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C&W Fights for Market Share
LatinFinance / April 2007

By Larry Luxner

For 109 years, Cable & Wireless (C&W) monopolized telephone traffic throughout the English-speaking Caribbean. But high prices and indifferent service finally caught up with the London-based conglomerate. And when competition struck the region in 2001, C&W's Caribbean empire began crumbling rather quickly. C&W no longer a feared giant is today present in 14 Caribbean markets including Trinidad & Tobago, where it has a 49% stake in government-owned TSTT.

In Jamaica, which has a population of 2.7 million, C&W claims a 98% share of the fixed-line business, and around 30% of the mobile market. Irish upstart Digicel, with its competitive pricing and focus on customer service, has managed to grab an estimated 67% of Jamaica's booming cellular market. A third company, MyPhone, controls the remaining 3%.

"There is still a regulated [telephone] voice industry, but competition is allowed. We're still considered dominant in the fixed-line business, because we have the only full infrastructure across the island," said Rodney Davis, who took over in July 2005 as president and CEO of Cable & Wireless Jamaica (C&WJ), which is 82% owned by C&W. The other 18% is owned by smaller institutional investors and pension funds. "We're not really considered a foreign investor, because we're a domestic entity," says Davis, who supervises a workforce of 1,400 employees throughout the country.

Prominent Kingston businessman Ainsley Henriques, chairman of the Norman Manley Foundation, claims that at one time, C&WJ pretty much did what it wanted, and that Jamaicans had little say. "To raise capital, Cable & Wireless fought and obtained a 25-year exclusivity license. On the basis of that, and the ability to fix prices, they were able to raise all the capital they needed," Henriques explained. "But with the advent of wireless, their projections for demand were much lower than what actually took place, so they weren't really aggressive in fighting Digicel. Instead of pushing their cellphone services, they allowed an opening to take place, so the government decided to auction cellphone licenses, and Digicel won the first bid."

Peter Bunting, chairman of government investment promotion agency Jamaica Trade and Invest (formerly known as Jampro), says C&WJ struggled for several years after losing its monopoly on telecoms. "Finally, they realized that the same team which manages a monopoly is not the team you need to manage in a competitive environment," Bunting explains. "Rodney Davis has turned the place upside down, and I think they're going to be competitive again." He adds: "They've stopped the hemorrhage in terms of losing market share."

In 2005, C&WJ's revenue was $341.7 million, and before-tax profits came to $47.6 million.

Before joining C&WJ, Davis was CFO of the company's Barbados operations. Before that, he served as senior partner of Ernst & Young's Jamaica office. "We didn't get a lot of foreign investors out of liberalization, because you open the market without investment and end up with a lot of bottom feeders," Davis explains in an interview at C&WJ's Kingston headquarters. "That's why prices came down, because they didn't make the necessary investment and weren't required to." C&WJ, on the other hand, has spent hundreds of millions of dollars to compete with Digicel and other rivals.

"Some would argue that we were asleep at the wheel, others that we didn't invest enough. I would argue that Digicel was able to ride the wave of expansion. There were only 270,000 mobile lines when they came into the market, which has exploded," Davis continues, estimating there are now over 2 million lines in service. When he took over, C&W had just rewritten its strategy. the objective was to eliminate the lingering monopoly mindset and make employees realize that it was in a competitive situation. It reorganized the company into four lines of business: mobile, internet, voice and business solutions, in order to be more adept and agile.

Davis adds that in 2005, the company's "Anyone Plan" resulted in a 50% increase in total minutes of use on its mobile network. In addition, its broadband subscriber base grew by more than 380%, resulting in an increase of over 180% in broadband revenue. Finally, more than 28,000 new lines were activated, "indicating continued interest in our domestic fixed voice service," says the official.

Jamaica, which has a 70% mobile penetration rate, has a long way to go when it comes to Internet connectivity; only 15% of the island's households have Internet access. At the moment, C&WJ has around 60,000 DSL and dial-up subscribers. "We've seen an incredible surge in VOIP-related outbound calling among Jamaicans," Davis adds. "Last year, VOIP was introduced on the island. We have a service called Netspeak that costs $24.95 a month and gives subscribers unlimited calling to North America and the UK. Volumes are outrageous. It's the fastest-growing segment of outbound international calling by far."

C&W, already a well-recognized brand in Jamaica, is probably the country's largest advertiser, spending an estimated $2 million a year on promoting itself. The company is chief sponsor of the 2007 World Cricket Cup taking place in March and April. The event was expected to bring over 20,000 tourists to the island. "Roaming is big business in Jamaica, about 10% of our mobile revenues," Davis said, "so any increase in tourism is good for us."

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