Dear Chairman,
Last year I promised to conduct further research into the telecom tariffs on the Caribbean Netherlands (hereinafter: CN) and to inform the House about this. During the Memorandum of Understanding on 17 June, I subsequently promised to inform the House of Representatives about the report of the Authority for Consumers and Markets (hereinafter: ACM) and the follow-up steps to be taken after the summer. With this letter I give substance to those commitments.
In view of the major socio-economic effects associated with COVID-19, it was decided in May to temporarily subsidize the telecom tariffs in anticipation of this letter. In this way, the cost of fixed internet was reduced by $ 25 per connection per month. According to Statistics Netherlands, this reduction meant that rates in the second quarter fell by 19.4% in Bonaire, St. Eustatius by 17.6% and Saba by 12.6%. In this way, a contribution is made to the poverty problem; an internet connection is essential for working from home and home education.
The aforementioned measure is temporary and as indicated in the letter from the State Secretary for Social Affairs and Employment of 8 July last, the cabinet is looking at the possibilities of structurally lowering the tariffs for telecom. Before I discuss the announced follow-up steps, I will first discuss the ACM investigation.
ACM investigation
Compared to Europe, the rates for fixed internet in the Caribbean Netherlands, and in particular the Windward Islands of Saba and Sint Eustatius, are high. In order to gain insight into this, I asked ACM to map out the underlying costs for fixed internet on the Windward Islands and to advise on measures to lower the tariffs for fixed internet end users.
ACM carried out this investigation before the summer and the public version of this investigation can be found in the appendix to this letter. In this report, ACM has come to the conclusion that the underlying costs of producing fixed
internet on both Saba and St. Eustatius are relatively high. This applies to both the costs incurred on the islands themselves and the costs incurred to connect the islands to the nearest internet exchange. In 2012, the Dutch government constructed a fiber optic connection between Sint Maarten, Saba, Sint Eustatius and Saint Kitts. With this fiber optic connection, managed by SSCS (policy participation), the quality of the internet has improved and the prices per Mbit have been reduced. However, the rates of an average internet connection on the islands are still high due to a number of local and non-controllable circumstances: the remote geographic location, the topography of the islands, weather conditions (hurricane zone) and the limited number of inhabitants.
ACM notes that the available data on the costs associated with the provision of fixed internet services by the local companies Satel (Saba) and Eutel (St. Eustatius) are limited due to the absence of a cost allocation system. ACM has therefore made its own estimates of these costs. On this basis, ACM concludes that Satel and Eutel do not appear to be making any surplus profits. Only stricter regulation of the tariffs on costs will therefore probably not lead to a significant reduction in the end-user tariffs for fixed internet.
Based on the available information, ACM’s estimate is that Satel and Eutel do not work (very) inefficiently. Although it is possible that work can be done more efficiently on components, this will only have a limited effect on total costs and thus, based on cost-oriented rates, on end-user rates. In the opinion of ACM, the value of cost orientation and efficiency management should be seen more as a supportive measure in the event that subsidization is chosen.
In its report, ACM outlines various possible measures to reduce costs, including subsidizing an IRU (Indefeasible Right of Use; the right to gain self-determination over part of an existing sea cable) from the islands to the internet exchange in Miami, the abolition of the general spending tax for companies (ABB), subsidizing the construction of a fiber optic network and further cooperation or even a merger of parties in order to achieve scale and more efficiency. Even with the implementation of such cost-saving measures, however, it is unlikely that the rates for fixed services on the Windward Islands will be at the level of the European Netherlands. This has to do with the aforementioned four local and non-controllable circumstances. That is why ACM states that the only option to really bring the tariffs in line with those of the European Netherlands is to subsidize directly end users.
Response to the ACM investigation and follow-up steps to be taken
I share the conclusions of the ACM investigation. I see that the main reason for the high rates of fixed internet is the aforementioned local and non-controllable conditions that lead to high costs for providing the internet. It is therefore not expected that costs and, consequently, the applied rates and quality will be significantly reduced without subsidization. Although ACM only discusses the situation on Saba and St. Eustatius, my estimate is that this also applies to Bonaire. I do think it is important to distinguish between Bonaire and the Windward Islands. While the rates on Bonaire are around 20 dollars more expensive than on the European Netherlands, the windward movements are considerably larger differences.
Support from the national government is important in order to bring and maintain the services on the islands. This has also taken place recently. Commissioned by the Ministry of the Interior and Kingdom Relations, a sea cable has been installed that connects Saba and St. Eustatius with high-quality and redundant connections to local nodes. As a result, the price for IP transit has fallen sharply in recent years and the traffic volume has increased significantly. In 2015, the rates that the Telecom Agency charges concession holders were also substantially lowered. In addition, a one-off subsidy scheme was opened in mid-2016 for improving telecom networks in CN. In addition, at the beginning of 2019, the fees that companies pay for frequency use were again substantially reduced, with retroactive effect to January 1, 2017. The aforementioned measures, the reduction of the aforementioned tariffs and the subsidy scheme, have given an extra impulse to improving the telecommunications infrastructure. and the services offered thereon in CN. Finally, in view of the corona crisis, Radiocommunications Agency Netherlands has implemented a temporary lowering of the regulatory tariffs for this year and the tariffs for end users, as previously mentioned, have been reduced by 25 dollars by means of a temporary subsidy.
However, more is needed to structurally lower the rates for fixed internet. A structural subsidy is necessary for a significant reduction in rates. It is desirable to differentiate the subsidy between the Leeward and Leeward Islands, because the Windward Internet is considerably more expensive. Next year, a subsidy will also apply in connection with the effects of corona, whereby a difference will take place between the islands. The subsidy on the windward winds is increased to $ 35 per month. A decision will be taken in the spring of 2021 on continuation in 2022. A subsequent cabinet can choose to make this measure structural.
I agree with ACM that, in addition to subsidies, it is also necessary to look at achieving greater efficiency. In accordance with the promise made to your House in June 2019, I am talking about this with providers and the Public Bodies of the islands. Specifically, I think it is desirable that the providers on Saba and St. Eustatius work together more intensively. The providers and the island authorities are also taking up this gauntlet and are already exploring how to save costs, for example by jointly purchasing internet traffic.
In addition, I strive for further modernization of the telecommunications regulations on the BES islands. In this context, an amendment to the BES Telecommunications Services Decree has already taken place this year, about which I have informed the House. This change also regulates data services. For the time to come, I am looking into a review of the current concessions to make them more uniform and future-oriented. I will inform you further about this next year.
Finally
As indicated, the main reason for the high rates is the islands’ unmanageable conditions. Due to the corona crisis, I have taken measures to temporarily lower rates. This measure will be continued. However, for a structural subsidy from central government, it is logical that the next cabinet will make this choice, as it concerns the period from 2022. At the moment, no resources have been reserved for this.
Yours sincerely,
mr. drs. M.C.G. Keijzer
State Secretary for Economic Affairs and Climate