By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Digicel’s pull-out yesterday prompted a Bahamian-led group to admit it decided not to bid on the second mobile licence because several conditions set by the Government were “too onerous”.

Edison Sumner, IP Solutions International’s (IPSI) chief executive, told Tribune Business it had expressed its reservations over the winning bidder having to relinquish a majority 51 per cent equity stake in the second licensee prior to the bid documents being released.

He said other potential bidders also indicated to IPSI they had difficulty with the ‘ownership’ requirement set by the Government, while the network roll-out targets were also viewed as “aggressive” and requiring more time.

Digicel yesterday offered no explanation for why it chose to withdraw from the bidding process just before the start of its second phase, the spectrum auction process.

Responding to Tribune Business’s inquiries, a spokesperson issued a terse, blunt statement, merely confirming: “Digicel Group today confirmed that it has withdrawn its application for the second cellular licence in the Bahamas.

“Digicel has no further comment to make at this time.”

Frank O’Carroll, Digicel’s head of business development, did not respond to Tribune Business phone calls and e-mails seeking comment.

However, he previously indicated that Digicel is likely to have no further interest in the Bahamian communications market because the mobile provider believes it is too small to sustain a third operator - even though the Government has the ability to issue another licence.

Mr Sumner yesterday expressed disappointment at Digicel’s decision to withdraw at this stage, questioning “how healthy” the mobile bidding process would be with just two contestants - Cable Bahamas and Virgin Mobile (Bahamas) - left in the race.

He explained that Digicel provided “a useful dynamic” as an international mobile services provider, but said it was difficult to tell how its withdrawal would impact general foreign investor sentiment towards the Bahamas because its reasons for doing so were unknown.

However, IPSI’s reservations may provide a useful insight into why Digicel decided to pull out, and why the Government only received three bids despite eight groups obtaining the Request for Proposal (RFP).

“We looked at it, and decided ultimately not to participate because we were concerned at some of the conditions, the requirements, of the bidding process,” Mr Sumner told Tribune Business.

“We made a decision, as a group, that we were not going to participate in this round, and see if there is a third round [licence].... Some of the bidders may have some of the same or similar concerns about the conditions of the licence.”

Top of IPSI’s reservations was the requirement that, after investing time and potentially millions of dollars in due diligence and the spectrum auction, the winning bidder will have to part with 51 per cent of the new licensee’s equity.

“One of the primary concerns was the equity position that the Government may be looking to take in the company,” Mr Sumner said, “albeit it would be holding the shares for or on behalf of the people of the Bahamas.

“While we welcomed, and were pleased to make shares available to the Bahamian public if we had won the bid, those requirements were a bit onerous.”

Mr Sumner said IPSI had made its concerns over the ‘51 per cent equity stake’ requirement known to the Government, its Cellular Liberalisation Task Force and the Utilities Regulation and Competition Authority (URCA) prior to the RFP’s formal launch.

“We understood the position of the Government, but we were still concerned that the percentage of equity being required was a bit high at the outset,” he added.

The Government, via the RFP, requires “the people of the Bahamas to hold the majority equity ownership interest (51 per cent) in” the second mobile provider via another Bahamian company that will be established for this sole purpose.

This entity, called ‘HoldingCo’ in the RFP documents, is designed to ensure that Bahamian majority ownership in the second cellular operator is “as widely distributed as possible”.

While the winning bidder will have Board and management control over the second mobile operator, plus “strategic policy-making” power the company, the Bahamian shareholders via ‘HoldingCo’ will have “certain veto rights” that are undefined.

And the RFP also provides for the Government to hold the 51 per cent stake, albeit on a temporary basis, until its transfer to Bahamian institutional and retail investors can be arranged.

“In order to facilitate the timely formation of Newco and commencement of operations, the Government’s primary role will be to facilitate the immediate transfer of shares to Bahamian private investors at the time that HoldingCo is formed,” the RFP says.

“However, the Government’s shareholding in HoldingCo would only be temporary in nature, pending an offering of the shares in HoldingCo to eligible investors.”

Tribune Business previously reported that the ‘51 per cent Bahamian ownership’ requirement was not made to measure for Digicel, which largely operates as a 100 per cent privately-owned company in most of the 32 territories in which it operates.

This stipulation favours the likes of Cable Bahamas, which as a BISX-listed company is already 100 per cent Bahamian-owned. The Government itself holds 29 per cent of Cable Bahamas’ equity, via the 22 per cent National Insurance Board (NIB) holding and the 7 per cent in the Treasury’s hands.

Mr Sumner, meanwhile, said IPSI instead planned to provide Bahamians with an equity interest in its bid via an initial public offering (IPO).

He added that while IPSI would have ceded a “significant” stake, it may not have been as high as 51 per cent.

“Those shares would have been set aside for the Bahamian public via an IPO,” Mr Sumner told Tribune Business. “I’m not sure it would have been 51 per cent, but a significant amount of equity would have been reserved for the Bahamian public.”

Mr Sumner indicated that the equity concerns were not confined solely to IPSI, telling this newspaper: “In discussions with some of the others who had an interest in this market, some might have expressed concern about the level of equity required, which essentially gave a controlling interest to the Government of the Bahamas or people of the Bahamas.”

The IPSI chief also pointed out that a shareholders’ agreement, and terms of the relationship between the winning bidder and majority interest, also had to be defined.

Mr Sumner, too, agreed that bidders may have had concerns about the “aggressive” timelines set in the RFP for network infrastructure roll-out and the start of services.

He suggested that more time was required, given the “considerable” investment necessary, and added that infrastructure-sharing with the Bahamas Telecommunications Company (BTC) was vital.

Under the RFP, when it comes to network roll-out, the winning bidder must provide 75 per cent mobile services to New Providence/Paradise Island; Grand Bahama; Abaco and all its cays; Eleuthera, including the likes of Harbour Island and Spanish Wells; Andros; Bimini (including Cat Cay and Ocean Cay); and Exuma and its main cays within six months of being awarded the licence.

Acknowledging that IPSI was among the first entities to express an interest in the Bahamas’ second mobile licence, Mr Sumner nevertheless praised the Government and its Task Force for “a very professional approach”.

“Now that we’re down to two bidders I’m not sure how healthy that process is, with just two involved,” he told Tribune Business.

“It’s now down to flipping coin. With Digicel’s withdrawal, their chances of winning are up to 50/50 rather than one-third.

“I’m rather disappointed in Digicel’s decision to withdraw from the process, but not entirely surprised. Having another international carrier in the race to provide services added a useful dynamic to the process,” Mr Sumner added.

“I think I understand some of the reasons why they’ve done it, but it still doesn’t remove the fact I’m a bit disappointed they’ve decided to withdraw at this stage.”

Without knowing the factors that motivated Digicel to withdraw, Mr Sumner said it was difficult to know how the company’s actions might impact investor sentiment towards the Bahamas.