QCOSTARICA – With 6.3 million subscribers in 12 countries and US$4.5 billion in annual revenues, Liberty Latin America is one of the largest telecom groups operating in the region.
The company is also known for being among very active in Mergers and acquisitions (M&A), expanding its footprint in strategic markets through the acquisition of competitors.
The latest such move was its purchase of Telefónica’s Movistar Costa Rica, announced in July 2020 and completed at the beginning of this month, August 2021. The deal adds around 2 million clients to Liberty Latin America’s Cabletica subsidiary.
It was a win-win deal. Telefónica moved out of yet another Latin American operation, as part of its broader divestment drive, while Liberty Latin America incorporates mobile into its mostly fixed Cabletica business in Costa Rica.
In this interview with BNAmericas, Guillermo Ponce, head of Liberty Latin America for Central and South America, goes through the upcoming steps in the integration of the two operations, the future of the brands and the competitive market in Costa Rica and Panama.
BNamericas: What are the next steps to integrate Telefónica Costa Rica’s assets and users? When should this process end?
Ponce: August 10 for us was “day one” – the first day we took control of the operation. However, we’ve been working on the integration program for many months as we awaited regulatory authorization. So for us it was very important to start from day one very well, with all the coordination and integration possible.
We’ve already achieved a lot of that. First of all, a week before starting we’d already appointed and announced the leadership team. We selected executives from both companies. We started from day one under the mandate of Iohanna Escobar, who was the CEO of Movistar in Costa Rica, and a combination of executives from different places. Some from LLA, some from Movistar.
We also did a very important job of identifying and studying the customer base to be able to start with cross-selling activities soon, which are very important in this integration.
The first thing we did was make a welcome gift to all our clients – all Movistar and Cabletica clients. We gave all mobile clients more quota for their data plans and we doubled the speed of all fixed clients’ connections. All of this for a month.
We have a lot planned for common customers. There are already several clients who are from both companies from day one, but our aspiration is to grow this base a lot and increasingly make it clients that come from both fixed and mobile services.
BNamericas: And from a systems point of view, like BSS [business support systems] and OSS [operation support systems]?
Ponce: Both systems are working. We have a way of coordinating so that the agents can look at one and they can look at the other.
We have an integration plan that will take more time, because the configuration and migration for a single BSS/OSS platform takes time, but there’s already a team working on that development plan and we’re making progress on that front as well.
BNamericas: What will be the size of Liberty Latin America’s client base in Costa Rica now?
Ponce: Well, the mobile part has just over 2 million clients and the fixed part has something like 700,000 clients. The RGU [revenue-generating units], as we call the customer base, is probably a little smaller, because there are customers that today have both products in a household. But I’d say we’re now a little under 3mn.
BNamericas: And what will the commercial part be like for clients?
Ponce: We have an initial design of fixed and mobile product bundles, which have very attractive things for the client and with products with more data quota, more quota of minutes, more internet speed. And we’re complementing that with the innovations that we’re doing both on the mobile side and on the broadband side, as well as on the video side.
Cabletica recently launched its Next Generation TV, which is a product that is just debuting the market. It’s the first operator in the country that offers all the functions of non-linear TV.
We have lots of to be able to play with various combinations for these bundles, which will be on the market very soon.
BNamericas: Regarding the two brands, will they be merged? Will any of them be terminated?
Ponce: We’re in the process of studying what the definitive brand will be.
We didn’t want to do anything preconceived, but we’re doing studies to understand what’s going to resonate the most with clients in Costa Rica. There’s only one thing that’s certain: it’s that at some point we’ll have to drop the Movistar brand.
But we still have time for that and we’re going to work on it with great care and diligence. The brand decision is something that’s very important and we’re doing it with a lot of market research and customer insight.
We hope that before the middle of next year, hopefully sooner, we can have the conversion process decided on what the new brand will be.
BNamericas: Couldn’t the Movistar brand be kept, as in ‘Cabletica-Movistar’?
Ponce: Yes, it’s one of the options. We haven’t ruled out any option. We have brands in other countries that could also be options. A completely new brand is a third option.
BNamericas: As a convergent telco, you’ve become stronger in the market. How do you see the competitive scenario in Costa Rica?
Ponce: Costa Rica has a lot of competition, which we think is good because it keeps us alert and attentive.
In addition to the three mobile operators [Grupo ICE’s Kölbi, Claro and Movistar] it also has some “extras” in the fixed market, because there’s also Telecable, [Millicom’s] Tigo and a number of other smaller players that operate in different regions of Costa Rica.
We’re happy with the results of the last few years because in fixed, by Cabletica, and in mobile, by Movistar, we’ve gained market share. As [regulator] Sutel’s figures show, both companies have gained market share in the last 2-3 years and have been constantly growing in video.
Cabletica, despite the market declining a little bit (0.8% in the last year), gained almost two points of market share. Movistar has been incredible. Since it entered the market it’s been a story of gaining market share and being closer and closer to incumbent operators.
We expect that our reaction and the new offers will generate quite a reaction in the market and make it more dynamic, which it in the end will benefit the consumer and the telecom clients in Costa Rica.
BNamericas: How is the fiber-to-the-home (FTTH) expansion strategy unfolding?
Ponce: We decided over a year ago to convert all of our new-builds to fiber.
We are carrying out a very aggressive program. Last year we took fiber to 30,000 homes. This year we’ve continued at a similar speed.
There are still lots of opportunities to finish taking fiber to different corners of Costa Rica.
BNamericas: What’s your fiber base now?
Ponce: Today it’s relatively low. At the industry level it’s, I’m not sure, less than 20% [penetration]. In absolute numbers we have around 40,000 households “fibered”.
