A quick look…

A recent entrant to the Central American telecommunications scene is Chinese player Xinwei, owned by Chinese businessman Wang Jing, which was granted 6 licences to operate in Nicaragua. It is unknown as to whether the Group paid for these, or whether this is part of the Group’s concession to build out the Nicaraguan Canal. Xinwei entered the Nicaraguan market two years ago, and to date has not delivered on any of its promised investments – mostly in rural telecommunications. Whilst Central America has undergone substantial liberalisation of its telecommunications industry, the link between state and market remains strong. Despite new entrants in the VoIP and wireless technologies subsectors, their market share remains small and incumbents tend to dominate.

The telecommunications sector is characterised regionally by severe underinvestment, with upgrades by fixed line and mobile segments largely undertaken by private sector groups. Given this chronic underinvestment, remote communities have poor or no access to services – and the profit-oriented private sector is unlikely to fill this gap. Broadband costs vary significantly between countries due to aged infrastructure. Additionally, as GDP per capita growth stagnates, affordability of telecom and ITC services is expected to remain elevated relative to average incomes. Furthermore, the outlook for public sector funding in Guatemala, Nicaragua, Honduras and El Salvador is less than positive, leaving investment in the hands of private sector players. Given the poor fixed line infrastructure, mobile phone penetration is strong across the region as users adopt mobile telephones over fixed lines.


Figure 1. Telecommunication penetration in Central America (source: BuddeComm)


Guatemala – fijate Slim…

Between 1974 and 1997, Guatel was the only telecommunications group in Guatemala – and was state owned until gradual privatisation in 1997. Guatemalan telecommunications developed in a political context determined by the internal armed conflict, and by governments led by military leaders whose ambitions looked more at the return from a political standpoint than seeking economic efficiency. In 1986, in line with the appointment of a civilian president, gradual liberalisation of Guatel started with the granting of licenses for cell phones (800 MHz UHF) to COMCEL. Economic reform and privatisation started in Guatemala in 1991, gaining momentum following the post Peace Accords period under the growth focussed SEGEPLAN (1996-2000). For the telecommunications industry, this resulted in increased government focus on internal and external efficiencies – and eventually led to the decision to privatise GUATEL given the need for the government to focus on health, security and education. Today, America Movil controls approximately 70% of fixed lines in service via its subsidiary Claro  – following intense competition between providers, services have improved and prices have decreased, resulting in mobile phone penetration being on par with the regional average. In Guatemala, mobile phones outnumber people. Tigo, which launched in 2004 and replaced 2 national brands, dominates the mobile phone market with a market share of 54%.

Tigo Guatemala has been a regional success story, raising USD800m in the international market in February 2014 with investor demand of USD2.9bn (52% of demand from North American investors, 38% European). According to the firm, 40% of funds raised were allocated to reinvestment to improve user connectivity, with the balance for refinancing debt. With improved access to capital markets and credit ratings set just a notch below investment grade at Ba1 and BB+ by Moody’s and Fitch (respectively), the Group is well positioned to transform the country’s telecommunications industry.

Nicaragua – waiting til the canals come home…

America Movil’s Claro dominates Nicaragua’s telecom services – given the poor investment in the sector, users have opted for mobile phone use – which overtook fixed lines in 2002. Movistar is the only competitor to Claro with approximately one-third of the mobile market – with the duopoly situation, competition has been dampened resulting in lower quality offerings for consumers at elevated prices.

Economic benefits including much needed upgraded infrastructure are expected as a result of the USD50bn Nicaraguan Canal project – however funding remains uncertain, and a lack of transparency around legal processes and investment terms adds further to this uncertainty. In 2013, the law providing for the 50 year concession for the Nicaraguan Canal development was granted to Chinese businessman Wang Jing – this included allowing necessary expropriation for this large scale project. Whilst there is significant government focus on the potentially transformative Canal project, other reforms have been slow to non-existent in gaining momentum, including reforms around the telecommunication market.

Expectations around telecommunications upgrades based on the auction of spectrum licences in the 1800MHz band are expected. In late October 2014, six licences were granted to Jing’s Xinwei telecommunications group, following announcing in January plans to invest USD300m to develop its Nicaraguan operations. Xinwei is targeting roll out its Nicaraguan operations in January 2015, although the scale of deployment is significantly lower than initially planned under licensing conditions and has raised scepticism – the initial roll out funded by the World Bank has decreased from USD700m to USD800,000. However, this project is expected to benefit approximately 15,000 people in more remote areas along the north Caribbean coast. Despite development-oriented benefits of both the Canal project and Xinwei’s telecommunications roll out, a lack of transparency around pricing and government involvement on both initiatives has undermined confidence in these ventures, despite the hope that both projects bring wide reaching economic benefits to the country.

El Salvador – SIGNET, FINET and don’t forget…

El Salvador’s liberalisation efforts which started in 1996 have allowed significant foreign investment and competition, however given the dearth of regulations around ADSL, the ADSL market has resulted in a virtual monopoly for Claro. Initial deregulation in 1998 brought new entrants into the industry and the regulatory body, the Superindencia General de Electricidad y Telecomunicaciones (‘SIGET’) was established – and a period of consolidation followed, resulting in the three key regional players dominating (Claro – following its acquisition of Digicell in 2012, Movistar, and Tigo). Prior to the creation of SIGET, in February 1997 the National Fund for Investment in Electricity and Telecommunications (Fondo de Inversión Nacional en Electricidad y Telecomunicaciones ‘FINET’) was created after the development of these areas was identified as pivotal for social and economic development – identifying greater coverage nationally, with particular focus on rural communities.

The gradual privatisation of the El Salvadorean telecommunications market is still underway and active – as of early November 2014, the government re-opened a postponed auction for 40 MHz mobile phone licences, targeting new competitors to the market.The original auction was suspended after the SIGNET raised concerns over the auction process in October 2013, raising concerns about the inadequate amount of spectrum available, and that auction conditions favour large companies to obtain more frequencies rather than encouraging new entrants and competition. Let’s see how the latest auction pans out…

Waiting for that call…

Severe underinvestment in telecommunications across the region has resulted in poor infrastructure and high pricing of services due to the lack of competition between offerings. Whilst this offers potential opportunities for private sector players, legal reform and transparency regarding licences and concessions is essential to facilitate an investment environment that is conducive to holistic development of the telecommunications sector. Furthermore, policy initiatives to ensure rural communities are not left behind is essential – with the privatisation of the industry, funds raised could potentially be earmarked for government initiatives to underwrite this goal. Given the glacial pace of reform, inevitably the push is driven by private sector interests. The return call on meaningful and equitable progress and development of the telecommunications sector is just a call away, albeit a long wait…


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