Interview | Wednesday, 23 April 2008

When the going gets tough…

GO Chairman Sonny Portelli spoke to Charlot Zahra about the quad-play telecoms company’s performance last year, the challenges facing GO in an ever-competitive market, and the company’s future investments, among other things

In your address to shareholders during GO’s Annual General Meeting (AGM) recently, you said that GO had a “good year” in 2007 but at the same time “it was not an easy year”. Can you explain why?
We had a good year because our results were good and were almost identical to those registered during the previous year.
We achieved these results despite a number of events that impacted negatively on our revenues. For example: the reduction of roaming tariffs for mobile telephony which was imposed as a result of an EU decision, the effect of a new competitor in fixed-line telephony, and increased competition in the broadband sector.
We reacted to these realities by improving our efficiencies, and introducing new services, and as a result, we managed to finish the year in good shape and we were in a position to pay to our shareholders the same dividend that we paid out in 2006.

What are the main challenges that GO is facing at this moment?
The challenges facing GO are the same challenges that telecoms companies are facing, both locally as well as abroad.
These are challenges arising from how the competitive environment within the telecoms market is changing, for example “disruptive technologies” which are changing the whole geography of the telecoms business.
These are challenges which demand: top-notch management, well-thought out strategies and strong financial resources. In my view, however, human resources are the most important resource that the company needs because it is the people who make the company. However it is difficult to find good people, because although we have excellent people we need more, many more.

Speaking during GO’s AGM on Friday, GO Chief Executive David Kay said that more than 200 workers had taken the early retirement scheme by the end of last year. Is GO satisfied with the uptake of the scheme or not?
David Kay was absolutely correct when he mentioned the figure of 200 plus workers, although that is an approximate number. At the end of 2006, we offered the voluntary retirement scheme as a reaction to requests or one from a number of the employees.
The early retirement process was transparent, and was completely voluntary; nobody was forced to leave. It was conducted in close collaboration with the union and I think that everybody, and not just the company, was satisfied of the outcome.
The company is satisfied, the individuals who took up early retirement are satisfied, and the union which represents them is also satisfied that all proceedings took place in a proper manner.

What are GO’s targets for the voluntary retirement scheme once the agreement with the Unions expires at the end of 2009?
We do not have any targets at present. In fact we do not have a retirement scheme at the moment.

Fixed line telephony, the bulk of GO’s business, is a dying technology with the introduction of mobile and IP telephony. What is GO doing to diversify its business portfolio in order to compensate for dying revenues in the fixed-line business?
It is not a question of what the company will be doing; the company has already taken action to diversify its revenue sources. For instance, the company has already entered into the television business, which is a new area for us.
In the beginning of last year, GO took over a digital terrestrial television company, Mulitplus. We took it over 100 per cent and we developed it with a lot of investment and a lot of hard work.
Nowadays, the range of programmes that the digital terrestrial television company is transmitting is a long list which, I believe, covers most of the expectations of Maltese viewers.
The results speak for themselves because GO Plus TV’s number of subscribers has exceeded the initial targets set out by the management when GO acquired the DTTV company a year ago.
In February last year, when GO took over Multiplus, the number of subscribers stood at 8,000. By now, 14 months later, it has almost reached the 25,000 mark.
That is just one of the measures that we have taken to replace the declining revenues from the fixed line telephony business.
However, this does not mean that fixed line telephony will disappear as from tomorrow; the technology still has a future and will be around for quite a number of years yet.
Another area of development is our access network, which at present is only used for fixed telephony and the Internet. This is being expanded and, will be used to deliver broadband, IPTV and other services, which will ensure a bright future for this company.
At present our people have started the preparations to take the company’s fibre-optic network closer to subscribers’ homes: the last kilometre. This will open a new world to our subscribers, because broadband and digital television will be provided in a totally different manner as we know it nowadays. This is the future, and towards this end the company is making substantial investments.

What are the timeframes for this project?
Obviously one cannot wire up the whole country in five minutes. However, there are milestones and there are certain regions of Malta where we will arrive before others due to the geography and other technical reasons. In addition, there are also timeframes to be considered as one needs MEPA and ADT permits before commencing the works.
To improve communication between Malta and abroad, GO has made a substantial investment in a second submarine cable between Malta and Sicily. Could you elaborate more on this project?
Before the end of this year, we will have a new submarine cable in operation, spanning between St Paul’s Bay and Mazara del Vallo in Sicily. There it will connect with the Inter-route network, which spans across Europe, to Russia, and across the Atlantic into the United States and Canada. GO’s major shareholders, EITL and Tecom Investments, have a substantial shareholding in the Inter-route network.

What is the next step in the television field? Are there any plans for GO to offer its services via satellite?
No. It is not necessary for a small country like Malta. There are technologies that are superior to satellite and we will surely use them when the right time comes.
The first step with regards to GO Plus TV is to make sure that the service can be received from all areas of Malta and Gozo. Currently we reach 95 per cent of the population, and we want to ensure total coverage of the Maltese Islands.
The next step is making sure that we provide all those kinds of programmes that the Maltese want to watch.

