THE Channel Islands telecoms industry has fallen under the spotlight in recent weeks. There was a debate in the States about the success or failure of commercialisation in Guernsey, with particular reference to the telecoms market.

The Office of Utility Regulation awarded a second and final 3G licence to Bharti Telecom at the expense of Cable & Wireless Guernsey, while Jersey granted four 3G licences.

Finally, Jersey announced that it was exploring the potential sale of Jersey Telecoms, which it owns wholly.

The commercialisation of the Guernsey telecoms market involved the transfer of the management of Guernsey Telecoms to a professional rather than a States board, which could pursue profit as its primary objective rather than simply public service.

Subsequently, the States sold it to Cable & Wireless, introduced competition into the market and established a regulator to protect the consumer and potential rivals from market abuse by the dominant operator.

Guernsey now has a more advanced telecoms market than Jersey.

There is already established competition in the fixed-line, mobile, Internet and directories areas, which guarantees more choice, greater innovation and better pricing for the consumer.

Although Cable & Wireless certainly paid less for Guernsey Telecoms than it was worth, it has invested large sums in the Bailiwick’s telecoms network, improved services and technology and given the local economy a competitive advantage through a superior communications infrastructure.

The business is now owned and managed by professionals who have considerable experience of running telecoms companies in small island economies.

Of course C&W has also benefitted because it can operate in an affluent economy with a vibrant finance sector and a favourable political and tax regime that can offer a springboard into other lucrative offshore finance centres such as Jersey and the Isle of Man.

C&W’s main objective is to make a profit here, but that profit is necessary to finance the substantial investment that the company is undertaking and that will boost the island’s economy.

Moreover, its experience and scale can help to improve the business’s efficiency and management.

C&W is still the dominant operator in Guernsey, but it faces growing competition from Wave Telecom and potentially Bharti in the mobile area as well as a robust regulator which is not afraid to make decisions unfavourable to it.

Indeed, competition and regulation are still the two biggest issues for the CI market.

The award of 3G licences in both Bailiwick and the possible sale of Jersey Telecoms illustrate both these themes, but I will focus on the former in this article and look at the implications of the latter next week.

In Guernsey, the OUR offered the second and final 3G licence to Bharti Telecom, a subsidiary of the Indian Telecoms giant, while Jersey awarded four licences.

Many analysts consider 3G to be the next major growth area for the industry, but the OUR has excluded C&W from its provision here, while paradoxically it uses equipment based in Guernsey to offer 3G services in Jersey and the Isle of Man.

It is difficult to apportion blame for C&W’s failure to secure a 3G licence because the OUR has refused to comment for now, but it must be either poor management by the company or lack of forethought from the regulator.

It is clear, however, that mobile competition will intensify in the Channel Islands with three operators in Guernsey and four in Jersey.

That should be beneficial for consumers in the short run, but the level of competition, the huge capital investment and the long run growth prospects for the local industry mean it is unlikely that all the operators will survive.

But this has not deterred Jersey Telecoms from committing a further £12m. investment in the islands, Bharti Telecom £20m. and C &W £30m.

These companies clearly believe they can make a profitable return and the investments will stimulate the potential growth of the CI economy, boost aggregate demand, enhance the islands’ competitiveness and provide a welcome boost of confidence in their futures. The OUR’s decision to exclude C&W from Guernsey’s 3G market does raise questions about the regulator’s credibility because the companie’s current investment projects will be less profitable and it has increased the regulatory risk of operating here, which will undermine its future investment and employment plans in the Bailiwick.

Similarly, it is reasonable to challenge Bharti’s motives for chasing 150,000 Channel Island customers when there are over a billion potential ones in an Indian market that is still growing.

The OUR is right to encourage more competition in Guernsey outside of C&W and Jersey Telecom, particularly in the light of the potential sale of the latter.

But C&W must also be allowed to compete or its business model could disintegrate, unless there is reason to believe that it could not provide the service in a competitive, fair and efficient manner.

There remains the real risk that C&W will not be able to survive in the Guernsey mobile market without a 3G licence and this possibility will not strengthen competition and consumer choice.

* Next week, as stated, I shall consider the possible sale of Jersey Telecoms and the implications this has for the market.