In just four years, Denis O'Brien's Digicel mobile phone company has captured a staggering 70% of the market in Jamaica. Colm Keena reports from Kingston on how the Irish entrepreneur did it.
Denis O'Brien has done it again, this time in the Caribbean.
The Irish entrepreneur who made £250 million tax free from his Esat Digifone/Esat Telecom business when he sold it to British Telecom in January 2001 has built up a new group of companies on the far side of the globe that are growing at a rapid pace and are set to become as valuable and, more, as Esat ever was to O'Brien.
The Digicel group, launched four years ago, now has 1,000 staff and 1.75 million subscribers. It is the number one brand in Jamaica, more popular than McDonald's or Pepsi, and has knocked the previous monopoly mobile phone service provider in Jamaica, Cable & Wireless (C&W), into a minority market position.
Digicel now holds 70 per cent of the mobile market in Jamaica, while C&W holds 30 per cent.
Everywhere you go in Kingston there are advertisements for Digicel and in every newspaper you read there is mention of Digicel-sponsored events. The company's red and green logo sticks out in a country that has relatively little outdoor advertising.
The average spend per Digicel subscriber across the Caribbean is $26 a month, which means the Digicel group's turnover currently stands at approximately $546 million a year. (By comparison, the average spend by European mobile phone users is $40 a month.)
In a business that values companies according to their subscriber numbers and their average subscriber spend, the Digicel group is worth in excess of €1 billion. O'Brien had a greater than 85 per cent shareholding, which he has now diluted in raising capital in the US or elsewhere.
The holding company for the group, Digicel Ltd, is in Bermuda, where there is no capital gains tax.
In the Caribbean the Digicel brand has become famous for its sponsorship of the West Indies cricket team, the Jamaican football team, music events, agricultural events, a horse racing derby and numerous charitable donations.
Tens of millions have been spent creating an image that even the vice-president of sales and marketing at C&W, Ian Neita, accepts has been hugely successful.
C&W, previously the monopoly operator in Jamaica, was caught napping when Digicel appeared in the market, says Neita. "It took a long time for us to respond and that resulted in our losing the market. Digicel became the darling of Jamaica and it became the main player in a relatively short time."
Digicel is unique in being a large, free- standing, recently established business that is thousands of miles from Ireland but is owned by Irish shareholders, has an almost exclusively Irish board and has a top management, many of whom are Irish.
O'Brien says the idea of setting up a new business in the Caribbean was being looked at by him and his associates in the late 1990s. The Caribbean was one of the few areas where liberalisation of the telecoms market had yet to occur and he and his core team looked at buying a licence in Trinidad.
That licence sale never went ahead, for various reasons, though an auction is now scheduled for June.
He says this search for new ventures began around a time when he knew he was going to have to sell Esat. The auction for the Jamaican licence took place on a Friday evening in April 2000 and he and a few close associates gathered in the Morrison Hotel in Dublin, from where they kept in contact with their man in Kingston. They eventually bought one of two licences that were sold that day, paying $47.5 million.
"The next morning I rang Leslie Buckley [ close business associate and Digicel shareholder] and said, 'Jesus'."
A group of Irish businessmen who worked closely with O'Brien on the building up of Esat, now set their focus on the Caribbean. These included Leslie Buckley, Paul Connolly and Lucy Gaffney. "We looked for local partners but people said, 'you're crazy, C&W are too entrenched'. The initial investment was $150 million. We were told to forget it."
Jamaica has a population of 2.65 million. C&W admits that it had used Jamaica as a major profit centre, making very little investment in infrastructure. At the time the country was being opened to competition, only 20 per cent of the population had fixed line phones and there were 200,000 people on the waiting list. The existing mobile service was concentrated in built-up areas and the number of users was 270,000, or 10 per cent of the population.
Both C&W and Digicel agree that Digicel, by opening in April 2001 with extensive quality coverage throughout Jamaica, won over many rural people and communities, who for the first time had access to a telephone. These people will now probably never look for a landline, says Neita.
