FSM Congress Passes Bills To Meet World Bank Requirements For Fiber Cable Grant

President to consider bills which could trigger release of grant funds

By Bill Jaynes

POHNPEI, Federated States of Micronesia (Kaselehlie Press, June 17, 2017) – The FSM Congress has passed two bills which they hope, when taken together will meet the World Bank’s requirements for the largest single project grant in FSM history. The bills now go to the President’s office for consideration.

It is not at all clear whether their compromise decision will be enough to trigger the World Bank funding. Since the bills were presented separately, President Christian could choose to veto one or the other of the bills, or potentially even both. World Bank could decide that the legislation didn’t dig deeply enough to meet their criteria.

The timing for the legislation was critical. FSM has signed agreements with service providers to lay fiber optic cable. Without the World Bank grant, the FSM would have to default on those agreements. According to the Standing Committee on Transportation and Communication (T&C) hearings and its committee report, the cable provider has already been manufacturing the cable. If World Bank funding is not assured, they will not load the cable onto the vessel that will lay that cable on the ocean’s floor.

That time is rapidly approaching. Some decision had to be made by the end of the Congress session and Senators were not pleased with having been put on the spot for such a critical and complex decision.

The World Bank wants to fund fiber optic connectivity for Yap and Chuuk, and is currently in the process of deciding on funding of fiber optic connectivity for Kosrae, but it will not release the funds if mechanisms to allow fair competition on those lines are not in place. It would not fund FSMTC ownership of the cables because a monopoly, even if only a de facto monopoly, could decide to keep things as they are, the Project Coordinator for the cable project said.

The World Bank’s goal is to provide for the opportunity for competitors to enter the telecommunications market in the FSM in order to generate the lowest possible prices for consumers with the best possible service. They want to allow for the innovations that competition often brings to the marketplace.

It’s not at all an unprecedented move. In 1982, AT&T and its subsidiaries had a monopoly in the US telecommunications industry. They controlled everything from the telephones that customers were required to rent if they wanted service, to the lines the signals were carried on. It was only after thatmonopoly was broken up that consumer prices began to fall. Communications innovations skyrocketed and the entire US economy was positively affected.

It wasn’t done overnight. It took years. The process began with an antitrust lawsuit that was filed in 1974 that only finally ended after AT&T, fearing that they may lose the lawsuit, made a conciliatory agreement in 1982.

AT&T’s market was approximately 300 million men, women and children. No one knows whether a potential telecom competitor would be attracted to the FSM market consisting of 105,000 men, women and children—the population of a small US town—but the World Bank wants to ensure that the mechanisms to allow for that possibility are in place before it releases funds for the project. It won’t provide the funding until the FSM has taken the steps to ensure that will be the case.

At issue is access to the HANTRU1 fiber optic spur that provides Pohnpei with fiber optic services. That line is crucial to connecting a new line to Chuuk, but the line belongs to FSMTC, which is paying off a $22 million loan to Rural Utility Services (RUS) for it and associated facilities.

The Executive Branch requested Congress to consider a bill that would have, among other provisions, transferred the ownership of the HANTRU1 spur from FSM Telecommunications Corporation to the FSM Open Access Entity (OAE) along with the loan obligation.

The OAE was provided for under the telecommunications liberalization Act of 2014 but was only recently established as the FSM Telecommunications Cable Corporation, another FSM government corporation.

President Christian, in both his initial transmittal letter that came with the bill and in another letter sent to Congress on May 29, represented the bill to transfer assets and limit satellite usage, among other provisions, as the only acceptable way forward.

During the first T&C Committee hearings on the proposed bill, the question was repeatedly asked if World Bank truly was requiring that ownership of the HANTRU1 fiber optic line be transferred from FSMTC. Committee members who had carefully read the World Bank financing arrangement said that they didn’t see anywhere in that agreement that the World Bank was requiring transfer of ownership of the asset.

The OAE Project Coordinator presented two options but said that the transfer of the HANTRU1 line to OAE, which would then offer wholesale prices on the line that FSMTC and other competitors could purchase is the best way forward.

FSMTC’s CEO Fredy Perman reasoned that the HANTRU1 line was their asset and that their credit rating is leveraged against its assets. Transferring the line to the OAE would affect their ability to do business. He said that the matter was moot anyway since he had received confirmation from RUS that they would not be interested in transferring the balance of the loan to the OAE.

T&C Chairman Senator Victor Gouland instructed the OAE and FSMTC to get together and discuss the issues and come back to the committee with an agreement.

Chief of Staff Leo Falcam told the committee at the beginning of the final hearing on the matter that progress had been made and that an agreement for a possible resolution to the problem was in the works but that it would not likely be done in time and so the bill was still before Congress.

The potential resolution came in the form of an IRU (Indefeasible Right of Use – “indefeasible” essentially means “non-revokable”) that the OAE presented to FSMTC last Thursday. It is unclear how long that document has been in existence but it is clear that it didn’t come into existence last Thursday, and Perman wanted that point to be on the record. But they are still working on it. At press time, no agreement had been made.

