GUEST COLUMN: Centennial Takeover Target Following Islanet Acquisition
Puerto Rico's telecommunications market is going through a transitional period right now which is forcing established companies to rethink their strategies for attracting new clients and revenues. This transformation is the result of external and internal influences on the market, all of which have a strong impact on a small country of less than 4mn inhabitants, which nonetheless boasts a high purchasing power (US$19,100 GDP per capita) compared to the rest of Latin America and the Caribbean.
Among the internal events that have impacted the local telecoms market are: financial problems faced by Movistar Puerto Rico, the local unit of Spain's Telefónica, and US mobile group SunCom; and Mexico's América Móvil's acquisition of Verizon International.
The external events include the sale of Centennial Communications' assets in the Dominican Republic.
Signals believes that América Móvil's entry into the Puerto Rican market will go hand in hand with an aggressive marketing campaign based on highly subsidized handsets and a heavy emphasis on expanding the subscriber base for broadband services provided by Puerto Rico Telephone.
This aggressive thrust into the market is largely to meet the conditions the US regulator FCC imposed on América Móvil's acquisition of Verizon International, namely to invest US$1bn in the country over five years. América Móvil is expected to deploy a GSM/GPRS network while the focus of the fixed line operation will be on expanding WiFi hotspots, increasing the number of DSL clients and, in the short to medium term, launch IPTV services.
América Móvil's entrance into the Puerto Rican market will also break the status quo of a market that already has six operators and cause a reshuffle of leadership. Signals believes SunCom, Movistar Puerto Rico and Centennial Puerto Rico could be hardest hit by América Móvil's arrival due to their absence of economies of scale in purchasing equipment and infrastructure and lack of exclusive content contracts. For that reason Centennial Communications' purchase of Islanet Communications will serve to improve the market position of Centennial Puerto Rico, while making the operator more attractive for a potential buyer.
Islanet is a small operator offering voice and data services with around 200 clients. In 3Q06 it announced the deployment of a "pre-mobile" WiMax network of the 802.16e standard over the 2.5GHz band provided by Navini Networks in Mayagüez on the island's west coast. Islanet began to promote broadband services under the name "Volare" for a monthly cost of US$19.95, which attracted over 600 users by the end of 2006. However, Signals thinks that the small operator's biggest draw for Centennial Communications is its 2.5GHz spectrum license, which will allow it to continue expanding its broadband subscriber base in Puerto Rico, estimated at around 325,000 dedicated lines in 1Q07.
Signals reiterates its belief that Puerto Rico's telecoms market cannot sustain six mobile operators when three of them - including Centennial Puerto Rico - are launching offers for unlimited airtime for US$49.99. There is the possibility that several mobile operators will be absorbed by US operators with national coverage such as T-Mobile that may be interested in offering services on the island through an already established operator rather than installing a new network. It is worth mentioning that T-Mobile purchased spectrum in Puerto Rico and the US Virgin Islands during the 2006 spectrum auction held by US authorities. SunCom would appear to be the most likely target for T-Mobile.
Another means of consolidating the mobile market would be a merger of two existing operators. Centennial Puerto Rico could be very attractive for Sprint Nextel for the following reasons:
Centennial Puerto Rico is the third largest mobile operator with around 400,000 users, but has the highest ARPU at US$68.
The company already has a broadband strategy which involves marketing dedicated access lines as well as a broad network of free WiFi hotspots in locations such as Starbucks coffee shop that operate under the BlueZone brand.
The operator has focused on the high-end customer through heavy promotion of value added services.
It holds 30MHz of broadband spectrum in the 1900MHz band, which would complement the 10MHz Sprint-Nextel possesses on the island.
Centennial Puerto Rico already provides roaming services to Sprint Nextel in the interior of the island where the US operator does not have coverage.
The spectrum in 2.5GHz that Centennial Puerto Rico inherits from Islanet would allow Sprint Nextel to emulate its US strategy of marketing mobile WiMax on the island.
By José F Otero, president Signals Telecom Consulting
José F Otero is president and founder of the international consultancy Signals Telecom Consulting. He can be contacted at info@signalsconsulting.com.
DISCLAIMER: The content of this piece is entirely the responsibility of the author(s) and does not necessarily reflect the views of Business News Americas."
Posted to the site on 30th May 2007
