Digicel, the Caribbean’s largest mobile telephone service provider, continues to look to expand beyond its existing 32 markets located across the Caribbean, Central America and the Pacific.

Last week the Group reported revenues of US$2.2 billion for the financial year ended March 2010. This represented a 12 per cent gain year-on-year and a compound annual growth rate of 24 per cent from 2007 to 2010 when all Digicel markets are included.

Digicel was able, despite the global financial crisis, to grow its subscriber base by 15 per cent to 10.8 million across its 32 markets.

Beginning operations firstly in Jamaica back in 2001, it has organically expanded by employing a tried and tested model – entering markets that are liberalised yet underserved and providing a competitively priced countrywide service with a reliable network. Digicel has been heralded as one of the fastest-growing mobile telephone service providers in the world having the temerity to enter territories where other operators fear to tread.

The Pacific

In April of this year, Digicel’s founder and chairman Denis O’Brien made a move to ensure that Digicel Group wholly owned Digicel Pacific Limited, acquiring it for US$825 million via a US$725-million bond issue. The Group sees great potential in that region where its reach spans six countries.

According to Digicel Group CEO Colm Delves, the Pacific contributed US$400 million to revenues and has gone from contributing 1.2 million subscribers to 1.7 million for the year under review.

“We are extremely pleased with our performance in the Pacific. Here we went from negative the year before to EBITDA profitability of over US$80 million in one year. The Pacific is a growth centre for us. We recently acquired a licence in French Polynesia and there is the prospect of entering East Timor.

“Like the Caribbean there is a lot of organic growth in the markets we are already in like Papua New Guinea. Every time we put up a new cell site there, customers are on to it within weeks. We see big opportunities there largely because the penetration is quite low and there is very little infrastructure in that country,” said the Digicel boss.

Having launched its operations in Jamaica, Digicel identifies areas of potential in Papua New Guinea by flying over its jungles and rural areas to see where people are located. It then repeats the exercise the following week to see if they are still there and if that is the case it means that a population centre is there which merits the erection of a cell site.

Delves says that the capital city of Papua New Guinea, Port Moresby, is pretty well developed but it is a different story in the mining and rural areas. This leads to poor communication between urban and rural communities. Therefore the low-hanging fruit is in Port Moresby. The more challenging areas for Digicel are the rural ones, and the topography of the country makes it perhaps the most difficult one yet faced by the company in erecting cell sites. Compounding matters further is that there is no road network right throughout the vast country.

Delves recounts that it was thought that because of the vastness of the country people would not want a service, let alone pay for it. Today Digicel continues to invest in the country and build out its network there. In fact Exxon has recently announced a US$14 billion oil and gas investment in the country, which boasts an abundance of natural resources and is the largest of Digicel’s six markets in the region.

“We are in six markets in the Pacific and I think we can get to twelve within 24 months to 36 months at a push. New Caledonia could be on the cards down the road for us. The South Pacific region has a lot of the characteristics that the Caribbean had ten years ago. It is underserved , neglected, and the bigger players just did not focus on those markets because it is too much like hard work.

We have teams that have worked in the Caribbean, more specifically Jamaica down in that region. They know exactly what is required and the cost-effective way to do it. We have seen our revenues in the Pacific go up by 53 per cent this year and the most recent launch we did there was Nauru. It has a small population of just 14,000 people and is the smallest island country in the world. To underscore just how underserved the region was, the Prime Minister of Nauru announced a national holiday when we launched there. That is indicative of how neglected the people have been. We saw an opportunity and launched there in partnership with the government,” said Delves.

Digicel’s expansionist strategy has definitely paid off as it has created revenue zones on two continents in 32 markets. Its compound annual growth rate for both the Caribbean and the Pacific from 2007 has been 21 per cent (in terms of revenue). Given the last two years from an economic perspective, this is an impressive performance.

