Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Tuesday, July 26, 2022

After saying goodbye to Panama, Digicel aims to grow in El Salvador and the Caribbean

The company has a consolidated position in many of the markets in which it operates. But it is facing declining revenues in its core business, mobile voice, and requires capital to expand into new areas, such as fiber optics and entertainment. And this area is weighed down by a debt of US$ 5.7 billion.

Following its exit from Panama, Digicel faces serious challenges in consolidating its position in the other Central American and Caribbean markets in which it operates, especially in finding the most profitable business focus. The weight of its debt will limit its margin of action at a time when competition is concentrated in the region. This is despite the fact that it has just received US$ 1.4 billion from the sale of its assets in the Pacific.

The company, founded and managed by Irishman Denis O'Brien, has a broad geographic diversification and a "solid" competitive position, according to risk rating agencies such as Fitch and Moody's. Digicel Group is present in 25 Caribbean markets, with a leading market share in most of them. In fact, many of these markets are duopolies and there is little chance of a new entrant breaking that balance due to the small size of each market. This suggests that the company's competitive position will remain "stable over the medium term."

"These dynamics back consistent EBITDA margins of around 40%," says Fitch, which highlights the US$2.4 billion the group invested since fiscal 2015 that should ensure the network's competitiveness.

Sales. With this context, Digicel Group must solve a dilemma: how to grow in new business segments. Caribbean revenues represent 80% of the total received by Digicel Group. There, the company expects two forecasts to come true: an increase in international tourism to the Caribbean islands and the depreciation of local currencies against the dollar.

To maximize the benefits of the former, Digicel Group launched specific plans by market aimed at tourists arriving during the current summer season, with voice and data offers segmented by minimum periods of time, up to 24 hours. The objective is to make the commercial offer more flexible to adapt it to the needs of a public that spends one or two days in one destination and then travels to another.

Thus, the company could increase sales in this quarter by 10% over the same period last year. This increase would contrast with a stagnation of mobile voice sales among the local public. Digicel Group is therefore diversifying into higher-growth B2B solutions and home entertainment with B2C broadband and TV deployment, to mitigate the decline in mobile voice, but B2B and entertainment account for only 20% of revenues at present, according to Fitch.

The US$ 400 million investment in El Salvador to bring 4G LTE, which included the acquisition of 20 MHz in the 1,900 MHz band, is a demonstration of the search for new revenues through value-added services that generate higher ARPU.

The investment in Trinidad and Tobago, where Digicel has already surpassed 100,000 homes passed with fiber optics, and in St. Vincent and the Grenadines, which selected the firm as a connectivity partner in a five-year agreement under which it will deploy 300 Mbps wireless Internet in 116 locations, including community and learning centers, as well as tourist sites, can be seen as going in the same direction.

Financial backing. The migration to these new businesses requires investment, which implies having financial backing. This is another of Digicel Group's weaknesses. The devaluation of local currencies hits its balance sheet since the overwhelming majority of its debt is in dollars. In this regard, it is worth recalling the experience of the international giant Telefónica, which in the last three years transformed a large part of the debt of its subsidiaries in Latin America from hard currency to local currency, reducing depreciation costs.

On the other hand, the global debt amounts to US$ 5.7 billion distributed in US$ 2.9 billion in Digicel International Finance Limited (DIFL), US$ 925 million in Digicel Limited (DL) and US$ 1.7 billion in Digicel Group Holdings Limited (DGHL). In addition, there is US$ 77 million of debt in Digicel Pacific Limited (the assets already sold) and other debt and accrued interest.

Of these, the portion of debt that appears the riskiest is a US$925 million in notes due March 2023 from Digicel Limited, "due to deteriorating global macroeconomic conditions, rising interest rates and increased investor risk aversion," says Fitch.

Digicel Group is expected to dissipate some of this concern with the use of the US$ 1.4 billion it has already received from the sale of its assets in seven Pacific countries to Australia's Telstra. The company has already announced that it will use part of this money to redeem another US$ 1.048 billion promissory notes maturing in 2024. However, creditors fear that Digicel Limited will seek a mandatory refinancing of its debt.

In an increasingly competitive environment that demands heavy investments to sustain positions, Digicel Group will have to make decisions on the way forward with little room for errors.

Last news and analysis

Estados Unidos · Software and Applications

27/03/2024

25% of advertisers' budget invested in social networks and the Internet

Uruguay · Pay TV · Internet & OTT · Operators

27/03/2024

Through agreements with Claro and Movistar, cable operators expand their Internet offer

These are agreements of different types, which include leaving the last mile for the cable operator or contracts for available bandwidth. Antel could join with infrastructure leasing. Some cable operators are already building their own networks.

Uruguay · Pay TV · Internet & OTT · Operators

27/03/2024

Through agreements with Claro and Movistar, cable operators expand their Internet offer

These are agreements of different types, which include leaving the last mile for the cable operator or contracts for available bandwidth. Antel could join with infrastructure leasing. Some cable operators are already building their own networks.

Paraguay · Operators

26/03/2024

Government analyzes partial privatization of Copaco

The state operator is going through a delicate moment. Its income does not cover operating expenses and it must fulfil a debt obligation of US$110 million. Furthermore, the lack of investments led to the obsolescence of its infrastructure. Oscar Stark, president of the firm, states that alternatives are being evaluated to obtain the necessary funds, including the possibility of adding private partners. And he believes that in 18 months "the situation will be resolved."

América Latina · Equipment Providers and Network Solutions

25/03/2024

Andina Link 2024: Padtec targets small and medium-sized ISPs in Colombia

The Brazilian supplier Padtec participated in Andina Link 2024. From the fair, Hernán Yepes, CALA Norte Regional Manager, told Convergencialatina about the plans with the Colombian market, shaken by 5G deployment.

Search news