Ultimately, the battle in the pay-television field is about offering exclusive content. After gaining the rights for the FA Cup and the British national team’s home and away games as from the next season, are there any more surprises in store in this respect?
I will not be telling you that. However, we are determined to provide the best possible service to our Maltese and Gozitan clients. We will give them the programmes they want to watch.
We have an idea of what these programmes are, and within reason we will do our utmost to acquire these programmers for transmission to our viewers.
In addition, we are offering our sports programmes in a more affordable way than our competitors. Subscribing to our sports programmes is, in my opinion more convenient and far more affordable than what our competitors are offering.

In the current market conditions, do you believe that there is space for another DTTV network provider alongside GO?
The first problem is a technical one, and I cannot solve that. Currently, there cannot be another digital terrestrial television operator due to the frequencies issue. However, if the opportunity arises for another DTTV network operator, I am not afraid of competition.
At the end, clients are not concerned about the technology used to deliver the services into their homes; they are only concerned with the end results.
If a person wants to watch a football match or the news, one’s only concern is that one is able to watch that programme when one wants to watch it and that the signal reaches him or her clearly and without any problems, as one is already accustomed to do, irrespective of whether the signal is delivered via aerial, satellite, or cable.
We are competing in all the services that we offer. In television we are already competing strongly with the other provider, so it’s not a question of whether there is space for another operator.

I’m not referring to Melita, but to a third operator - as the MCA had initially proposed…
If the MCA were to decide so, we would try and convince the regulator that it would be better to leave things as they are. However, finally the regulator is there to regulate and decide.

In its latest report on the Maltese telecoms market, the European Commission highlighted that at 17 per cent, Malta remained short of the EU average of 20 per cent of broadband subscriptions. Do you agree with this assessment?
The reality is that one cannot dispute the fact that the EU benchmark for broadband uptake is 20 per cent. The report you quoted however refers to 2007 statistics, therefore it is true that in 2007 we had that percentage.
However since then, the whole world has changed. The Government recently launched the Blueskies initiative, which was a huge success.
Therefore that figure has changed, however. I don’t know the actual figure right now. We must await the next issue of the EU report to see where we stand now; as I said I’m sure that we have moved forward. We hope we have reached that figure by now. If not, I’m confident we’ll be pretty close to it.

Is the price of international bandwidth still a factor that is contributing to the lack of broadband internet in Malta?
For each product, price is an important factor because it determines the popularity of a product. The price of international bandwidth is what it is, and it reflects the investment that was made.
One has to understand that Malta is a small country with possibilities that are related to the size of the country, therefore the “one-size-fits-all” model is not necessarily applicable to Malta.
There is a huge difference between a big country with millions of clients, like most EU States, and a country with Malta’s size, with 400,000 population and a million or slightly more tourists who do not always require telecoms services.
However, we buy equipment at the same price as the equipment that is installed by companies in countries with millions of subscribers.
Therefore our economies of scale are completely different from those of telecoms companies in countries that are much bigger than Malta. When you compare our tariffs with those abroad, they are higher but it does not necessarily mean that we are making enormous profit margins.
The profit margins that we make are the same as those made by foreign telecoms companies, or even less, because we have the economies of scale which work against us.
Nowadays there are other providers of international bandwidth, and all face the same realities of costs and economies of scale. This is a reality which unfortunately is going to remain difficult to overturn.

In its report, the Commission also highlighted that mobile phone rates in Malta were “among the highest in the EU”, with a penetration rate of 91 per cent still being low when compared to the EU average. Do you agree with the Commission’s position?
With regards to roaming tariffs, the European Commission listened to everybody, and then decided to reduce them. We complied with the EU decision and reduced them immediately.
With regards to other mobile tariffs, we will await what will happen in the market. There will be change in the market with the licensing of the third mobile phone operator. Moreover, there will possibly be the introduction of new technologies in the market.
The market will change as a result of all this, and one has to react according to the changes in the market. I believe in the law of the market; and we will follow what the market indicates.

Is there space for a third mobile phone operator in Malta?
What I believe is immaterial; the license is already out there, allocated, and paid for. It is up to the license holder to press the button and switch it on. It is a reality which we have to face.

How do you describe your relationship with the MCA? Do you think that the regulator is doing its job effectively?
We have a good professional relationship with the MCA. We realise that the regulator has a job to do. The regulator has to ensure that all the laws and regulations that regulate the telecoms sector are being applied as they should.
A lot of the rules in various sectors, not only in telecoms, originate from the EU, and the regulator has to see that they are in place here.
We do not always agree with the regulator’s decisions, however in life one does not agree with a person all the time. I compare the regulator’s role to that of a referee during a football match.
Without him, you cannot play the game. Do you always agree with the referee’s decisions in a match? No, but he is very necessary in order to play the match.

How can the Regulator do its job more effectively?
We think that the regulator is doing his job effectively.
The MCA has opened up the market, resulting in an increase in competition. As a result there has been improvement in services, substantial reduction in tariffs, and a wider range of services on offer.
From our perspective, revenue has decreased, but the number of our clients has increased. Our services became affordable to a wider range of clients. If you see how widespread the use of mobile phones is, and how popular the SMS service is you will understand what I mean.
On the other hand there are areas where, in our opinion, the regulator could have acted differently. However in life nothing is perfect.

Now that the telecommunications technologies are converging, do you think that the MCA and the BA should be merged into a single regulator?
It does not make any difference. There are countries where there is a sole regulator for the telecoms sector, and there are countries where two regulators exist.
I think that more than my opinion, it is a matter of the policy of the Government of the day to establish how many regulators there should there be.


23 April 2008

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