In the Caribbean, every potential gain can be quickly turned into a new challenge for the region’s telecoms operators. The region’s population – which stands at over 41 million – is unequally dispersed, with as much as 27% inhabiting Cuba and as little as 0.01% living in Montserrat. The largest grouped populations – such as Cuba and Haiti – also happen to be the poorest and while the islands’ geography provides opportunity for subsea cable development, successful implementation is hindered both by political restrictions – such as tension from the US towards Cuba and Venezuela – and by the aftermath of natural disasters, such as the Haiti earthquake.
The region was one of the worst hit by the global economic downturn and has been one of the slowest to recover, yet in spite of this the Caribbean’s telecoms sector is showing promising signs of growth. “Despite being characterised by small markets in terms of population, telecommunications has become one of the Caribbean’s major growth industries,” says Paul Budde, MD of BuddeComm.
Over the last 12 months, fixed-line and mobile markets have seen limited expansion while bandwidth capacity for broadband has increased across the region. Telcos are continuing to invest in bandwidth, subsea cables and partnerships across the region suggesting that, despite its difficulties, the Caribbean is proving worth the investment.
Call for capacity
The average internet penetration rate across the Caribbean is 23%, still one of the lowest globally, but demand is growing. It is, however, a difficult region to generalise. For obvious reasons, Haiti’s internet penetration rate dropped from 11.1% to 10.4% between 2009 and 2010, compared to Bermuda which has a penetration rate of 74%.
According to a report from BuddeComm, the slow increase in internet penetration has been caused by a number of factors, including high prices due to insufficient competition and low PC penetration. There are also technological limitations due to limited bandwidth and insufficient fixed-line structure to carry ADSL. Perhaps the most difficult problems to overcome are economical: poverty, unequal income distribution and a general lack of economic scale.
There are approximately 23 cables carrying traffic to and from the islands, and some experts believe that the demand for increased bandwidth will require more subsea cables to deal with local and international traffic. “There is enough demand, both from within the region and from intercontinental traffic, to warrant additional capacity,” says Budde. “Furthermore, we expect that demand will continue to grow as broadband allows the digital economy to grow in areas such as e-health. Cable companies in the Caribbean region stand to benefit in particular from the growth in wholesale traffic markets.”
From east to west
Cable & Wireless Communications (CWC), which since 2008 has operated in the region under the brand name ‘LIME’, has a particularly strong presence throughout the Caribbean. In 2010, the company signed a MoU to acquire a 51% stake in government-owned BTC Bahamas, granting it exclusivity over the islands for the first three years.
LIME’s dominance is felt in the Caribbean with its undertaking of one of the biggest cable projects of 2010, the East-West cable. The new cable will connect Jamaica and the Cayman Islands through the British Virgin Islands and into the Dominican Republic. Martin Fijman, MD of carrier services, purchasing and supply chain, LIME says, “Th e region has been one of the worst affected by the recession and we have defi nitely felt that in our fi xed-line and mobile businesses. But broadband and enterprise business have fared better, which point to a growth in demand for bandwidth. Th at’s why we are investing in more capacity with the East-West cable.”
The cable is expected to go live in January 2011, making it the third new submarine cable built by the company in the region since 2008, adding to the CBUS cable between Bermuda and the British Virgin Islands, and the Gemini-Bermuda cable between Bermuda and the east coast of the US.
“The combination of the new East-West cable and existing C-BUS cable will help us keep up with the demand for mobile data, serving our own internal demand as well as the demand from carriers in the region,” says Fijman. “We are expecting an increase in internet demand in the region and over the last two years we have been increasing our commerce and capacity in emerging markets. Our focus right now, however, is getting the East-West cable into service and filling the capacity on it.”
Broadband boom
Rival incumbent Digicel has also realised the internet potential across the region. The Jamaican-based company, which has a strong focus on mobile, has recently begun moving into broadband putting it in direct competition with companies such as LIME.
Digicel and LIME have been involved in several legal disputes over the last few years, the most recent of which arose when Digicel accused LIME of delaying the entry of a new competitor into the Caribbean market. In April 2010, the court ruled in CWC’s favour and Digicel is subsequently expected to pay costs of approximately $24 million.
