Keith Collister, Contributor
DELVES
DIGICEL GROUP Chief Executive Colm Delves says his company is not for sale. This was in response to recent media reports that inferred that Digicel intended to sell out to the Egyptian-based cellular phone operator Orascom, contingent on a successful roll out in Trinidad and Haiti.
Digicel founder, Denis O'Brien, had unsuccessfully bid against Orascom - and seven other companies - for the management contract of a cellular phone company in Lebanon some time ago, according to Mr. Delves, but there had never been any kind of relationship between the two groups.
Mr. Delves said Digicel was doing significantly better than its business plan, and therefore, it would be a ludicrous time to sell the business.
Mr. Delves' assertion appears to be borne out by a report in the respected Irish publication, Business and Finance, which states that Digicel reported EBITDA (earnings before interest tax depreciation and amortisation) of US$62 million for its first quarter ending of June 2005, a massive 62 per cent increase compared to the same period last year. For comparison purposes, according to their recent bond offering memorandum, for the entire previous year to March 31, 2005, the company had revenues of US$477million and reported EBITDA of US$165 million.
The original source quoted by Business and Finance is a research note by leading U.S. investment house Citigroup, which was the lead bank on Digicel's very successful recent $300 million bond offering. This was massively oversubscribed and Digicel's bonds have consistently traded at a premium to their original offering price.
According to the Citigroup research note, after only four years in business, Digicels' operation is already highly profitable: "Digicel reported better-than- expected 1Q 06 results, highlighted by robust EBITDA growth, consecutive margin improvement, and solid, free cash-flow generation."
Total revenue for the quarter was US$l4l.7 million, up 30.59 per cent compared to the same period the previous year and up seven per cent from the previous quarter.
"Free cash-flow generation was strong in the quarter at US$27.2 million, but we expect that in subsequent quarters, free cash flow may be lumpy because of higher integration expenses related to Cingular assets acquired in the previous quarter," the Citigroup note reveals.
According to Mr. Delves, Digicel is "committed to further growth in the region, and we certainly have the financial wherewithal needed". This appears to be no idle boast, as even without any additional resources from their billionaire shareholder, it is likely that the bond issue and the better-than-budgeted financial performance should allow them to fund the continued rapid expansion of their current footprint. Digicel does not necessarily intend to limit itself to its current footprint however, as their target market now includes the non-English speaking Caribbean with a combined potential of 22 countries. With the international capital markets apparently very receptive to Digicel's debt, a further expansion would not appear to present a funding problem at this time.
According to Mr. Delves' "Digicel's overall objective is to be the number one cellular provider in the Caribbean, which does not just mean the English speaking Caribbean". At the time the Citigroup note was published on August 18, the company had 1.7 million subscribers, but since then, Digicel has received regulatory approval for the acquisition of Cingular Wireless operations in Anguilla, Dominica, St Kitts & Nevis, Bermuda, Grenada, and are near completion of St Vincent & the Grenadines, Antigua & Barbuda and St Lucia. They are also hopeful of receiving regulatory approval in Barbados and the Cayman Islands in the next couple of weeks.
THE TRINIDAD MARKET
Research company Pyramid Research believes that the opening of Trinidad and Tobago's telecommunications market represents one of the last Caribbean markets to open its sector to competition, leaving the Bahamas as the only other closed market in the region. In their opinion, the entrance of Digicel is likely to take significant market share away from the incumbent, TSTT. Trinidad & Tobago is shaping up to be the next battleground between Irish-owned Digicel and Cable & Wireless, which owns a majority stake in the local incumbent, TSTT.
"The current situation in Trinidad & Tobago is similar to that of Jamaica in 2001 when Digicel and another minor operator entered a market controlled by Cable & Wireless and severely eroded the incumbent's market share," says Pyramid Research analyst Thomas Abreu. "While Digicel is unlikely to grab market leadership in less than two years as it did in Jamaica, I do expect the challenger's impact to be significant."
According to Pyramid, Trinidad & Tobago has the potential for explosive growth, with relatively low mobile penetration at 40 per cent considering that Trinidad & Tobago has a relatively high GDP per capita of US$12,000 and an economy benefiting from the rise in global energy prices. "If any difficulties arise with signing interconnection agreements, users may purchase multiple phones creating a situation similar to that of Jamaica where penetration is above 80 per cent despite a GDP of merely US$3500" adds Pyramid Research senior analyst Marc Einstein.
Digicel was founded by leading Irish billionaire Entrepreneur Denis O'Brien, who had previously founded the Irish Telecom company ESAT in partnership with European based Telenor. After a hostile take-over bid by Telenor for the Nasdaq and Irish Stock Exchange listed ESAT, Mr. O'Brien brought in giant British Telecom (BT) as a white knight, thereby selling out his stake to BT right at the top of the telecommunications boom in March 2000. Whilst Mr. O'Brien thereby realised an excellent price for himself and his shareholders, and also avoided the stock market crash, in Mr. Delves view, the sale was driven primarily by the hostile take-over bid. In Mr. Delves opinion, Mr. O'Brien is actually a builder of businesses with the objective of maximising their long term value, which would certainly not be achieved through a sale at this time. Mr. Delves is particularly positive on the prospects for Digicel in Haiti, where he believes cell phone penetration could quadruple to 25 per cent over the next two to three years from its current very low level of six per cent combined for both cell phone and fixed line.
