‘Cable divestiture infringes on property rights’

Micronesian Telecommunications Co. owner, Verizon, and prospective purchaser Pacific Telecom Inc. strongly opposes the request of Gov. Juan N. Babauta for the Commonwealth Telecommunications Commission to strip the telecommunications firm of 100-percent ownership of the only fiber optic cable facility in the CNMI.

In a joint submission with the CTC, MTC and PTI said divesting Verizon of cable ownership would result in “an unprecedented demonstration of government overregulation and interference with private enterprise.”

PTI executive vice president for business development Jose Ricardo P.R. Delgado said the Babauta administration’s strong opposition to the telecom deal has been discouraging, but added that the company remains firm in pushing through with the multi-million dollar transaction.

“There is all the more reason for us to want to do a good job,” he said.

The companies said there is no statutory and regulatory basis to divest Verizon of total cable ownership, on which MTC’s wholly-owned subsidiary, GTE Pacifica, has invested some $14-16 million seven years ago.

“Divestiture is unreasonable, would be an abuse of CTC’s regulatory authority, would establish [a] dangerous precedent of government intervention on individual property rights, and stifle the already anemic investment climate in the Commonwealth,” said the companies through their lawyer Marcia K. Schultz.

With no other remaining issues to be resolved except for divestiture proposal, the companies said the CTC should approve the sale and consider the cable monopoly issue in a separate proceeding, if the commission finds that the matter needs to be looked into.

Babauta, who has been joined by CNMI consumer counsel Brian Caldwell in opposing the transfer of Verizon’s ownership from MTC to PTI, made the divestiture request at the CTC. The governor’s lawyer, assistant attorney general James Livingstone, and Caldwell allege that Verizon’s sole ownership of the fiber optic cable has resulted in higher telecommunications costs in the CNMI.

Schultz, however, cited an earlier ruling by the Federal Communications Commission that “the proposed transfer will not likely result in harm to competition in any relevant market and will likely yield tangible public interest benefits.”

“The transfer of ownership has no impact on competition as it does not decrease the number of telecommunication service providers in the Commonwealth or impact any other company’s ability to continue providing service,” Schultz said. “[Babauta and Caldwell] conveniently overlook the fact that the proposed transfer is competitively neutral and does not affect telecommunications competition in the Commonwealth.”

“In fact, the FCC found that ample competition existed in the long-distance market as reflected by the fact that MTC’s overall market share, notwithstanding its subsidiary’s ownership of the cable, was less than 18 percent for all calls originating in the CNMI,” Schultz said.

Schultz also noted an earlier statement by CTC executive director Adam Turner that there are natural monopolies dictated by economic demands, which do not necessarily result in monopolistic pricing and abuse. She said that, if MTC and GTE Pacifica were practicing anti-competitive monopoly, competitors and clients could have pursued legal remedies pursuant to federal communication and antitrust laws.

PTI and MTC contended that no one is preventing potential investors from putting up another cable facility in the CNMI. They also noted the decline in cable construction costs due to improved technology compared to the time when GTE Pacifica invested on the facility in 1997.

The companies also said the governor’s rate comparison of T-1 lease lines between Saipan and Guam and between Guam and Los Angeles, California was misleading, since they did not consider the significant difference in those markets’ customer base. The former costs about $6,000 to $7,000, while the latter costs only $1,000 to $2,000.

They said several transpacific telecommunications providers have placed their marine cable operations through Guam, making the territory a telecom hub within Asia and between the United States.

“Because of the tremendous volume of telecommunications traffic between the United States and Asia, there are significant economies of scale on the transpacific routes which simply do not exist between the limited Guam and Saipan route,” Schultz said. “Guam is essentially a telecommunication transshipment center between two of the world’s largest telecommunication market and thus, the price of Guam inter-state telecommunications benefits significantly from its access to the transpacific cables.”

“In simpler terms, the cable operator can spread out cable costs over an exponentially larger customer base. Even though those cables cost more to construct, operators can charge less because of the high volume,” Schultz added.

MTC and PTI also said that divesting Verizon of total ownership of the cable would adversely impact the company’s ability to invest significantly on capital improvement in the future.

The companies have earlier agreed to fund capital improvements with some $20 million over the next five years.

Babauta and Caldwell have proposed that all the assets of the submarine network, including the submerged and terrestial fiber optic cable, be placed in a trust during the closing of the transaction between MTC and PTI. They asked that the CTC appoint a trustee, who should hold a public auction for ownership interests in the trust within 90 days.

“The trustee shall have the power to sell the assets or ownership interest of the trust, up to 33 percent of the total capacity currently available on the interisland cable. The price and terms of any sale must be fair and reasonable,” Babauta and Caldwell stated, in a proposed order submitted to the CTC.

The proposed order stated that no party or combination of parties could acquire more than 33 percent of the total ownership interests or assets of the trust. Unsold portions of the trust would then devolve back to Verizon’s ownership.