In addition, today there are lots of places in Costa Rica that are either not covered or covered by legacy [mostly copper] networks, without access to real broadband.
And that’s our priority today. We’re entering places and cities that are very poorly served with broadband.
BNamericas: How much fiber do you expect to have by the end of the year?
Ponce: We can’t disclose that figure, but we’re moving at a similar speed to what we did last year.
BNamericas: Is there a race underway for fiber connection in Costa Rica?
Ponce: Each player has different behavior. Today the incumbent telecommunications company [Grupo ICE] already has a lot of fiber, much more than all the rest. So, I’d say that they’re in a more defensive position rather than expanding.
We’re in attack mode and gaining share from them. In the case of Millicom, in this particular market, I’d say that they’re not too aggressive. We see other operators, such as Telecable, who have a much more public agenda of going to fiber.
But it’s inevitable that the country has to be covered by high-speed networks.
That said, at the speeds that work today in Costa Rica, with the HFC [hybrid fiber coaxial cable] network, it’s perfectly viable for delivering a very good quality service. And that’s why our focus is to finish completing coverage in places in Costa Rica that are not well-served and, in that sense, for us, yes, speed is important and hopefully we’ll be the first to capture customers.
BNamericas: Still looking at the integration, how many antennas and how much mobile spectrum is LLA adding from Telefónica?
Ponce: In antennas, the approximate number is 1,200. As for our spectrum position, we have 40MHz in the 1.1GHz band, 60MHz in 1.8GHz and 11MHz in 2.6GHz. This is what came from Telefónica. Which is very similar, a little higher, than Claro.
The spectrum issue, as you know, in Costa Rica the authorities are in the process of organizing and tendering it for a 700MHz auction. And there’s still no clarity regarding what will happen with the other band [3.5GHz] that will be useful for 5G.
We’re expectant. We’re confident that the Costa Rican authorities, which have been very stable and clear in their rules – and that’s one of the things that we like in Costa Rica – will follow a good process so that this spectrum is redistributed in the most efficient way for mobile development to continue advancing.
BNamericas: Indeed, there’s a legal issue involving the ministry and the regulator in recovering frequencies given under concession to ICE. In this respect, how much more spectrum do you need and how are you preparing for the arrival of 5G?
Ponce: To provide the services that we have today, which are 4G LTE, we have a good position for the year. The company should end up with 100% 4G LTE coverage on its network.
ICE, as you say, has a spectrum allocation today that’s much higher than the others. They have 40MHz in 2.6GHz, 40MHz in 1.8GHz, 40MHz in 2.1GHz and 190MHz in 3.5GHz, which is the prime frequency for 5G.
The logical thing to do to create a competitive environment under equal conditions for the spectrum to be redistributed.
As I said, we fully trust the local authorities in Costa Rica that this will be carried out in a good way and we will have equal conditions for when the time comes and this spectrum becomes necessary.
BNamericas: Costa Rica is also looking to offer very high, millimeter wave bands, which are supposedly very good for fixed-mobile internet services [FWA]. Are you considering these bands?
Ponce: When we look at the future, we see 5G is still a while away from becoming a reality. In our technological development we have objectives looking at all the bands and all the possibilities.
Now, it’s still early days. Many of those use cases out there are still unclear. Part of the technology still doesn’t have appropriate handsets, or equipment in the case of machine-to-machine. There are lots of conceptual things, lots of tests, but for this region it’s something that will take two, perhaps three years for the first applications to begin to materialize.
BNamericas: Could FWA be useful to bring high-speed broadband to rural areas of Costa Rica where fiber is harder to be deployed?
Ponce: You’re right. And it’s something that we’re looking at carefully, because it’s a very good alternative when access is very difficult.
BNamericas: What are your challenges now with your new role at Liberty Latin America?
Ponce: Right now, I have the primary responsibility for the integration in Costa Rica to be successful. The challenge now is to execute the commercial plans and translate that into maintaining and accelerating the growth of revenues and clients and for LLA to continue consolidating itself as a leading company in Costa Rica.
On the other hand, there’s Panama, where we’re also on a growth trajectory after a very difficult year with COVID-19. We’re on a good track for recovery in revenue volume. It’s a very, very competitive market, especially in mobile, with four players.
The third element, I would say, and this one more on an LLA level, is the constant search for other business alternatives, which we permanently have on the agenda.
BNamericas: What alternatives? Digital services, consolidation?
Ponce: Becoming more digital and looking at consolidation opportunities.
We’re always looking at other countries, even though we don’t specifically comment on the plans. We’re always looking at options, consolidation opportunities, scale gains.
BNamericas: Many analysts point to LLA as the telecom consolidator in Latin America. Panama, having four players, provides opportunities for that doesn’t it?
Ponce: We’re alert to all opportunities, not only in Panama, but in any country. If these opportunities show up, we’ll study and evaluate them. But at the same time, we’re going to make very disciplined decisions.
We did it with the purchase of Cabletica four years ago, then with the purchase of Movistar by Cabletica, with our purchase of UTS in the Caribbean, etc.
We don’t want to grow for the sake of being big. We want to grow when there’s value creation.
BNamericas: Millicom just announced a very large investment for Panama. What are your plans in light of that?
Ponce: We’ve been investing in Panama intensively since long before Millicom.
We continue to do so, strengthening and modernizing our mobile network. We have a fiber deployment program in the fixed network equivalent to what we have in Costa Rica. And we also want to reach every corner of Panama.
We’re very active there and with good results. Our second quarter shows that it was also a good quarter for our business in Panama for fixed growth.