LatinFinance / April 2007
By Larry Luxner
Until recently, overcrowded Haiti and sparsely populated Guyana were notorious for poverty, political unrest and mobile phone service that was spotty and way too expensive for all but the richest segments of society. Digicel Group can't do much about the poverty or violence, but it has brought wireless to the masses in both countries.
Last summer, the fast-growing telecom giant — incorporated in Bermuda and headquartered in Jamaica — launched operations in Haiti, its 21st market. Barely 10 months later, it has turned more than a million of Haiti's 8.5 million inhabitants into prepaid customers, boosting the country's combined fixed and mobile penetration to 20% from 5%.
"If companies looked only at per-capita income, no one would invest in a market like Haiti," Digicel's CEO, Colm Delves tells LatinFinance. "But there's a lot of cash in that market, thanks to a huge amount of remittance income. We're bringing in something people haven't had before."
Digicel hopes to replicate that success in Guyana, South America's only English-speaking nation. On February 14, after acquiring that country's No. 2 operator, U Mobile, for an undisclosed sum, it began offering services throughout the Idaho-sized nation of 800,000, opening 50 stores and investing more than $60 million in its operations there. Its chief rival is Guyana Telephone & Telegraph, a unit of Massachusetts-based Atlantic Tele-Network, which has dominated telecom services in Guyana for years.
"Since we launched, we've more than doubled the number of subscribers," Delves says. "We swapped out the existing Nortel network with Ericsson [which has been Digicel's preferred network vendor since its initial launch in Jamaica in April 2001], introduced 24/7 customer care and have dramatically improved the number of retail outlets."
Delves, speaking from Digicel's Kingston headquarters, says his company now operates in 22 markets throughout the Caribbean. Of its 4.1 million customers, 1.6 million are in Jamaica — its entry point, and still the biggest cash cow. "We have added nine new markets and 2.1 million subscribers in the last nine months," he explains in a March conversation. "We see the best markets as those where you can offer the best network, the best choice, the best customer care and the best range of handsets, particularly when the existing population is being under-served by the incumbent. Basically, our strategy is to provide First World telecom services to markets where they have been historically given second-rate service."
Digicel's annual revenues exceed $1 billion. The company employs 3,000 people and has invested some $1.5 billion on rapid expansion throughout the Caribbean. Its largest single investments are in Jamaica ($600 million) and Haiti ($260 million), with its strongest growth prospects in Haiti, Guyana, Suriname and El Salvador.
"We have grown organically and through acquisitions over the course of the last six years, but most of our growth has been organic," he says. "The previous fundings we did fueled the expansion of our business. We supplemented that with project finance."
In February, Digicel Group raised $1.4 billion in capital through a corporate bond issue. The transaction — the largest bond offering in Caribbean history — was five times oversubscribed. It is split between $1 billion of cash-pay notes and $400 million toggle notes, giving the issuer the flexibility of paying the coupon in cash, or rolling it into the bond.
"We looked at a number of options. We did contemplate going down an IPO route. But our principal shareholder, Denis O'Brien, felt that where the business is now, and with future growth going forward, it was an opportune time to raise debt and increase his holdings from 78% to 100%," says Delves.
In effect, a new company, Digicel Group, was created to acquire the existing Digicel, which represents about $2.4 billion in equity. "The purpose was two-fold: partially to provide liquidity for shareholders who have been in the business for six or seven years, and also to provide some additional growth capital, around $200 million, for the business," Delves explains.
Before joining Digicel in 2004 as CFO, the 41-year-old Delves did consulting work for O'Brien in the Middle East. He has also worked as an accountant for KPMG in Dublin, and served as CFO for Hibernia, an Irish food company quoted on Nasdaq.
"We're quite an experienced management team, and the bulk of our team are locals," he says. "We have restructured our business so we have a specific, dedicated rollout and acquisition team. It builds the networks, establishes the retail channels and prepares the business for launch in a market. Or if it's an acquisition, we will update the network and make sure all the standards are met in terms of customer care, distribution and product offerings."
"All our businesses are profitable," he says, noting that blended average revenues come to $26 per month per subscriber. One of Digicel's most profitable markets to date is the Cayman Islands — a tiny offshore tax haven west of Jamaica — though Digicel wouldn't say how many subscribers it has there, or what its profit margins are.
Sponsorships have been quite important in developing the Digicel brand, which Delves claims is now more recognizable than Coca-Cola throughout the Caribbean. "In Haiti, for example, we sponsored the entire soccer league, as well as the national team," say Delves, though he declines to specify how much the company spends on advertising. Its chief rival in Jamaica, Cable & Wireless (C&W), is the main sponsor of the World Cricket Cup matches now taking place throughout the English-speaking Caribbean.
Asked how Digicel's strategy differs from that of C&W, Delves says, "They were a monopoly, and from a pricing perspective, it was a question of maximizing profits and under-investing. With something like mobile telephony, you have to continually reinvest, giving customers cutting-edge phones. For example, per-second billing and 24/7 customer care was unheard of until we came into the region."
Like all foreign telecom providers, Digicel is keeping a close eye on Cuba, whose 11 million inhabitants have the potential to double the company's subscriber base. It is clearly not interested in the Dominican Republic or Puerto Rico. "Puerto Rico is a pretty congested marketplace, and similarly, there are four operators in the DR, and the levels of revenue we've seen there are quite low," Delves said.
Delves says its next big opportunities are in Central America. Digicel already has operations in El Salvador, where it will invest $115 million in expanding network coverage to 94% of the country, up from 89% at present. It entered the country by purchasing the No. 4 provider, also called Digicel though unrelated, for an undisclosed sum.
"We have a license in Guatemala, and Nicaragua could potentially be a market," he says. Digicel has also applied for a license in Suriname — Guyana's neighbor to the east — and may begin offering mobile service there very soon.
Closer to home, Jamaica still offers healthy opportunities for growth. The interior of the island, particularly in the Blue Mountain region east of Kingston, is poorly served, and reception there is often shoddy or non-existent. Relentless advertising and competition from Digicel has whittled C&W's share of the mobile market in Jamaica down to 30%.
Delves discounted suggestions that Digicel has its eye on C&W. "We've heard rumors that Cable & Wireless might be for sale," he said. "Perhaps it's being positioned to be sold. I don't know. But we are absolutely not interested. We know too much about it," he concludes.