by Larry Smith
Just before the 2007 general election, the Christie government made a secret deal to sell 49 per cent of BTC on credit to an unknown foreign entity called Bluewater Ventures. The electorate wasn't aware a deal had been struck and didn't know the terms, although official talks had been ongoing for two years.
Bluewater described itself as "a private equity firm specializing in turnarounds and investments in the media and telecommunications sectors". It was set up in 2003 by an American named John Gregg, who had worked for a couple of European cable companies. Based in the Channel Islands, an offshore financial centre, its actual shareholders have never been identified.
Soon after the election, ex-finance minister James Smith urged the new FNM government to close the Bluewater deal, arguing that there would never be a better one. But was he right?
In the present context of an agreement to sell 51 per cent of BTC to international telecoms operator Cable & Wireless, it is interesting to review a confidential 2007 Bluewater document relating to the earlier sale. That document cites BTCs own business plan, which valued the corporation at $333 million, meaning that a 49 per cent stake should have been worth about $163 million.
It is common knowledge that BTCs value as a mobile monopoly has been heavily eroded by poor management and new technologies. For example, it took just a few years for voice over internet services like Vonage to turn BTCs long-distance calling into a losing business.
Other providers now control most of the local VoIP market - despite the face-saving introduction in 2006 of BTCs competing Vibe service. And experts have long predicted that WiFi phones connected to a computer with Internet access will disrupt BTCs still-lucrative mobile business over time.
According to the confidential 2007 Bluewater document, other factors that affect BTCs value include exorbitant rates that would be impossible to maintain in a competitive market; the high risk of hurricanes crippling the network; and capital spending that is far greater than earnings.
"A true valuation analysis of BTC must assume that rates, and hence (earnings) will have to be lowered in the near term," the document said. "And just two years ago BTC saw its cash flow for the year virtually wiped out and submitted (hurricane) insurance claims close to $50 million. It is our understanding that insurers refused to honour many of these claims.
"BTC's capital expenditures have historically been higher than comparable companies. In fact the BTC business plan for 2007-2009 puts capex at a rate significantly higher than (earnings). From an investor's perspective, the need for such high spending to maintain the network is a red flag."
Several years ago, former BTC president Leon Williams boasted that the corporation had spent $353 million on capital development over a five-year period. And Bluewater reported that BTCs business plan called for another half-billion-dollar spend over the ensuing three years, compared to $429 million in projected earnings.
In spelling out a rationale for the proposed acquisition, the 2007 Bluewater document painted a dismal picture of BTC, calling the corporation's business plan inconsistent, contradictory, lacking in detail and offering nothing for its three main stakeholders - consumers, the government and employees.
Bluewater pointed out that BTC didn't even consider improving its lousy service or cutting its outrageously high prices, and failed to justify in any way the introduction of costly new products and services. In fact, BTCs plans assumed no dividends at all for the government - just a never-emptying cookie jar for management, union leaders and staff.
Why would Bluewater pay for a minority stake in such a poorly-run state operation? Well, principally because the PLP deal would have extended BTCs monopoly for six years - while letting it offer extra services like video. In other words, BTC would have continued as a government-owned monopoly for a very long time. And the Bluewater sale was a smoke-screen trying to hide that fact.
The deal was that a 49 per cent stake in BTC would be priced at $260 million, but Bluewater would pay only $220 million up front while keeping all of BTC's cash in the bank (about $70 million at the time). At the end of the five-year cellular monopoly, Bluewater would have paid a further $35 million, and a final $5 million in the sixth year after the sale. This was what Prime Minister Hubert Ingraham referred to shortly after taking office as "selling BTC on credit".
I'm sorry, but even a horse's ass can see there is absolutely no comparison between a secretive installment plan concocted with an unknown buyer who had no financial or operating history, and the $210 million (plus taxes) up front purchase price agreed with Cable & Wireless - a long-established telecoms firm with revenues of over $1 billion and a long-standing operating record in several countries.
So the astonishing propaganda emanating from PLP leaders on this issue should be taken with a large bicarbonate of soda. Their strategy is simply to repeat enough rubbish frequently enough so that the rubbish starts to seem believable. That, unfortunately, is the standard of political discourse in this country.
There is no ostensible policy difference between the PLP and the FNM position on this issue. Both parties while in government have said they wanted to sell BTC to a foreign entity to help pay down the national debt, and to modernise the Bahamian telecoms sector. The only difference has been the architecture of the deal.
You be the judge.