Friday's cut in rates by C&W represented an average 25 per cent cut in its costs of calls outside Jamaica, and followed its move a month ago to reduce the cost of foreign calls by its mobile customers to a flat $21-a-minute - which Digicel has now beaten.

"This new $20 per minute rate signifies an average overall reduction of 30 per cent and offers a clear comparative advantage in terms of savings over all other rates, whether from a fixed line, calling cards or other mobile operators," the Irish-owned Digicel said in a statement. ". Using average call times, Digicel users will save up to 20 per cent versus fixed line customers who are paying $18, rounded up to the next minute."

".This new Digicel international flat rate will mean welcome savings for business customers (who are) now faced with the added burden of fixed line rentals and fixed line rates," Digicel added.
Senior C&W officials were not immediately available last night for comment on Digicel's claims.

Less than three years ago, such aggressive competition in the telephone market was unthinkable: Cable & Wireless was still the only player in the market and had a 50-year monopoly on telephone service in Jamaica.

But in 1999, the government negotiated a three-year phase-out of C&W's monopoly and auctioned two licences for mobile telephone providers. Digicel, owned by the Irish firm, Mossel, paid US$47.5 million for one of the licences and the American Centennial paid US$45 million for the other.

Now, between them, C&W and Digicel, which launched its service 17 months ago, have over a million subscribers, while Centennial, which was slow to build out its network, compounded by the financial problems of its parent, has only a fraction of the subscription base of the two big players.

Earlier this year, C&W's monopoly on plain old telephone service (POTS) went and one potential competitor is already building a system to provide a wireless fixed line service.

By next March, the last element of Cable & Wireless' monopoly will be removed when competitors will not have to route international calls through its system. Digicel is spending US$12 million to upgrade its facilities, in part to facilitate this bypass.
"This (the rate cuts) shows how consumers can benefit from competition," said Digicel's CEO, Seamus Lynch.

While competition has played a part in C&W's sharp cuts in international rates over the past two years, it has been forced into aggressive rebalancing because of pressure from the United States.

In the past, Cable & Wireless kept the cost of its domestic service cheap and subsidised it with its earnings from expensive international calls - the bulk of which come into Jamaica.

Under the system for international telephone calls, a US firm and Cable & Wireless would agree on a cost for delivery of a call from one destination to another. But the company originating the call takes it to a theoretical midway point, after which the company at the receiving end takes over and is paid half the revenue.

But the Americans argued that because many countries like Jamaica kept the cost of their international service to the domestic users artificially high, it meant that more calls were made from the United States to other countries.

The upshot is that American firms pay out far more in settlement to foreign firms than they receive - creating an imbalance in trade.

The Americans have pressed their long distance telephone providers to slash rates agreed with foreign telephone companies, forcing companies like C&W, now earning less money from overseas calls, to increase the cost of their domestic service - rebalancing.

In fact, the flip side of C&W's reduction of its overseas rates was the sharp hike - by as much as 66 per cent - in the cost of domestic telephone calls - a fact to which Digicel's Lynch alluded in his remark about higher fixed line rates.

http://www.jamaicaobserver.com/news/html/20021103T040000-0500_34555_OBS_PRICE_WAR.asp