Digicel casts its net across Caribbean

As Denis O'Brien's firm makes a splash in Trinidad and Tobago, it comes closer to its aim of being the number one operator in the region, writes Arthur Beesley in Port of Spain

Denis O'Brien first applied for a Caribbean mobile phone licence in 1999 when he still owned Esat. Sunny islands were a sideline interest then. Now they're the main event.

Trinidad and Tobago, off the coast of Venezuela, was the target back then. O'Brien is accustomed to getting what he wants, but seven years passed before his company Digicel switched on its mobile network this week in Port of Spain, the capital of Trinidad. In the interim, Digicel built a business with two million customers in 15 other Caribbean markets.

Jamaica was the first in 2001. The group now has a 72 per cent market share there. More than a dozen followed, among them Grenada, Barbados and Cayman. In many of those islands the group's market share is well in excess of 50 per cent.

In Trinidad and Tobago, the Digicel brand has already made quite a splash. Long before the phone service itself came on stream, no less than 18,000 people applied for 300 jobs with the company.

At lunch hour in downtown Port of Spain last Tuesday - on a dusty central thoroughfare named after the cricket superstar Brian Lara - a long line of customers formed queues for mobiles in a newly opened Digicel store, one of 200 dedicated outlets. An additional 10,000 stores offer top-up cards.

"I live three hours from here. I need to know where my kids are in the afternoon," said Jo Ann Cottoy (45), a court office assistant who was in the market for three phones.

O'Brien said at a ritzy party for Digicel this week that "tens of thousands" of customers had signed up for its service in the five days since its launch.

Digicel's arrival breaks a monopoly owned by the islands' government and UK plc Cable & Wireless, called TSTT. Built at a cost of some $200 million (€165 million), Digicel's network had been in place for five months before TSTT signed an interim interconnection agreement on April 3rd.

As you might expect, relations between the two groups are frosty. Established in 2001, everything about Digicel is new. The only old thing about the group is its enemy, Cable & Wireless, once the dominant operator throughout the Caribbean.

After its independence in the 1960s, Trinidad and Tobago's first prime minister Eric Williams banished Texaco and Shell from the islands. In Digicel's battles with TSTT, O'Brien has felt resistance of a similar kind from the islands' establishment.

As customers flock to Digicel stores, he might well be the coming high king of the islands. Digicel finds it relatively easy to do business in the Caribbean because it has a reputation of being a group without a "colonial attitude".

Nevertheless, its colonisation of the islands continues. Digicel is on the verge of opening its operation in Haiti's large but impoverished market. In addition, services in Turks and Caicos are also imminent.

The group plans to introduce its brand in the Bouygues Telecom business it acquired last month. This will bring the Digicel brand into three new markets: Martinique, Guadeloupe and French Guiana.

O'Brien's objective is to make Digicel the number one operator throughout the region. With their battles in Trinidad and Tobago now developing into all-out war, full-page adverts for both groups were a big feature of the local newspapers this week.

To Irish eyes, Digicel's prominent use of the colour red in its adverts smacks of familiar campaigns by Vodafone. In style, the ubiquitous marketing emphasising the brand as cool, popular and technologically advanced looks a lot like Esat.

The similarity does not end there. Digicel can boast that 92 per cent of its 1,500 staff are local, but a small band of former Esat staffers are at the group's core.

According to O'Brien, the group has developed a management structure similar to that of Cemex, the giant Mexican cement-maker that controls Irish-listed group Readymix.

Only the chief executive, finance and branding functions are centralised. Beyond that, different specialist teams are deployed at different phases of development.

The first team into a market concerns itself with the "heavy lifting" work of securing licences, working the regulatory regime and building a network. The second looks after the post-launch high-growth phase. A third aims to optimise cash flow and profits as the business matures.

Jamaica, Cayman and Bermuda are in phase three. Trinidad and Tobago is in phase two. The Digicel chief in Trinidad is Stephen Brewer, former boss of Esat's number one rival Eircell.

Soon to enter phase two is the Digicel business in Haiti, an impoverished, underdeveloped state where the group has spent $150 million building a network. The recorded population of Haiti is eight million, but O'Brien believes it could be as high as 10 or 11 million.

It will be Digicel's biggest market to date.

Market penetration - between fixed and mobile industry - is only 5.6 per cent in Haiti, so the group sees a huge opportunity in the market. The group sponsors the national football team and the national football league.

However, politics on the island are unstable and gang warfare and crime are a feature of day-to-day life. O'Brien says Digicel has had to engage armed security on the French-speaking island.

In addition, income in Haiti is on the very low end of the spectrum. Gross domestic product per head of population is only $800. That compares with $2,000 in Jamaica, and $10,500 in Trinidad and Tobago.

Trinidad and Tobago's wealth is hugely advantageous to Digicel. There's sunshine on tap here, lush forestry and tall palm trees. But the islands are rich in oil and gas, and they are industrialised. For Digicel, the potential for the business market here is greater than elsewhere. The islands and their fashion-conscious middle class are also beneficiaries of the spike in oil prices.

There is more. According to a note last year from Fitch Ratings, the credit rating agency, the development of the Trinidad and Tobago business will reduce Digicel's dependence on Jamaica.

"In fiscal 2005, Digicel Jamaica represented the vast majority of earnings before interest tax depreciation and amortisation from its six core operating units; Jamaica should decline to approximately 60-65 per cent by 2008 as newer operations start up and mature, primarily from its Trinidad and Tobago operation," the agency said.

In O'Brien's estimation, Digicel should be bringing in annual revenues of $1 billion by 2008 with the potential for significantly more than that by 2010.

"In the medium term, we can see visibility in all our markets getting to about a billion in revenue, and then there's more opportunities. You add in all those other countries that we're working on at the moment, from the business development team to the M&A team, that could be significantly more by 2009, 2010."

For O'Brien, Digicel is his "best investment". He made a fast fortune with Esat in 2000. Now, with Digicel, a second fortune is in the making. He doesn't rule out a flotation but says that's not on the agenda for the moment.

Still, the investment community has already delivered its judgment on the business. A $250 million bond last year was 13 times over-subscribed, leading Digicel to increase the offering by $50 million.

Into the future, Digicel is looking at opportunities in the Bahamas, Honduras, Costa Rica and Panama. Cuba is another possibility, as is the US where the possibility of a mobile virtual network operation is being examined.

O'Brien also has a team looking at the Pacific Rim. Digicel has acquired a licence in Samoa and it awaits the result of an application in Fiji.