ANALYSIS: Strengths and Weaknesses of Ola's Three Suitors

After months of speculation, and a failed first phase which was extended by 30 days due to a lack of interest from potential bidders, three mobile operators have decided to take up Colombia Móvil's (Ola) offer to become its strategic partner, having presented non-binding proposals to this end.

Jamaica's Digicel, Luxembourg's Millicom International and Chile's Entel PCS decided to further pursue Ola's offer after it provided open access to its data room and other uncommon incentives.

The goal of Ola's parent companies, Colombian municipal telcos ETB and EPM, is to find an operator willing to provide an injection of capital following Ola's cash-depleting 2005 infrastructure expansion. ETB and EPM also seek to relinquish control of Ola to the winning bidder.

MILLICOM

Millicom's strength is its prior experience in Colombia with Celcaribe. Although this venture was not a successful one, MICC could rightly claim Celcaribe had everything going against it - it operated in one of Colombia's poorest areas, it had to compete with Bellsouth, which had nationwide coverage, while the other rival Comcel had the country's major urban centers covered, and the Colombian economy was in dire straights, according to Signals Consulting president José Otero.

Millicom has said its strategy is to expand into markets that are adjacent to those where it is already present, which makes Colombia a logical move. Its success in Central America has allowed MICC to focus now on expanding into Africa.

The danger with Millicom is that it is up for sale - if it is bought by a Chinese or Middle Eastern company, it is not known where Millicom's Latin American assets would fit into the new owner's strategy.

DIGICEL

Caribbean group Digicel is running out of markets in which to expand, having established a presence in most Caribbean countries, and in many cases penetration levels now hover at around 90%. It is also facing competition in the high-speed data transfer area from operators with CDMA networks, said Otero.

The company is now trying to increase revenue in existing markets through value-added services, fixed-line services, and WiMax services, but expansion into another country is a logical and potentially lucrative move. With the telecoms market in the Bahamas still closed to competition, that leaves Digicel with few choices, and makes expansion into Colombia a logical move.

The idea of Digicel becoming Ola's partner also makes sense in light of its previous declarations of an interest in expanding into Spanish-speaking markets such as the Dominican Republic, Central America, Peru and Bolivia.

The difficulties Digicel faces, according to Otero, are related to the way it operates.

"The strategy they applied extremely successfully in the Caribbean won't work in Colombia. It is based on establishing an extremely large number of points of sale and heavily subsidizing terminals. But América Móvil is already using the first strategy, and Digicel doesn't have the economies of scale of América Móvil or Movistar that it would need in order to do this," Otero said.

Digicel has also successfully used a populist discourse as a marketing tool in other countries, positioning itself as the operator of the masses and accusing the competition of price gouging. But in Colombia, where mobile rates are extremely high, such an approach would cause "an astronomical drop in prices," said Otero.

Finally, Digicel doesn't have experience competing with big-league players such as América Móvil and Telefónica Móviles, having mainly butted heads with Cable & Wireless. Digicel also has little experience with value-added services beyond SMS.

ENTEL PCS

Perhaps surprisingly, Otero foresees Chile's Entel PCS facing cultural problems just as much as its non-Spanish-speaking rival bidders would face.

"The Colombian market has nothing in common with the Chilean market. [Entel's] experience would not be very applicable there. [Chile] is a market that is very advanced in terms of value-added service adoption, which is almost non-existent in Colombia," said Otero.

Drastic clashes between different Latin American cultures may surprise some outside observers, but they are hardly uncommon. One Chilean industry source told BNamericas that since Chilean mobile operator Smartcom was bought by Mexico's América Móvil, "over 60 Chilean executives have voluntarily left the company," outwardly because of the culture clash rather than any express invitation on the part of AMX.

Otero is also concerned that Entel does not have a clear strategy as it goes forward with the Ola partnership process. "It is not clear what kind of partnership they want to establish and why they would invest in that market. Of the three, its strategy is the least clear, especially since they're in talks about being bought out. And if América Móvil were to buy Entel, Entel and Ola would have regulatory problems in Colombia due to excess spectrum, [and these] are not as easy to solve in Colombia as they are in other countries," according to Otero.

THE NEXT STEPS

Ola's parent companies, Colombian municipal telcos ETB and EPM, will now consider the proposals handed in by Digicel, Millicom International and Entel PCS, in this last stage of phase one of the partner search.

If no operator is chosen by May 5, ETB and EPM will move on to the next stage of their search, in which the companies may make binding bids. This second phase would last between 60 and 90 days.

There are, however, no guarantees that the second phase will be successful. In that case Ola would remain partnerless for the foreseeable future, a situation that would be "very serious" for it and its owners, a well-placed source at one of Ola's parent companies told BNamericas.

BNamericas.com"

Posted to the site on 4th May 2006