What the Liberty Global-CWC deal means for the Caribbean

In Part 1 of this article, we saw rapid changes occurring in the regional telecom market with the buyout of one of the major communications service providers, CWC, by cable provider Liberty Global. We took a trip down memory lane looking at some of the recent and not-too-distant shifts in the market that led to the moment of the buyout.

Lastly, we examined the early protests from the major competitor, Digicel who would have been most affected by the developments and the response(s) from regional regulators. This brings us to one major question.

Are any of these developments in the market bad? Not as far as I’m concerned!

We need to have as much development and growth in our region in the delivery of all services. But your perspective is of course shaped by which side of the fence you’re viewing the grass from. So let’s consider the matter from a Digicel point of view.

Around the time of this announcement, Digicel had been rolling out undersea fiber and feverishly working on their Fiber-to-the-Home product. Digicel had also been digesting Claro for about 2 years after a bumpy entrance into Central America, home of America Movil.

This somewhat shaky expedition appears to have irked the telecoms jefe Carlos Slim, who responded by storming the Jamaican market under the brand Claro. After a 2011 “gentleman’s agreement”, Claro then exited Jamaican operations.

Over the next few months following the CWC Flow merger announcement, Digicel also began preparing for a listing on the exchange in New York in early October 2015. According to the Irish Times the principal at Digicel Mr O’Brien and Digicel itself were in a tenuous financial situation.

“Nobody can afford to lose more than €500 million on an investment, as happened to O’Brien with INM, it is argued, while he has also had to refinance his substantial IBRC borrowings.

Yet the structure of Digicel’s proposed IPO would appear to contradict this theory. While O’Brien was surrendering 40 per cent of the equity in Digicel, he was not taking any money off the table directly.

His investment vehicle Island Capital stood to earn up to $10 million as an advisory fee from a successful IPO that would have been small compared with the hundreds of millions O’Brien could conceivably have earned from a share sale.

Instead, the proceeds were earmarked to repay some of Digicel’s $6.5 billion debts and to fund about $400 million of new media acquisitions.

He has also earned a hefty $1.1 billion from Digicel in dividend payments over the past three years and currently receives $10 million per quarter from the company. “

Things did not improve for Digicel when, according to O’Brien, market conditions were not suitable for the IPO and 72 hours before opening for trading the IPO was cancelled.

From that side of the fence, it was probably not a welcome development when the Liberty-CWC merger was announced. Digicel whilst large is still carrying a lot of debt and now must face off against a competitor who is leaps and bounds ahead in the fiber game with all of the acquired Columbus and CW infrastructure.

So where are we at right now? We have a verifiable telecoms behemoth called Liberty Global that has been assembled from some European acquisitions who, having consumed CWC and folded it under the LiLAC listing, seem intent on invading the Latin American Market. We also know that America Movil won’t take the market entrance lying down.

So the conditions are ripe for a very exciting next few years. Will former enemies, Claro and Digicel put aside any differences and join forces to battle LiLAC? Is there much motivation for Claro to be join forces with Digicel?

Based on declines in wealth last year for Carlos Slim who according to Bloomberg was the year’s biggest loser suffering a loss of approximately $20 billion, it’s very possible.

“Since the start of 2015, the Mexican executive’s fortune has declined almost $20 billion, or about the size of Honduras’s economy, to $52.8 billion, according to the Bloomberg Billionaires Index. The shares of his America Movil SAB telecommunications giant are heading for their biggest decline since 2008. The company has suffered under regulatory pressures in Mexico, where it’s now forced to share the infrastructure that allowed it to dominate the mobile and fixed-line market for more than a decade.

Among conditions working against Mexico City-based America Movil are: a dismal outlook for Brazil’s economy, its second-biggest market; stronger competitors at home; and limited opportunities to expand in Europe. Slim, now the fifth-richest person in the world — down from third earlier this year — owns 57 percent of the company. The stock, down 18 percent this year, lost its long-held position as the most-weighted stock on Mexico’s benchmark index, making Slim the biggest loser among the world’s 400 wealthiest individuals.

The telecommunications company has relied on Brazil, Austria and the U.S. to expand, as regulation weakens the competitive advantage America Movil has enjoyed in Mexico, where it controls about 70 percent of all mobile phones and 62 percent of fixed lines. On top of that, AT&T Inc. bought two rival businesses in Mexico — NII Holdings Inc.’s Nextel Mexico business and Grupo Iusacell SA — pressuring prices and increasing the battle for users in its home market.”

Will Claro duke it out with Liberty on its own and Digicel keep low out of the Liberty’s gunsight? Based on these significant losses with a need to grow in a soon to be more fierce competitive environment, my money is on the “frenemy” model, with the establishment of what can be termed an alliance of common interests.

Either way, the expectation of increased competition is that consumers will be reaping the fruit of the battle for eyeballs. The content wars are what naturally follow the mad rush for infrastructure consolidation. So lower prices hopefully and more content available for consumption are among the benefits that consumers can expect.

However, the region should not stop there but seek out what are the new opportunities for innovative activity presented by this new communications context. We must harness our creativity and seek to quantum leap into a new era of producing relevant information-based products and services.

Andre has over 15 years of experience in the Caribbean technology industry, contributing to a mix of private sector and non-profit projects deploying ICT solutions leveraging networking and hosted infrastructure management. He is the Business Development Manager for Mobile Products at Teleios Systems and a member of the coordinating team for the Caribbean Network Operators Group. Follow on Twitter: @AndreMEdwards.