Nevertheless, Digicel has been pivotal in introducing new technologies to the region in recent years. In August 2010, the company launched the Caribbean’s first 4G broadband services in Jamaica. The service was introduced with 60% coverage across the island, and according to the CEO of Digicel Jamaica, Mark Linehan, could help increase Jamaica’s overall broadband penetration increase from 17% to 25-30%. “The appetite for data is increasing in Jamaica and it is up to us to service that appetite,” he says.
Digicel first entered the Jamaican market just under ten years ago, and mobile penetration across the island has since shot up from a mere 6% to 110%. “It has been a dramatic change in a very short period of time,” says Lineham. “We initially launched in April 2001 with 75% GSM coverage in Jamaica. Th at coverage now stands at 99% and has also been overlaid with EDGE coverage so that not only do our customers have access to voice but they have access to data.”
Creating competition
The continuous battle between LIME and Digicel to have a greater presence across the Caribbean has left very little room for new companies to enter the market. But América Móvil is doing just that. It is trying to enter the Jamaican market, an area already heavily dominated by Digicel. Wally Swain, SVP of emerging markets at Yankee Group, hints that the move could be linked to a long-standing feud between the two companies. “América Móvil are primarily doing that to try and make Digicel’s life unpleasant. Digicel competes with América Móvil in Central America and does so quite well, so it makes sense for América Móvil to try and hit back at Digicel,” says Swain.
Other telcos are also starting to find new ways to break the incumbents hold of the Caribbean market. Global Crossing, a leading global IP solutions provider, announced in 2007 that it had forged an agreement with Global Caribbean Network, a subsea cable operator headquartered in Guadeloupe, allowing the telco to extend its reach to 13 additional countries in the Caribbean.
“The Caribbean market lacks options for domestic and international connectivity, and services and pricing are mostly ruled by the incumbents. This poses both opportunities and challenges with the possibility of business with wide gross margins, if you obtain the know-how,” says Federico Lammel, VP, sales and services for Global Crossing, Northern Cluster. “Connectivity to the West Indies continues to be very expensive and limited. In spite of new cabling system availability, cable stations and backhauls are managed by the incumbents, so it is still complicated to do business there.”
Another major development that has again thrown into question the dominance of LIME and Digicel is the new cable under construction between Cuba and Venezuela. ‘Gran Caribe Telecommunications’ is a joint partnership between state-owned Telecom Venezuela and the Cuban telco Transbit to build and terminate an underwater fibre-optic cable linking the two countries.
Work started in October 2009 and the cable is expected to be ready for service in July 2011. “It’s primarily going to be about trade between Venezuela and Cuba, which both share a strong political relationship,” says Swain. According to Swain, the Caribbean market is overall showing signs of saturation, that growth is slowing and the region is stabilising. However, he adds: “The Caribbean continues to be an interesting experiment in size and scale; in how small you can be and how large you have to get.”
Problem islands: Cuba and Haiti Two of the Caribbean’s most challenging islands for telecoms companies are Cuba and Haiti. Cuba has incredibly low penetration rates with 12% internet, 4% mobile and 10% mainline telephone. These are significantly lower than the regional averages of 36.5%, 102% and 34% respectively. This is not only due to the country’s poverty but also its inability to connect with more developed countries such as the US. Political relations between countries in the Caribbean and the US will be a continually difficult area to negotiate for telecoms companies and will limit progress. The only obstacle to operators perhaps to match the unpredictable nature of politicians would be that of natural disasters. Progress in Haiti was sadly stalled by the aftermath of the Haiti earthquake in January 2010. The devastation of the earthquake left the country with very little in terms of infrastructure. The NGO, Mercy Corps, thought that mobile banking services, known as ‘mobile money’, would help the country cope in the face of its damaged infrastructure. According to Michael Catalano, CNO at the advisory services firm Open Revolutions: “There was the potential to incorporate mobile into some of their early stage (recovery) programmes. One of the early stage programmes they worked on was economic recovery, economic strengthening and emergency cash for work.” Incredibly, Haiti’s mobile infrastructure is now back up and running, a testament to the strength and determination of the companies involved.
