friday June 1, 2012, The Jamaica Gleaner.

This as an additional Taxof US$0.075 per minute on inbound international Calls as well as an additional US$0.30per minute is to be placed on all Cross Network Calls between Local Mobile Networks, mainly Telecom Provider Digicel and Telecom Provider LIME.

Apparently the GOJ is looking to raise some US$5.2 billion from the Tax measure on Voice Services, completely ignoring the still nascent Data Services.Telecoms would be an obvious and logical choice as International Calling is inelastic in demand i.e. people have relatives to Call abroad to have them send remittance money as well as keep in touch.

However Digicel CEO Mark Linehan apparently flustered, did not take the news very well, especially after previous weeks run-in with the TAJ (Tax Administration of Jamaica) with regards to unpaid GCT on Mobile Phone Calls, over which the GOJ and Digicel have called a truce as stated in the article “Gov't Defends Digicel Tax Raid”, published Thursday May 10, 2012, The Jamaica Gleaner and “Digicel, Tax Administration Call Truce”, published Monday May 14, 2012, The Jamaica Gleaner.

This was reported in the article “Digicel opposes proposed telecoms Tax”, published Wednesday May 30, 2012 8:38 am, The Jamaica Gleaner and “Digicel Slams Telecoms Tax”, published Wednesday May 30, 2012, The Jamaica Gleaner.

Digicel CEO Mark Linehan is quoted as saying, quote: “Digicel is strongly urging the Government to reconsider the imposition of these excessive taxes on the telecoms sector. While these punitive taxes on the telecoms industry may assist the Government's budget shortfall in the short term, ultimately it will be detrimental to the development of Jamaica in the medium to long run. The imposition of these taxes will severely restrict further investment in Jamaica by the operators and their ability to assist in the development of the economy, ultimately harming businesses and consumers.”

Even Opposition Minister of Finance Audley Shaw got into the mix-up also making complaints about the supposedly unfair taxes as stated in the article “Hostile phone Tax”, published Wednesday May 30, 2012, The Jamaica Gleaner.

Truth be told, Opposition Minister of Finance Audley Shaw and Digicel CEO Mark Linehan are BOTH overreacting as it’s good to note Telecom Provider LIME has no complaints.

The reason: Most people already make Calls on the Telecom Provider Networks using either:

1.      VoIP platforms such as Master Jack, Google Voice or even Skype, which is now owned by Microsoft and deeply integrated into Facebook as stated in my blog article entitled “Microsoft aquires Skype for US$8.5 billion - Miley Cyrus's Fly on the Wall Drops it Like it’s Hot” and “FaceBook deeply integrates Skype - Microsoft, the Ladykiller of Landline”

2.      International Calling Plan as detailed in my Geezam blog article entitled “How to set up an International Calling Plan for Digicel or LIME Prepaid and Postpaid”

If anything, from a purely economic point of view, the increased taxation will translate to increased International and Local Calling for more funds to be sent from relatives both Internationally and Locally respectively. This will spur an increase in the adoption of Postpaid Mobile Services, Landline and Mobile Wireless and Wired Broadband Internet as already predicted in my blog article entitled “OUR Records Voice Decline for the Fourth Quarter of 2010 - Postpaid, Data Services and Fixed Line Mobile and Landline Saturday Night Fever for Telecom Providers”.

Difficulties of collecting these taxes abound, such as the extra-territorial nature of the Tax on Inbound International Calls, effectively a Tax on the US of A. The FCC (Federal Communications Commission) might not gripe much about this.

Contrary to Media Reports, Call termination on another Telecom Provider Network attract a Flat Rate termination tariff, which is negotiated by Telecom Provider with Carriers in the US, Canada and UK. Negotiations rounds should thus begin again with the aim to increase this Calling rate to accommodate the new Tax of US$0.075 per minute.

Customers can insulate themselves from this by adopting an International Calling Plan on offer from Either Telecom Provider. This was the point of the JA$8.99 Flat Rate Calling Plan for Prepaid and now the Anywhere Calling Plan for Postpaid as stated in my Geezam blog article entitled “Digicel intros the Anywhere Plan for Postpaid” and my blog article entitled “LIME's 4G Experience Centers & Digicel's JA$8.99 One Rate Plan - Telecom Providers fear Municipal Wi-Fi SkyFall from Broadcasters DSO”: Get customer to adopt an International Calling Plan.

As for the local Tax of US$0.30 cents on Cross Network Calling, that is set to get a boost thanks to the recent declaration by the OUR (Office of Utilities Regulation) of an interim rate of JA$5.00 per minute for Cross Network Calling as stated in the article “OUR sets interim termination Call rates at $5”, published Tuesday June 5, 2012, The Jamaica Gleaner.

