News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Tuesday, 30 June 2009

News from islands large and small

More than once, reference has been made here to the idea that some developing countries may well be set to experience consolidation of the mobile sector in the near future. I've quoted luminaries from emerging markets players such as MTN and Zain who contend that in Africa, for example, there currently exists a larger number of mobile operators than the continent's markets should really be able to support. With this in mind, I have often turned the baleful gaze of DevelopingTelecomsWatch towards the hopes and struggles of smaller cellcos competing for a slice of often quite small markets in the face of competition from multinational telecoms groups with far more formidable assets.

This week, however, I've found my thoughts turning to the the prospect of market consolidation much closer to home because here in Britain, Vodafone has declined to comment on a report that it is considering buying the UK operation of T-Mobile International.

For me, this is very close to home. I've been a T-Mobile UK subscriber a number of years. Also, a number of people I know socially make the very short journey every day from St Albans to their jobs at the operator's HQ a few miles away.

I don't know how likely this deal really is. Local reports have made much of whether the UK authorities would welcome the creation of an operator with a market share of 40%. Press articles here have also featured questions about why Deutsche Telekom would offload such a significant asset at the bottom of the market, why Vodafone would take on extra operational costs during a recession and how such a deal would affect 3 UK, with which T-Mobile UK has a network sharing arrangement.

The same reports, however, do remind us that earlier this year, Vodafone CEO Vittorio Colao said that his company was prepared to play an active role in consolidation between operators and that this has already happened in Australia. There, in February, Vodafone and rival cellco 3 Australia announced their merger.

The good people of my home town here in the commuter belt to the north of London will certainly watch this with interest. This is a relatively prosperous place, even by UK standards, but we have certainly not escaped the effects of the recession. A growing amount of retail space stands empty and, albeit from a low base, we have seen a recent surge in the number of people who are unemployed. The T-Mobile campus in nearby Hatfield is one of the larger office complexes in the area and must be one of the more significant providers of decent jobs that do not involve taking the train into Central London. I am therefore struggling to think of how the prospect of a Vodafone-T-Mobile merger could be viewed with anything but apprehension in my neck of the woods.

It's much easier to write dispassionately and remain cool about the human impact of M&A activity when the action is a long way from home. So perhaps it's best if I stick to the emerging markets/developing countries brief of this blog and turn my gaze to distant shores. This will be a far more comfortable expercise than trying to avoid becoming maudlin about friends and neighbours employed by T-Mobile worrying about their jobs.

So I'll pick a really distant shore - about as far from home as I can possibly find. How about Nauru, a tiny island in the Micronesian South Pacific? According to Cellular News, the world's smallest independent republic is finally joining the mobile revolution.

With no existing mobile operator and a population of just 10,000 to serve, you might think that the Nauru might not need a Minister of Telecommunications. Such a post does exist, however, although I get the impression from telecoms research consultancy BuddeComm that the performance of past Ministers has been somewhat underwhelming. The synopsis of the BuddeComm Nauru market profile indicates that up to now the Government has been both regulator and the sole provider of all telecoms services. According to BuddeComm, "the state of telecommunications in Nauru resembles the country’s own economic chaos". Their Nauru profile notes that in 2003 the telephone system collapsed due to equipment failure leaving the island cut off from the rest of the world and that the Government could not afford to have the necessary repairs made. In 2004, apparently, satellite communications were to be shut down for non-payment of subscription fees.

All this looks set to change rather dramatically - the current Minister, Sprent Dabwido announced this week that Government of Nauru has awarded Digicel a license to operate a GSM network.

Can any company make a profit from operating in such a tiny market? Well, while Nauru might be an extreme case, Digicel does have a track record of establishing operations in very small territories and is therefore probably better suited than any other company to a challenge of this kind. Digicel provides mobile services in 26 countries and territories throughout the Caribbean, Central America and the South Pacific. In the latter region, operations have been set up in markets including Vanuatu (pop. 216,000) Samoa (pop. 189,000), Tonga (pop 112,000). Small territories, then, seem to hold no fear for Digicel.

The company will presumably have been buoyed by being able to report its first net profit since its launch in 2001. According to a TeleGeography report earlier this month, Digicel recorded a net profit of USD 41 million in the twelve months to 31 March 2009, compared to a loss of USD 74 million in the previous year. EBITDA reached USD 680 million, a 34% increase year-on-year. Revenues rose by 11% to USD 1.73 billion, while the company's subscriber base was up 34% to 9.2 million. The company’s net debt at the end of March was USD 2.7 billion.

Digicel said that the subscriber growth in subscribers was helped by successful rollouts in El Salvador (where it now has about a million customers), Trinidad & Tobago and Suriname. Other new additions to the footprint are Honduras and Panama, both added in late 2008. According to Digicel, 1.1 million new subscribers were signed up across these two new operations in their first five months of operation. According to a Cellular News article the month, the operator is now planning to extend its reach to Costa Rica, breaking the monopoly currently enjoyed by that country's incumbent telco Instituto Costarricense de Electricidad (ICE).

Meanwhile, across the sun-drenched Caribbean islands where Digicel first established operations (before expanding into Central America and the Pacific), the company faces a potentially interesting new competitor.

According to a TeleGeography report, Lycamobile is looking to make the transition from its prepaid MVNO model to becoming a full MNO in the Caribbean, starting in St Kitts and Nevis and following on across six other islands. Since 2006 Lycamobile has launched its prepaid brand in eight European countries, where it offers very low tariffs and claims to have around four million customers. My understanding is that the focus of its market efforts tends to be the diaspora populations of African and Asian countries who are working in Europe and looking for good deals on calls home:

Quite what has prompted the company to look to the Caribbean and to setting up physical networks I don't yet know, but given that we started with worries about job losses in the satellite towns around London, St Kitts and Nevis just seems like a pleasant place to end this meandering tour through the world's island markets large and small.


1 comment:

  1. Yes, it is very interesting to see how Digicel can operate in such small markets in a profitable manner. The key to their success, I think, is their ability to minimize costs by developing region-wide operations (e.g. Caribbean- and Pacific-wide management teams, call centres, etc) while at the same time responding to consumer demands of individual islands. Their ability to brand, market and advertise in very conceivable medium also plays a big role in their success.

    Here in the Cayman Islands, for example, Digicel launched its mobile service in 2004 and it is now a significant player in the marketplace. (Cable & Wireless, now re-branded as LIME, is the other main player, with a few smaller telcos such as WestTel and TeleCayman serving mostly corporate customers.) In addition to a full GSM/EDGE service, Digicel also offers WiMax broadband service. Keep in mind that this is a market of only 55,000 inhabitants (albeit fairly wealthy ones, given the significant financial industry here).

    I would be interested in reading more coverage of the small-island markets, and Caribbean market in particular, on your blog. It is one thing to discuss "developing telecoms" in large markets such as India, Nigeria or Russia, but it is quite different situation in markets such as the Cayman Islands, Bermuda, Antigua, Mauritius, Maldives or Tuvalu. I suspect that it is much more difficult for these small markets to get private sector investments in telecom infrastructure.


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