A REPORT commissioned by Prime Minister Dr Keith Rowley in 2016 recommended that majority State-owned Telecommunications Services of Trinidad and Tobago (TSTT) should sell its 51 per cent stake in the company.
The committee that produced the report was chaired by economist and attorney Terrence Farrell and is dated July 19, 2016.
“The committee is of the firm view that TSTT should be divested completely so that the Government has no interest in the company as a shareholder and no residual obligations whatsoever,” according to the report.
The other members of the committee were: management consultant Rolph Balgobin; accountant Nicholas Gomez, retired public servant Jerry Hospedales, retired permanent secretary Alison Lewis, attorney Elton Prescott and economist Ronald Ramkissoon. Industrial relations expert Angela Hamel-Smith resigned from the committee with effect from May 30 2016 owing to personal circumstances which precluded her further participation.
The report said the committee considered the following five (5) options for the disposition of TSTT:
• Tag-along sale of Government’s shareholding in the company to the purchaser of the C&W stake
• Sale of Government’s shareholding to a foreign company
• Sale of Government’s shareholding to a local company
• Acquisition of the C&W stake and carving out the profitable lines of business into a separate company to be sold, and liquidation or sale of the rump
• Pull-along sale of all shares held by C&W and Government through NEL (National Enterprises Ltd, the State’s investment holding company that owns 51 per cent of TSTT) to a local or international operator.
The committee analysed the first four of the five options, before concluding that the options advocated by NEL were predicated on the Government, through NEL, retaining a stake after the divestment of the C&W shares.
“The Committee maintains that Government should sell its stake in TSTT because there is no longer a compelling strategic reason to maintain an investment in a telecommunications company operating in a competitive environment, which is marginally profitable or loss-making, and which requires significant capital injections to be competitive against formidable competitors,” the report stated.
The report then advocated the pull-along option to sell 100 per cent of TSTT—51 per cent owned by the State through NEL and 49 per cent by Cable & Wireless—to a local or international operator as the best course of action for the Government, with the caveat being that the committee did not have the benefit of the valuations on the company.
The report states: “Both C&W and GORTT would like to exit and should cooperate in achieving a common objective. As the owner of the majority 51 per cent stake, Government through NEL should take the lead and pull C&W along.
“To achieve this, following the valuation exercise, NEL and C&W should develop and agree on a prospectus for the sale of the entire business of TSTT and with the assistance of an investment bank or top-tier accounting firm, offer the business for sale to any purchaser, local or foreign, or joint venture.
“The Government should propose that some proportion of the shareholding be made available to the representative union and weight this factor appropriately in the evaluation of bids.”
TSTT’s financial performance
The July 2016 report concluded that TSTT’s then current cost structure “severely restricts its ability to compete in the telecommunications market against peers with lower personnel costs and operating expenses” especially given its representative trade union, the Communication Workers Union, which “exercises considerable power and in the past its negotiating positions have constrained key decisions”.
The report stated that TSTT would face “significant challenges to maintain its market share, competitiveness and profitability in the coming years,” given the following factors:
• The absence of economies of scale from its current subscriber base of 800,000 compared to its competitors in the regional market space (C&W: 5 million and Digicel: 13 million)
• The excess headcount and aggressive unionised environment which has an adverse impact on efficiency and profitability,
• Capital requirements of $3.9 billion required over the next five years (which may require shareholder financing or support)
• Citing a CariCris credit rating report at the time, the report said among the company’s weaknesses was the relatively high dividend payout as “TSTT is mandated by its joint venture agreement between Government and C&W to pay out a minimum of 50 per cent of its profit available to shareholders. This payout policy would have affected the reinvestment of profits into its capital expenditure programme.”
According to the committee’s report, in 2016, TSTT had about 2,300 employees.
“Calculations of revenue per employee reveal that the company is significantly overstaffed relative to its competitors. TSTT expends 50 per cent of its operating expenses on employee costs, and employee costs account for 31 per cent of revenues, well above international benchmarks for the industry. As a State-controlled entity, the company has over the years been subject to political influence in hiring and the award of contracts.”
Beginning in 2018, TSTT underwent a massive corporate restructuring. TSTT sources told Express Business that in 2021, TSTT’s employment numbers totaled 1,134. On July 31, 2017, TSTT acquired 100 per cent of Massy Communications broadband and entertainment arm, which was later renamed Amplia. The TSTT sources said that the combined total employees of both TSTT and Amplia was 1,380.
TSTT and Amplia spent 44 per cent of their operating expenses on employee costs in 2021. And employee costs accounted for 23 per cent of the combined entities revenues this year. Personnel costs were normalised for one-off pension adjustment.