Perman pointed out that the IRU for Yap services took two years to negotiate. He said that agreements with other parties on the HANTRU1 line meant that those parties needed to be consulted before any agreements could be made.

Ultimately, Congress struck all of the proposed wording of the bill to transfer the HANTRU1 line to the OAE and other provisions in the bill.

World Bank wanted to be sure that the OAE has access to the HANTRU1 line free of charge in order to establish a competitive environment. Congress passed a bill to require that. It passed another bill to allow free of charge access to FSMTC on the new lines that will be installed for fiber optic connectivity in the other FSM States.

Except for the fact that FSMTC is on the hook for the $22 million dollar loan to land HANTRU1 in Pohnpei, that latter bill could be seen as a competitive advantage over others who might use the line. The Yap delegation voted against that bill on second reading. The other three states voted for it.

A proposed amendment of a few words would have once again exempted FSMTC from Gross Revenue Tax. Off-Journal conversations on that amendment centered on the fact that no public hearings had been held regarding that possibility. Senators decided that it could set a dangerous precedent. When they re-adjourned, the proposed amendment was withdrawn.

It is currently unclear whether or not the bills that Congress passed will meet World Bank requirements for the fiber optic cable grant.

The Kaselehlie Press
Copyright © 2017 The Kaselehlie Press. All Rights Reserved

Comments

  • FSM Telecom seems as if they are trying to derail the World Bank Grant.
    FSMTC’s CEO Fredy Perman reasoned that the HANTRU1 line was their asset and that their credit rating is leveraged against its assets. Transferring the line to the OAE would affect their ability to do business. He said that the matter was moot anyway since he had received confirmation from RUS that they would not be interested in transferring the balance of the loan to the OAE.
    Per the paragraph above, I don't see how this would affect their ability to do business. Aren't they a service provider to begin with? It doesn't matter who owns what asset as long as they are in the business of providing service.

    My opinion here is that the CEO is wrong. If he does not allow the transfer of HANTRU1, he is basically spelling doom for the future of the corporation. OAE or Open Access Entity was created to address the liberalization and fair marketing of telecommunications in the FSM.

    If FSMTC keeps HANTRU1, it forces the corporation to actually compete in the telecom market within the FSM. The downside of this is that the competition will be buying at cost bandwidth and telecom services from OAE which in turns allows the competition to be more aggressive in marketing its services.

    This will cause a huge disadvantage to FSMTC since their competitors can then lower costs and basically lure FSMTC's customers away.

    World Bank's plan was to have OAE control connectivity to FSM while allowing FSMTC to lease their services to any interested company or companies willing to set up shop in Micronesia services. This allows FSM Telecom to stay afloat and not compete in the market since they will more or less be an infrastructure provide.

    It is a win win for FSMTC as well as the people of the FSM. Competition promotes business which in turn promotes better services and better rates for the customers of any business willing to venture in to the telecommunications business in Micronesia..

    World Bank's formula has merit. Why else would they be willingly give FSM a multi-million dollar grant. It is not out of good faith but out of the tried and true process of business they have been conducting with other countries for years decades.

    I wish the leaders of this Nation understands this and stop allowing the personal interests of the CEO for FSMTC cloud their judgment.



  • edited June 22
    sohn_kawa, allow me to correct you on multiple points:

    FSM Telecom seems as if they are trying to derail the World Bank Grant. FSMTC is 100% in support of fiber to the other FSM islands BUT not at the expense of the FSMTC, its assets nor its employees, most especially since it is blatantly apparent that there are better solutions at hand than what the project mangatment team of World Bank has proposed.

    FSMTC’s CEO Fredy Perman reasoned that the HANTRU1 line was their asset and that their credit rating is leveraged against its assets. Transferring the line to the OAE would affect their ability to do business. He said that the matter was moot anyway since he had received confirmation from RUS that they would not be interested in transferring the balance of the loan to the OAE.
    Per the paragraph above, I don't see how this would affect their ability to do business. Aren't they a service provider to begin with? It doesn't matter who owns what asset as long as they are in the business of providing service.

    My opinion here is that the CEO is wrong. If he does not allow the transfer of HANTRU1, he is basically spelling doom for the future of the corporation. OAE or Open Access Entity was created to address the liberalization and fair marketing of telecommunications in the FSM. This is the FSMTC's main revenue generating asset. It allows the FSMTC to provide ADSL services which in Pohnpei are priced less than other states and also provide 3G with good revenue return. To transfer ownership would be suicide for FSMTC.

    If FSMTC keeps HANTRU1, it forces the corporation to actually compete in the telecom market within the FSM. The downside of this is that the competition will be buying at cost bandwidth and telecom services from OAE which in turns allows the competition to be more aggressive in marketing its services.Not true at all. If FSMTC keeps HANTRU1, FSMTC keeps doing its usual business while in competition with new entrants that buy capacity from OAE at rates that are significantly higher than what FSMTC is getting over HANTRU1. Why? Because in its nearly 35 years of existence, the FSMTC has established good business relations with ip transit providers that makes it possible for FSMTC to secure low, low rates over HANTRU1. The OAE is a new entity with no established relationships with ip transit nor upstream providers that can match what is being offered the FSMTC. It's all about relationships in this industry.