Central America

It was thought particularly daring to go into the markets which are traditionally considered the backyard of Carlos Slim’s America Movil. Such is Digicel’s confidence and its ability to create market share relatively quickly, that Central America was earmarked as a revenue centre where it could effectively compete and surpass existing players much to the chagrin of one of the world’s richest men, Carlos Slim. But as they say, ‘No guts, no glory.’

Digicel now has a presence in El Salvador, Honduras and Panama and is doing well in those markets. Delves says Honduras has proved particularly challenging largely because of the economic situation and the military coup there last year. Things have stabilised in that country and Digicel has managed to grow its subscriber base by 46 per cent in Honduras, moving from 1.1 million to 1.6 million customers in the last 12 months.

Digicel’s CEO commented: “Our hope for Honduras is that the economy will improve over the course of the next 12 months. We are beginning to see the green shoots appearing. Remittances are starting to improve and foreign aid is now coming in again following the embargo.

“Panama is going great and we have 600,000 customers there. We have become profitable there ahead of schedule. BlackBerry has been a huge success there for us. Panama City is very developed and is sophisticated. It is a bit like Manhattan with high-rise buildings so you have to get your network coverage right there. It is a US dollar-based stable economy. With the second canal being built, there is an influx of investment which augurs well for further growth.

We launched in December, five months ahead of America Movil and that was very important. We managed to introduce widespread BlackBerry usage and data in Panama and that has paid off for us. We are number three in that market and making good progress. In Honduras there are four players in that market and we are already number two after launching there in November 2008. We are ahead of America Movil there. In fact, in all our markets we are ahead of America Movil.

When we first went into El Salvador, we had 108,000 customers. Today we have over a million and we are number two in that market as well. Incidentally we entered El Salvador via an acquisition. We feel it is important to be either one or two in every market and that is what we are achieving.

“Cuba is a potential market for us but I can’t see that happening in the immediate near term. That will be a very interesting market for us but that obviously depends on the government. It will decide when it is appropriate to open up the market to competition. If it does we certainly will be very interested,” said Delves. The Cuban authorities may well be more accommodating to a Caribbean telecoms company than an American one, and Digicel does have a good working relationship with technical personnel there.

The Caribbean

The Caribbean and El Salvador accounted for US$1.75 billion of Digicel’s total revenues which came to US$2.2 billion, thus the Caribbean provides the lion’s share of Group revenues. For the period under review the Caribbean has added 400,000 new customers and Delves still sees room for organic growth in existing markets. Of all its additional subscribers in the Caribbean, 25 per cent of those were post-paid customers. People are now signing up to long-term deals with Digicel which often entails the data aspect. Digicel has done very well with its data offerings.

“Are there more opportunities for us in the Caribbean? We think so. If you look at the map of the region, we would be interested in Montserrat and St Maarten. Then there is Dominican Republic which is pretty well penetrated and is a big market. Who knows, there may be an acquisition opportunity for us there. A market that has always interested us is Belize which has tremendous potential. We did look at the Bahamas but decided to pass on that. What was being offered there was a stake in the existing operator. We think that when liberalisation takes place there, then that will be the appropriate time to enter that market.

“Then there is Costa Rica which has a very good economy. We feel there has to be more work done there on the terms of the licence. In Costa Rica the rules of engagement have not been clarified. It is important that you have the right regulatory environment.

We hope to address that over the next few months as Costa Rica could be a big market for us. There are plenty of opportunities both organically and with new markets in the Caribbean. The same applies to value-added services like WiMax. We are launching 3G Plus in Bermuda and also in the French West Indies. We have opted for 4G in Jamaica because we feel that would be the better technology there. Why? Because the market there needs affordable accessible broadband technology,” said Delves.

In Trinidad, Digicel has had a fight with TSTT but Delves reports that progress is being made in the twin island Republic. Revenues have grown by 5 per cent year-on-year in Trinidad and in terms of market share, Digicel is just about number one.

