Although it has generated some heat, the controversial $255 million acquisition of Massy Communications by TSTT, announced on May 2, has been described as a win-win proposition by the chairmen of both companies.
Speaking exclusively to the Business Guardian after the signing ceremony at the Hyatt, TSTT chairman Emile Elias said: “I think it is a win-win situation in a number of ways. Firstly, I think the price that TSTT is paying is reasonable. From our perspective, it is a good price and I hope that Massy looked at the selling price as also good for them.”
At the end of the day it is a win-win for both companies, said Massy Communications chairman Fenwick Reid. “It is also a win for us in the sense that we have fertilised this egg. We wanted to ensure that if we had to divest it, it would be someone we trust and someone we can work and collaborate with.”
Massy was looking to sell its start-up provider of fibre to homes providing high-speed Internet and TV because it wanted to focus on its core competencies in Massy Technologies and, said one industry source, because it did not anticipate how aggressive Digicel would be in rolling out its own fibre-to-homes offering.
As a result, Massy’s 2016 annual report outlines that the group took a significant one-charge as a result of as costs associated with a three-month delay in the Massy Communications launch.
Massy chief financial officer Paula Rajkumarsingh, in the 2016 report, said: “Our IPTV investment, which launched in March 2016, reported operating losses of $40 million, compared to start up losses of $2 million posted in 2015.”
Reid explained that the fibre-to-homes business is very capital intensive as “companies have to invest a great deal of capital before you can start adding customers. Apart from the fibre infrastructure, you need to have all of the IT systems, the subsea bandwidth as well as people need to be hired.” This means, Reid said, that all fibre-to-the-home entities accumulate losses and debt before they start up.
The Massy executive said between the due diligence and the start up of the company in March 2016, the competitive landscape of the local telecommunications industry changed.
He said Massy Communications had a strategy of targeting specific neighbourhoods rather than rolling out the network islandwide.
“That has worked for us, but when we looked at the horizon, what we needed to do to growth the business significantly—given the competitive landscape and what’s happening in technology—we felt that it was better placed in an organisation that has already funded to do that,” Reid said.
“We felt that for the good of the business, for the good of Massy, for the good of the country and of TSTT, that they would be the best partner to make that happen for us.”
While Massy Communications might have been looking to exit the business, TSTT was looking to get into the fibre-to-the-home business as part of the majority state-owned company’s five-year, $3.8 billion strategic plan, which set a goal of fibre going past 200,000 homes.
The acquisition allows TSTT to access Massy’s fibre network, which goes pass 34,000 homes in middle-class neighbourhoods such as Diego Martin, Trincity, Arima and San Fernando. With TSTT’s existing 25,000 customers, the acquisition takes the company to 59,000 potential customers.
Elias said: “The acquisition of Massy Communications advances our own agenda by about two years and it means that we will be able to offer the high-speed services to 34,000 more homes. We will be able to offer a suite of services to those homes that go beyond Internet and television, to include security.”
Of the $3.8 billion, TSTT borrowed $1.9 billion from a bond raised by Republic Bank and will generate $1.9 billion from its internal resources. It is not anticipated that any of the resources for the five-year strategic plan will come directly from the State.
TSTT’s bid for Massy Communications came out of talks the two companies started this year on the possibility of sharing infrastructure, such as the fibre that the Massy group subsidiary had laid in communities across the country. Those talks were possible because the companies were using compatible hardware, the company executives said.
“From that, it emerged that Massy would consider concentrating on its core competencies. It also emerged that they had rolled out fibre in areas that we were about to do, which would have meant a significant savings in foreign exchange for TSTT,” said Elias.
“It’s a natural add-on. We think that we can start making it a productive and profitable part of our enterprise from day one as there is no reinventing of the wheel and it is part of our core business,” said Elias.
In an internal memo to staff on Friday, Massy CEO Gervase Warner also agreed that both companies would win from the transaction.
Warner said: “Together the two organisations will be a much stronger and more effective competitor in the high-speed broadband and HD TV segment of the sector.”
Warner said the agreement will “enable further growth and expansion for the company to better meet our customers’ needs and now and in the future.”
He said: “The business combination will also accelerate TSTT’s deployment of its next generation network. The company brings to TSTT a state-of-the-art, all-fibre optic network and reputation for reliability and high quality customer service.”
Warner said: “Massy Communications and TSTT are both successful locally owned companies with a commitment to the advancement of the telecommunications industry in Trinidad and Tobago.
“We both recognise the importance of deploying high speed telecoms services to the economic growth and entrepreneurial development of the nation. We are both similarly focused on the development of local content and local talent.”
We think that we can start making it a productive and profitable part of our enterprise from day one as there is no reinventing of the wheel and it is part of our core business.