The new Telecom Regulator will be adjust the rates in the future and make them permanent in keeping with changes in the Telecommunications Act of 2000 to whom the OUR will hand off its portfolio responsibilities in the Telecom Sector.This news of lower Cross Network Calling Rates combined with the increase prospect of increased usage of Data Services may be what’s keeping Telecom Provider LIME mute on the subject of the Telecoms Tax!

In the coming months may see the balance of power in BOTH Data Services and Voice service swing in their favour as suggested by the article “LIME scores with rate changes”, published Thursday May 31, 2012, The Jamaica Gleaner and “Digicel worried, LIME welcomes telecoms changes” Published Wednesday May 2, 2012, The Jamaica Gleaner.

Telecom Provider LIME has already rolled out both sweeteners for Voice Services in the form of the LIME XL Value Promotion and Lower Data Charges effective since Tuesday May 1^st 2012AD as stated in my blog article entitled “LIME launches XL Value Campaign and slashes 3G Mobile Prepaid Data come May 1 - Shadows of the Old Republic as LIME does Baby Cham's Wine”.

In addition, Telecom Provider LIME’s brand new IPTV (Internet Protocol Television) services also dubbed LIME TV and different from its DVB-H (Digital Video Broadcast – Handheld) service LIME TV as explained in my blog article entitled “LIME launches IPTV Streaming Service LIME TV in Barbados on schedule - Lady Gaga's Bad Romance for Digital Cable and Free-to-Air Broadcasters”, will get an extraordinary boost from this taxation measure.

Hence their silence is most likely glee; they are going to benefit from the double whammie combo of Increased Taxation on Voice Services, with Data Service completely ignored and the new Flat Rate of JA$5.00 for Cross Network and International Calling

Both announcements represent a decline in Medium term profitability for Telecom Provider Digicel and hence their angst at the coming revenue losses, as their Network is 90% Prepaid Customers, according to OUR statistics.

Telecom Provider Digicel, however will benefit in this Telecom Tax accelerated love affair with Data Services, particularly Mobile Data as more and more Jamaican are going smartphones and dodging Blackberrys as noted in my blog article entitled “Blackberry popularity wanes as Jamaicans go smartphones - Android and Apple's Smartphone Revolution”.

Telecom Provider Digicelalso benefits as this push towards Data Services means that their Mobile Data Push and Cloud Services via the acquisition of CLARO Jamaica will be fruitful in the long term as predicted in my blog article entitled “CLARO’s Freeness ends 5th January 2012 – Digicel’s Bigger, Better with Data and Cloud”.

Again, as I had said at the very beginning, this Telecom Tax is aimed at Voice Services, not Data Services. Hence the reason why this measure is good for the Telecom Providers overall!

Especially when Data Services are combined with VAS (Value Added Services) such as IPTV Streaming and VoIP Calling, interest in which will peak customer interest and spending and thus encourage Telecom Provider to upgrade and expand their Data Service offerings!

BOTH Telecom Providers may not necessarily like this in the medium term as this for them is a kind of “Bitter Medicine”. Data Services are not as spectrally efficient as Voice Services i.e. less Network resources are required for Voice Services, both Prepaid and Postpaid than Data Services.

Telecom Providers are still yet to complete very expensive upgrades as stated in my blog article entitled “LIME's US$80 million Caribbean HSDPA+ Release 7 Upgrade - Sonic the Hedgehog” and  “Digicel's US$85 million HSDPA+ and WiMax 4G Upgrade - Wizards of Waverly Place Fast Five Showdown” slated to ramp up be completed by December 2012Ad of this year.

Long term, however, the advantage rests with the Customer and Telecom Provider to capitalize on the coming trend of a shift to Data Services which this Tax is sure to accelerate. This as it will make VoIP Voice, Video Services and Cloud Data Services and other Data-Centric VAS (Value Added Services) increasingly popular with customers and thereby justify any increase expansion of their T1 thirsty and resource hungry Data Networks.

In essence the Telecoms Tax is a Prometheus (2012) and the coming of Flat Rate International and Local Cross Network Calling which will result in the increased adoption of Data Services as prognosticated based on OUR Statistics for 2009AD to 2010AD in my blog article entitled “OUR Records Voice Decline for the Fourth Quarter of 2010 - Postpaid, Data Services and Fixed Line Mobile and Landline Saturday Night Fever for Telecom Providers”.

Now all we needs is a third competitor…..stay tuned for  more on the FTC vs Telecom Provider Digicel as anticipated in my blog article entitled “FTC wins right to pursue legal action against the Digicel-America Movil swap - Game of Thrones as Mobile Data Candyshop beckons”.