“We are almost there and over the next five months I have every confidence that we will undoubtedly be number one. We now have 700,000 subscribers in Trinidad& Tobago, adding another 35,000 over the last year. There are no markets I can say that have been basket cases. Both Cayman and Turks & Caicos have faced severe economic challenges over the last few years, particularly Turks & Caicos with the collapse of its real estate sector. Cayman has seen a sharp decline in tourism.

When you look at Digicel now with 32 markets, 24 of those within the Group, we have a very good spread of businesses and so we are not dependent on one market. We are very proud of our Jamaican business and consider it our home and we do not intend on giving up market share there,” declared the Digicel CEO.

In Jamaica, revenues are up by 2 per cent in constant currency terms with 60,000 new customers added over the last year. Digicel leads the market there with 2.06 million customers. It has seen a lot of growth in Jamaica with its post paid customers and is not seeing fall-off in customer spend despite the contraction of the local economy. Sometime before Christmas this year, Digicel will be introducing 4G technology to Jamaica.

Delves believes that the importance of this technology is that people who hitherto did not have access to the Internet will now do so. Fifty per cent of computers in Jamaica do not have access to the Internet at present.

“3G doesn’t cut it when it comes to broadband speeds. 4G is three to five times faster and will be available on netbooks and laptops. Will mobile handsets be able to use 4G? Down the road undoubtedly. There is an operator in Russia that is using 4G on handsets. It’s just a matter of time,” Delves explained.

“An important innovation we will be introducing is what is called the “Chinaberry”. This is a lower-cost alternative to the BlackBerry. It comes from a Chinese manufacturer who is coming out with some interesting devices. The Chinaberry has a keyboard, e-mail and one can do Internet browsing. It will come in at a lower price point than the BlackBerry.

Prepaid BlackBerry has been very good for us and we were the first to effectively introduce it and it has had a very good uptake,” announced Digicel’s top executive. The Group headquartered in New Kingston’s but planning to relocate in Downtown Kingston has a data centre in Cayman which is signing up a lot of corporates who want to use it as a storage facility for their data. It is the only accredited data centre of its kind in the Caribbean.

Many financial sector firms have expressed an interest in utilising the centre and Digicel no doubt will see this as yet another revenue line. Haiti is Digicel’s biggest market and it is still growing its base there despite the earthquake earlier this year. Delves explained: “The earthquake there was horrible for the people of Haiti and we put a huge amount of resources in there to help the recovery effort. None of the stand-alone towers were damaged though rooftop ones were. We quickly brought in cell sites on wheels (Cows) which meant we had coverage back in a matter of days.

“I think the impact that the earthquake had on the people of Haiti has not been fully appreciated outside the country. To put it in context, we estimated that 60,000 of our customers died as a result of it. We gave US$20 million in the form of credit and tents to help the relief effort in Haiti. Last week 19,000 tents came in which will house 100,000 people.

We are doing something similar to our rehabilitation effort for Coronation Market (J$100 million) in Jamaica with Haiti’s Iron Market which is built from cast iron. This is a project that will cost between US$5 to US$10 million and Denis O’Brien is personally funding that. We have brought in architects from the UK and other specialists to restore Iron Market to exactly how it was before the natural disaster. We want to see commerce return to the centre of Port-au-Prince quickly.”

Over the last quarter, Digicel has done extremely well with Haiti, due in the main to the high volume of international call traffic and though the fixed-line network is still down.

“From a business point of view we have more customers now than we did pre-earthquake. Our base is growing because we still have the best mobile coverage and rates in Haiti. In fact we are expanding our network coverage there and are looking at mobile banking on handsets. There is a big pent-up demand and the Gates Foundation has been very focused on the development of mobile telephone banking.

I think it has a huge opportunity in Jamaica. It will not take away business from traditional banking houses, rather it will help them because it will bring in the wide number of unbanked people. Mobile banking is affordable for both the banks and the customers and they will be availed of everything from money transfers to remittances.

You would no longer need to use your debit card or credit card to pay for goods and services; instead you could use your mobile phone. Mobile banking has proven very successful in other countries and it can be so in Jamaica and throughout the Caribbean,” said the Digicel CEO.