Maverick Operator Digicel Takes On the Big Boys in Myanmar
By Jeremy Wagstaff 29 April 2013
SINGAPORE — Cellular operator Digicel Group jumped into Burma early and big, hiring staff, funding local sports, negotiating land deals for thousands of cell tower sites and signing up hundreds of partners for retail outlets.
The strategy helped propel it onto the shortlist for a mobile license in one of the world’s last mobile frontiers, putting an operator that ranks 65th globally in terms of customers up against giants such as Vodafone Group.
Whether its strategy pays off or not, industry insiders say Digicel, largely unknown outside the Caribbean and some Pacific islands, has shaken up a usually conservative industry.
“They have been a disruptive force,” said Roger Barlow, a Hong Kong-based telecommunications consultant who has worked in Asia for more than 25 years. “Some of the big guys tend to look down their noses at them but they shouldn’t because they’re becoming a credible player.”
Burma this month short-listed 12 consortia for two licenses it plans to grant foreign operators in late June. The government wants to expand mobile penetration from less than 4 percent to up to 80 percent by 2015-16.
While Digicel is up against behemoths such as Vodafone, China Mobile and Telenor ASA, several other big players failed to make the list — among them South Korea’s SK Telecom and Egypt’s Orascom Telecom Holding SAE.
It’s a vindication of sorts for Digicel’s long-term approach. Business development director Frank O’Carroll led the charge into Burma in 2009. In early 2012 he persuaded the company to commit funds to build a local brand and prepare the ground so that if it did get the go-ahead it could roll out a service in a matter of months.
That entailed deploying hundreds of workers across the country to negotiate thousands of leases for base station sites, months before the government had even begun the tender process.
“There’s not one square inch of the country we haven’t been in,” O’Carroll said in an interview in Singapore.
Its sponsorship of the national football federation has built brand awareness — of sorts. Lots of locals have heard of Digicel, O’Carroll said, though at least initially they were as likely to think it’s a brand of battery as a cellphone operator.
It’s a strategy, he said, that Digicel has been pursuing in much smaller markets for more than a decade.
“What we are doing in Burma is not unique to Burma,” said O’Carroll. “The first country that Digicel as a company looked to get a license was Trinidad and Tobago. We did the very same thing. We were there, we leased the land, we rented local offices, we started a local team, sponsored big sports.”
Small and Nimble
Digicel has since set up shop in 31 markets, gaining 13 million customers. While none boasts a population above 10 million people, the company has taken on some major rivals, including America Movil SAB, Vodafone, Telefonica and Cable & Wireless.
“I don’t think there’s any fantastic science to it, but I do think it’s our ability to move fast because we’re small, we don’t have this complex machinery that takes months and months to make decisions,” said Vanessa Slowey, Singapore-based CEO of Digicel Asia Pacific, in an interview.
Making those decisions is Digicel owner Denis O’Brien, an Irish billionaire who first focused on small markets in the Caribbean after noticing that spectrum was being auctioned off in Jamaica. Eventually the Pacific beckoned.
Telecoms executive David Borrill recalls meeting O’Brien in his office after three years working for the incumbent operator in Samoa. “He went straight over to his library and opened the biggest atlas he had, turned to the Pacific and said, ‘Tell me about this, where would you put an office here?’”
A few weeks later Borrill was back in Samoa, this time working for Digicel. The company bought out Telecom New Zealand’s stake in the incumbent operator in 2006, and within six months had more than doubled its customer base.
Last financial year the company reported revenue of $2.5 billion, year-on-year growth of 14 percent and EBITDA of $1.08 billion, up 13 percent. It has 87 percent market share in Haiti, at least 75 percent in Jamaica and 92 percent of Papua New Guinea, according to Bank of America Merrill Lynch.
“Digicel is very astute in selecting the markets it enters,” said John Hibbard, an Australia-based telecoms consultant. “It has to be convinced it will win a reasonable market share.”
When it isn’t, it’s prepared to abort. In East Timor, for example, Digicel went so far as building cell towers, and assured the government that if granted a license it could cover more than 90 percent of the population within four months.
But, Digicel said, the government dragged its feet and ignored advice to issue only one license. So when it did eventually win one of the two on offer last year, Digicel turned it down. “Why would we invest $50 million to compete with two other operators, for the 40 percent that is left? It’s crazy. So we handed our license back,” said O’Carroll.
Digicel sold its assets to the other licensee Telin, a unit of Indonesia’s PT Telkom. The company broke even on its Timor investment, said Digicel’s Slowey, without giving details.
Such an approach is at odds with the industry’s more conservative approach, where investment decisions must be highly rational and based on certain outcomes.
“Digicel doesn’t have the institutional memory of other telcos,” said Rob Bratby, a Singapore-based telecoms lawyer with Olswang LLP. “It’s an example of a company with a different mental framework.”
Digicel, however, has not had a free ride in Burma. The government turned down its proposal in 2012 to set up a joint venture with the incumbent operator, Myanmar Posts and Telecommunications, in favor of an open tender.
That has meant facing the diplomatic and financial muscle of some of the world’s biggest and best-connected operators, prompting Digicel to take on its own partners: Yoma Strategic Holdings, owned by Serge Pun, a powerful businessman who, unlike many tycoons in Burma, isn’t entangled in Western sanctions. The other member of the consortium: Quantum Strategic Partners, owned by financier George Soros.
The Soros-funded Open Society Foundations has long worked with exiles, refugees and dissidents, according to its website. Last year Soros said he would set up an office in Rangoon.
Digicel shrugs off criticism that it lacks the experience of working in big markets like Burma, arguing that it’s harder to work in lots of countries, whatever their size. Among the shortlistees, only France Telecom SA matches Digicel in the number of markets covered.
“Whether it’s the smallest country in the world you deploy in or the largest, it’s still the same building blocks, still the same issues that you must go through,” said O’Carroll. “A lot of those same things, whether it’s Nauru’s 9,000 people or Myanmar’s 60 million, we think are going to be identical.”