Digicel ready to explore central America

Denis O'Brien's plans to cross the Caribbean sea may be necessary for growth but may also involve more risk, writes Andrew Beattyin Panama City.

As with Christopher Columbus, Denis O'Brien's first forays into the Americas were limited to the islands of the eastern Caribbean.

Today, like Columbus's fourth and final voyage, central America beckons.

Since 2000, when Digicel won the right to operate in Jamaica, the company has branched out into 25 countries, mostly Caribbean island states.

Digicel group chief executive Colm Delves says the company has its sights on capturing new customers and markets in central America.

In the coming months the company hopes to build on its existing regional outpost - Digicel-El Salvador, which was launched in April - to begin its campaigns in other central American markets.

In Guatemala, central America's most populous country, Digicel has already won a licence and will soon begin operations.

Last month the company was granted a licence in Honduras, and is competing for two more in Panama.

Digicel's reputation for undercutting established firms is already being felt.

In anticipation, market incumbents in Panama have been rolling out EDGE - "generation 2.75" technology - to replace GPRS, and are introducing Digicel-inspired "call me" free text messaging services.

"We saw central America as an ideal opportunity because it has a young population, it is stable and has relatively low mobile penetration," Delves told The Irish Times. "El Salvador was the first opportunity, which we seized. It was not possible for us to go into Honduras or Panama heretofore, and if we are successful with these licences we will seize that opportunity."

If a licence comes up in Nicaragua, as is expected soon, the company will "absolutely" bid there. The same goes for Costa Rica, where a recently-approved US-central America free-trade deal will likely spell the end of a state-run monopoly.

He is confident that the group's strategy of providing low-cost services with country-wide coverage and good customer service will stand it in good stead in the transition to Spanish-speaking markets.

By continuing to hire about 92 per cent of employees locally, Delves hopes to minimise any linguistic or cultural problems.

However, analysts are less bullish about the firm's prospects.

Panos Loukos, a research analyst for Global Insight, says Digicel will have a much tougher time now than when it started out in the Caribbean at the turn of the millennium. Then the incumbent, the UK's Cable & Wireless (CW), sheltered by its monopoly status, "fell asleep at the wheel", as Delves puts it.

"It is not going to be easy in central America," says Loukos. "In most of the islands Digicel entered as the second operator after Cable & Wireless; here there are already two or three established operators. Digicel will have to disrupt the status quo. The competition is going to be tough."

The competition could hardly be tougher. Carlos Slim, the world's richest man and Mexican owner of America Movil (AMX), has been looking to central America to further diversify his business as he continues to face anti-trust inquiries at home.

Slim already has mobile ventures in Guatemala, Nicaragua, Honduras and El Salvador, and is the favourite to win a concession in Panama, according to industry insiders here.

Few analysts would rule out a purchase of an undervalued Cable & Wireless by the infamous bargain-hunting Mexican, making Digicel's life even more difficult.

Spain's Telefonica (TEF) is fighting America Movil every step of the way. Budde Communication, an Australia-based industry research group, estimates that Telefonica had 2.8 million subscribers in central America in 2006, behind Slim's 3.9 million.

But it is not just the big names that Digicel will have to compete against. Millicom (MICC), a Luxembourg firm which is twice the size of Digicel, has been quietly eating up market share. It has 2.7 million subscribers in three central American countries.

Yet Delves is keen to point out that Digicel is no stranger to competition, nor to the markets of central America.

"These are the same people that we are competing with already in El Salvador, and we have shown 100 per cent growth in that market since we launched in April. This is a highly competitive landscape that we currently operate in and through true quality of service have been able to increase our market share."

Loukos says Digicel may find it easier to provide good levels of service and coverage in small island states than the rugged highlands of Guatemala or the dense jungles of Panama's Darien region.

But with central American penetration rates between 30-65 per cent, opportunities do exist.

"I don't see any reason why Panama should not have 100 per cent penetration," says Delves. "We would not be reliant on switching existing users, although that would be part of it, but it would also be providing mobile phone services to the undeserved."

Wally Swain, a telecoms analyst with the Yankee Group, says despite the risks Digicel's move into central America is needed if the company wants to stay competitive. "Digicel has run out of things to do in the Caribbean; it has to do something or it will not be able to grow faster than the market."

The trip across the Caribbean sea may be a voyage of necessity.