I am sharing information with your website to put issues into their proper perspectives.

Just out of curiosity, what is ATH’s track record on dealing with competitors? Oh, that’s right… NONE.

Two sides to Digicel as it banks on new markets
Sunday, November 25, 2007 - By Richard Curran

From a standing start in 2001, Denis O’Brien has built up a multi-billion dollar mobile phone business in the Caribbean, with more than five million customers in 22 countries.

The performance of the Digicel group enabled O’Brien to change his mind about a stock market flotation earlier this year and opt to take €600 million in cash out of the company by raising $1.4 billion in bonds and buy out his minority shareholders.

Having survived its infancy, however, the company now finds itself facing a different set of challenges. On the face of it, Digicel is coasting: its financial results for the quarter ending June 2007 showed that subscriber numbers were up 11 per cent to 5.2 million.

The group reported a 22 per cent rise in earnings before interest, tax, depreciation and amortisation (Ebitda) for the year ending March 2007,when its turnover topped $1 billion for the first time. At the same time, Digicel continues to add new territories and is applying for a licence in Panama, while eyeing entry to Honduras and Nicaragua.

Yet a closer look at the figures reveals a story of two Digicels. Its primary markets, which are covered by the bonds raised this year, are referred to as the ‘‘restricted group’’ of territories. They show that average revenue per customer (Arpu) is relatively flat.

This reflects the fact that these markets, particularly its main business in Jamaica, are maturing. In Jamaica, Digicel has a 75 per cent market share.

This accounts for 34 per cent of group revenue and, with a mobile penetration rate of over 90 per cent, it is one of Digicel’s most advanced markets. In the quarter to June 2007, Jamaica generated $119 million out of total Digicel Group revenue of $349 million.

Much of the real subscriber and revenue growth in the last six months is coming from its newer markets, mainly Haiti and Trinidad & Tobago.

In a recent interview with Bloomberg Television, O’Brien said the group had 1.6 million customers in Haiti and that mobile penetration rates had gone from 2-3 per cent to 20 per cent.

He said Digicel was the biggest investor in Haiti, having put $260 million into the business there.

O’Brien is never afraid to take a punt and, in Haiti, he is gambling on a turn-around in one of the poorest countries in the western world. Short of an economic miracle, Digicel will not enjoy the kind of profit margins in Haiti that are available in places like Jamaica.

O’Brien is not deterred. ‘‘You would be suicidal if you looked at the economic data of some of these countries,” he told Bloomberg.

He said he got in a car, drove around these countries and saw people selling fruit and vegetables and car parts at the side of the road. ‘‘And you know there is a cash economy there,” he said.

But if O’Brien is seeing most growth in less lucrative markets, he is also facing a potential fight in his most important market - Jamaica.

America Movil, which is owned by Carlos Slim, the richest man in the world, has bought a small Jamaican mobile operator called Oceanic.

Oceanic has only 1 per cent market share, but there is a strong suspicion that America Movil will take on Digicel in a price war and has the financial muscle to carry years of losses in order to build market share.

America Movil has paid just $270 per customer for Oceanic. The move has attracted a lot of interest among analysts, who have suggested that the takeover could be a source of concern for Digicel. They have suggested that America Movil is arriving at a time when Digicel is highly leveraged at group level and still investing heavily to consolidate its existing operations throughout the Caribbean.

One analyst suggested that Slim’s strategy could be to bring enough competition to Jamaica to induce Digicel and Cable & Wireless to sell at a price that suits Carlos Slim. However, this assumes Slim will setout to wreck the market for his competitors and be successful in doing so, which is by no means certain.

A Digicel spokesman said the firm already competed against big names like Cable & Wireless, Telefonica and Orange in Jamaica. He added that Digicel was already competing against America Movil in El Salvador.

Having come through its early rapid development phase, Digicel now finds itself with significant expansion plans, but debt of $2.4 billion. This comes from the $1.4 billion in new bonds issued earlier this year, combined with previous borrowings.

The group has committed to spend $380million next year in capital investment, mainly in Haiti. It is hard to see how future expansion into new countries will not require fresh funding, but O’Brien said the group was fully funded.

Digicel’s bonds were trading last week at around 90 cent on the dollar. In July, a broker report from JP Morgan noted the flat average revenue per user (Arpu) of $28 in the restricted group countries and said ‘‘given the more mature stage of the Jamaican market, the growth has been led mainly by new markets such as French West Indies and El Salvador’’.

After Digicel’s quarterly figures to June 2007 were released, JP Morgan said: ‘‘Overall, the figures show the maintenance of robust subscriber growth, but somewhat disappointing revenue and Ebitda numbers for the restricted group when compared to the quarter ended in March 07, coupled with a weakening of credit metrics.

‘‘Digicel’s total subscriber base increased by about 11 cent since March 2007, reaching 5.2 million customers in total, of which 3.1 million are within the restricted group.”

A Digicel spokesman said the firm was enjoying revenue growth in all its markets. He added that analysts were forecasting Ebitda earnings of €440 million for the year to March 2008, compared to €204 million in 2007.

Overall, the picture is one of a company still enjoying strong growth in its new markets and continuing to generate a lot of revenue. However, the pattern suggests an increasing reliance on new markets to continue to grow at a time when Digicel Group is highly leveraged.

Digicel Pacific is a separate company, described on the Digicel Group website as a ‘‘sister company’’, and referred to by O’Brien on Bloomberg recently as a sort of ‘‘stray business’’.

This company has launched in Papua New Guinea and Samoa. According to O’Brien, it plans to enter 12 to 14 new countries in the Pacific region in the next 12 months. As a separate company, it appears to be outside the debt constraints of Digicel Group.

A spokesman said its expansion plans would be funded by O’Brien, not Digicel Group. The Pacific operation was always kept separate by O’Brien, who owned 100 per cent of it, even when Digicel Group had other minority shareholders.