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Costa Rica: An Imperative for ICE to Implement Defensive Strategies

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The recent passage of the General Telecommunications Law (LGT Ley General de Telecomunicaciones) cleared the way for the entrance of new competitors into the Costa Rica mobile market. Signals Telecom Consulting points out that America Movil, Digicel, Millicom and Telefonica are the most important candidates for launching operations in a market that is attractive for various reasons low mobile teledensity (less than 40%), high ARPU levels (the highest in Central America) and the absence of a prepaid market.

Signals estimates that during the 2008 - 2013 period, the arrival of new operators will fuel a lines CAGR of 20%. Also, mobile telephone invoicing levels will surpass the US$ 5.895 billion mark for the same period.

The ability to get involved in the Costa Rican market will allow major telecommunications groups operating in the region to fill in the remaining gaps on their Central America operations maps. As such, they will have the possibility of offering low cost roaming services throughout the region and take advantage of new businesses that will be generated in the corporate segment as from the definitive implementation of the CAFTA-DR Free Trade Agreement (between the U.S., Central America and the Dominican Republic).

These circumstances generate uncertainties with regard to the possibilities that the Instituto Costarricense de Electricidad (ICE) will have for continuing its development path within a competitive marketplace.

Among the doubts about the future of the company, the following are those that stand out the most:

Ability to respond adequately to incoming operators: Signals believes that incoming operators will carry out aggressive strategies based on handset offerings (with high subsidies and a wide variety of units available), services (mainly prepaid) and a strong network of points of sale. As such, the possibility of offering better services by ICE will depend on the Strengthening of Public Telecommunications Companies Law (Ley de Fortalecimiento de Empresas Pâ║blicas de Telecomunicaciones). Signals estimates that it would be possible for the company to reproduce a model similar to that of Ancel/Antel (Uruguay), which successfully competes with both America Movil and Telefonica.

Increase in CHURN: The possible loss of users to competitors will mainly depend on the defensive strategies deployed by ICE. Signals highlights the fact that what will be important for ICE is to improve and increase its services offering, especially those of the prepaid variety. While ICE has announced rates for this type of user, these show a low level of market segmentation as compared to the prepaid services offered in other Central American countries.

Mobile-to-Fixed Substitution: Signals believes that the new operators will encourage the substitution of fixed services with mobile ones. As such, the ICE fixed network will become important, mainly due to the added value provided it by the broadband services offered via its DSL network. As long as the company updates its fixed network, the operator could offer "double" and "triple" services, which could also include mobile telephony as a quadrupleplay offering. Moreover, the operator could implement discount call plans within its existing network (both fixed and mobile) in order to increase customer loyalty and successfully face up to different Multi SIM strategies that could be launched by incoming operators.

3G Development: In spite of having coverage and service quality problems with its 2G / 2.5G networks, ICE has announced the roll out of a 3G (UMTS/HSDPA) network for 1Q09. Signals recognizes the lack of GSM/GPRS coverage as a significant weakness for ICE when faced with the opening up of the local market because its future competitors will make a tremendous effort to deploy a nationwide network. Moreover, Signals thinks it unlikely that the 3G implementation process will occur as currently planned.

Signals believes that the roll out of 3G is an interesting strategy because it will increase start up costs for incoming competitors and it will provide the incumbent with an innovative image in the marketplace. It is mistaken, however, to believe that this technology will help ICE to compete within the range of basic services to be offered by market newcomers (voice and SMS), mainly due to the high cost of 3G handsets. In said scenario, Signals estimates that the 3G offering will be more successful for the operator if it is destined to Mobile Internet services, especially if such an offering were focused in high consumption niches and via PC/MCIA cards.

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Tags: roaming  arpu  signals telecom consulting  mts  telefonica  america movil  compete  mobile internet  ice  rica  cagr  Costa Rica