    This will cause a huge disadvantage to FSMTC since their competitors can then lower costs and basically lure FSMTC's customers away. New entrants into the FSM Market will have to buy capacity from OAE and trust me, these capacity rates will be much more expensive than what the FSMTC gets currently on the HANRTU cable. So who do you think will stand a better chance of offering lower cost services?

    World Bank's plan was to have OAE control connectivity to FSM while allowing FSMTC to lease their services to any interested company or companies willing to set up shop in Micronesia services. This allows FSM Telecom to stay afloat and not compete in the market since they will more or less be an infrastructure provide. Totally the opposite there my friend. What World Bank proposed through the bills was to take away FSMTC's international assets such as HANTRU and its satellite antennas so the FSMTC will not be able to compete against the OAE in offering capacity over HANTRU to new entrants and to ensure FSMTC buys capacity from OAE at whatever price the OAE can work out. Again, with the lack of established good business relationships established by the OAE, the expected cost of capacity/bandwidth over the Yap and CP cables would be significantly higher than what FSMTC, through its well established business relationships can offer.

    It is a win win for FSMTC as well as the people of the FSM. Competition promotes business which in turn promotes better services and better rates for the customers of any business willing to venture in to the telecommunications business in Micronesia.. Not in the way that is being proposed by FSM-TC&I and the World Bank project team. They are proposing an OAE that will have an annual operating cost of abut $500,000, 60% of which goes to the salary of just one man - the proposed CEO Adolfo Montenegro. The FSM-TC&I and World Bank's promised to FSM leaders that any telecommunication company operating in the FSM be funding the operating cost of the OAE. Well, I bet you that there will not be any new entrant in the FSM for the first 3 years or so, if at all. So that will leave the FSMTC to absorb that $500,000 as an operating expense. That will further translate to the FSMTC raising the cost of services offered to customers to pay for this new, unnecessary entity. This is just adding costs and layers between the customers and service provider-FSMTC.

    World Bank's formula has merit. Why else would they be willingly give FSM a multi-million dollar grant. It is not out of good faith but out of the tried and true process of business they have been conducting with other countries for years decades. Not so. In the 100+ MacMillan Keck report, it states that this is a novel approach being undertaken by the World Bank. This is just after the report states that the FSMTC has done exceptionally well in the Pacific.

    I wish the leaders of this Nation understands this and stop allowing the personal interests of the CEO for FSMTC cloud their judgment.All the views and points raised by the CEO or any other FSMTC staff or counterpart were the result of consultations with the Board of the FSMTC, overall management team of FSMTC and Ramp & Mida Law offices whom are the legal counsel for FSMTC.

  • So how can the grant funds to the FSM be released without following the guidelines set by the World Bank?

    Is the FSMTC or the FSMG prepared to provide the funding necessary to pay for the cost of the fiber optic cables, the laying out of the same and testing and other required works, and the eventual hook-up?
  • Exactly TruthIsThat. The CEO is playing with fire and if he continues to falsify his claims to the leadership while claiming he is the expert such as he did during the SNLC conference in Kosrae, FSM may stand to lose this grant from the World Bank.

    As for Juliet, you have an eloquent of putting things however it is unfortunate what you stated are mostly false claims. Yes, FSMTC as a history of 35 years as a corporation however it has a limited number of years as an internet bandwidth provider.

    From what I do know about bandwidth wholesalers, as long as you are an enterprise class provider and you are willing to sign a lucrative contract with the wholesaler, they do not care how long you have been in business.

    Had FSMTC agreed to the World Bank Terms, they would have had no fear of competing in the Telecom Market as FSMTC would have been the infrastructure provider and would have leased all its services to all potential telecom operators.

    The CEO has been blowing smoke to protect his personal investment in the Corporation. He may or may not stand to lose a lot of potential money if OAE establishes itself as the connectivity wholesaler for FSM since FSMTC will cease to exist as a service provide basically meaning there will no longer be a 10% cut for every call made from the 3G System sold to him by a Chinese middleman in which FSMTC claimed was ZTE.

    Call up FSMTC and verify. There is a 5 year contract that expires in about a year, plus or minus, that states ACCLinks will be negotiating terms for another 5 years for interest and technical support for 10% of all revenues generated from FSMTC's 3G Cellular System. The next negotiation may up that 10% to 20% but will we ever know what the real figure would be?

    Just imagine if FSMTC makes $10,000,000.00 a year from the Cellular 3G System. That would mean $1,000,000.00 a year would be paid to this Chinese middleman. Even a 2% commission would be $200,000.00 I will let your imagination conjure up who may stand to gain or lose from such a handsome revenue.

    Now do you understand why the CEO may be trying to derail the World Bank Fiber Grant? Yes, the board was consulted but the board is chaired by the CEO's in-law, a successful and well revered individual in the Pacific Region. Are you starting to get my point now?

  • The legal counsel for FSMTC are paid puppets. Why would we believe anything a lawyer says?
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