Emigration is a big issue in Jamaica and so access to a telephone is very important.
Remittances are also a major part of the economy and the creation of the Digicel network meant people in rural areas could now make use of their phones to check whether promised monies have arrived. Digicel also put in place a system where Jamaicans abroad could use the internet to top up the mobile phones of friends and relations back in Jamaica.
Despite its relative poverty there is quite a lot of cash in the Jamaican economy. Almost all of Digicel's customers use prepaid telephones. O'Brien says that people who have no landlines tend to make longer calls on their mobiles than people with landlines. Digicel's objective is to become the leading mobile operator in the Caribbean, an area with a total population of approximately 40 million. To date the group has concentrated on the English-speaking islands but the focus is broadening out. Last week the group announced the securing of a licence in French-speaking Haiti, which has a population of nine million.
Also the roll-out of Digicel's operation across the Caribbean has been speeding up in recent times. In March 2003 the group launched a service in St Vincent and St Lucia and this has been followed by: Aruba; Grenada; Barbados; Cayman; Curacao, and now Haiti. It hopes it will get a licence in Trinidad. (A licence in Cuba is considered unlikely while Castro remains in power.)
As the group grows both in Jamaica and across the Caribbean, its profitability increases as more people make calls from Digicel phones to Digicel phones, the most profitable type of call for the group.
Also, while the initial outlay (and attendant risk) is huge, once the infrastructure is in place and paid for, mobile phone companies become very,
very profitable if they can get and
hold their subscribers.
Colm Delves, Digicel's group chief financial officer, says the group has to date invested US $600 million and won itself a 62 per cent share of the markets in which it operates.
He says the size of the investment and the initial losses in Jamaica means Digicel Jamaica has not paid corporate tax there yet but it will be paying tax on profits in Jamaica for the first time this year, ie the year to end of March 2005.
The number of banks supporting the project has increased and AIB and Bank of Ireland are now on board.
It has not all been onwards and upwards.
At one stage, David Hall, chief executive of Digicel in Jamaica, thought the company was going to go under despite exceeding all its commercial targets. Jamaica had a currency crisis three years ago and the value of the Jamaican dollar fell sharply against the US dollar.
So although the company was making good money, it was Jamaican money and the debts it had to service were in US dollars. "I didn't sleep for two whole days," says Hall. The currency, however, stabilised, and the crisis passed.
Accountant Ozzie Kilkenny was an early shareholder in Digicel but fell out with O'Brien. Their High Court clash over how much Kilkenny should be paid for his share was settled soon after it began, earlier this year, with the size of the settlement not disclosed.
On Friday it was announced that group chief executive, Raoul Fontanez, was resigning with immediate effect, just nine months after being appointed to the top post. He is to pursue a venture in telecoms in the Dominican Republic.
The other Digicel shareholders are people who have been with O'Brien from the early Esat days, Buckley and Gaffney. O'Brien says that they and other former Esat colleagues, such as Séamus Lynch, the first chief executive at Digicel Jamaica, all played crucial parts in setting up the company and making it a success.
The Digicel board also includes Fianna Fáil adviser PJ Mara, another name from the Esat days.
Many of the senior managers at Digicel, such as Hall, were formerly managers at Esat, as are many of the other Irish working with the Caribbean company.
Neita, who worked with Digicel in Jamaica before moving to C&W, says Digicel has a good blend of Irish and Jamaicans on its team and has managed to integrate itself very well into the Jamaican community. "That has served them very well."
He says the local market is astonished by how much money Digicel spends on its marketing, and that the feeling is that it is building its business with a view to a sale. O'Brien says this is not the case.
Meanwhile, he says there is no particular game plan for him. "I'm an opportunist more than anything else." He is looking at opportunities in the Middle East but that is more a long-term project. "I'm very focused on the Caribbean."
