Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Wednesday, June 01, 2022

The concentration of the mobile market and the lessons for the region

Liberty, with MásMóvil, and Millicom, with Tigo, are the winners of the consolidation. The Panamanian government will accept Digicel's departure, but it is not clear what will happen to the 10% of the mobile market that it had, which could be shared between the other two because it would not be of interest to a third party in discord.

In the four years between 2018 and 2021, the Panamanian mobile market has consolidated at a rate that has not been seen in other countries in the region. It went from five operators to three, and soon there will be only two with little chance that there will be room for another. Digicel's parting is the latest episode in this accelerated concentration of the number of players. For a country with a 130% penetration of mobile lines, according to Convergencia Research, the duopoly may seem like the only possible solution if a financially healthy sector is sought with enough support to face 5G investments.

Up to date, the overview of the Panamanian market shows a dominant operator and another that follows in its footsteps, although at a certain distance. The largest is Cable & Wireless (C&W), which with the MásMóvil brand already controls 60% of mobile lines. To reach that point, C&W led the operation that led to Digicel's exit: the purchase, for US$ 200 million, of most of Claro Panama's assets.

One should take into account that 49% of C&W is in the hands of the Panamanian State. Digicel accuses that this operator has regulatory advantages due to this stock situation, such as the approval to buy Claro's 700.000 clients, which derives in a dominant market, something that the law does not allow. Another 49% of C&W is in the hands of Liberty Latin America, which has management control, and the remaining 2% in the hands of minority shareholders.

The other actor that will remain in the Panamanian fight is Millicom, which operates with the Tigo brand and which, according to data from the National Administration of Public Services (Asep, the regulator) and the firm's balance sheets, has 30% of the mobile market. Millicom proved to have a large wallet and a firm hand when defining its entry into this market: it first purchased Cable Onda, in 2018, in which it paid US$ 1.640 billion, a figure that in light of subsequent corporate movements may seem excessive. Then, it bought the Telefónica business for another US$ 573 million, in 2019.

Digicel, the theoretical third party in contention, announced in early April that it will leave the Panamanian market after the purchase approval of Claro by C&W. The news shocked the Panamanian mobile market, but both the Executive Power and the regulator did not doubt what to do: they accepted the step aside and made decisions to intervene their assets.

In the first week of May, Asep appointed Alex Anel Arroyo as Digicel's comptroller. The regulator's general administrator, Armando Fuentes Rodriguez, declared that the decision seeks to guarantee the operator's clients continuity of the service since it faces debts with providers that threaten to disconnect Digicel users from services, the removal of equipment and the limitation of access to sites where their infrastructures are installed.

Anel Arroyo will soon issue a report in which he will recommend to the Ministry of Government to end the concession granted to the company in 2008. After the delivery of the report and in the event that the termination of the concession contract is decided, the government will have 90 days to call a new tender. According to Law 36 of 2018, three mobile phone companies must operate in the Panamanian market.

But in light of the market situation, there are doubts that an operator wants to enter to manage 10% of the cake, smothered by two giants that will dominate the market. Thus, there is already speculation that Digicel's assets could be divided between Liberty and Millicom. The problem for this solution is that both operators are over-indebted from their previous purchases, to the point that the net leverage is 3.46 at Millicom and 4.6 at Liberty. With expectations of increases in interest rates and a greater appreciation of the dollar against local currencies, it does not seem to be in the interest of the two operators to place resources there.

Background. At the beginning of April, Digicel had asked the Judiciary for its voluntary liquidation. Before taking this drastic decision, the company tried to fight back, filing a complaint in October of last year with the Authority for Consumer Protection and Defense of Competition for illegal economic concentration. The document detailed that if the merger was approved, MásMóvil would monopolize 70% of the mobile telephone market.

Digicel Group’s president, Denis O'Brien, said that his presence in Panama would no longer be profitable and assured that the rules that governed when he entered the market had changed. It should be noted that the operator arrived in Panama in 2008 by paying an operating license of US$ 86 million and in the almost 14 years in the country it invested more than US$ 575 million.

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