The Nicaraguan government’s recent decision to open a new bidding process for a third cellphone service provider has telecom giant CLARO preparing to defend its terrain against a potential Chinese competitor.
“We are not concerned about competition because we compete in all the countries in which we operate, but there is concern that the market here is too small for a third operator,” says Roberto Sansón, director of CLARO (América Móvil), the Mexican telecom company that controls some 70% of Nicaragua’s cellphone market. “We think that the development of the market between us and our competitor (Telefónica-Movistar) clearly demonstrates that there is no need for a third player.”
Sansón says market competition and new foreign investment is a generally a good thing because it provides jobs and revenue for the government, and lowers prices for consumers. But in the case of Nicaragua’s tiny telecom market—the smallest in Latin America—Sansón doesn’t think it makes sense to bring in a third service provider to fight over the same loaf of bread, especially considering that 85% of the population already has cellphone coverage. An additional telecom company would probably have the immediate effect of lowering service rates for customers, but in the long-term it would divide and weaken the entire telecom industry by reducing profitability and thus reducing investment in new technologies and market growth, Sansón says.
“El Salvador has the most competitive market in the region, with four service providers. But when the fourth company entered the market and lowered the rates, all the companies stopped earning money and stopped investing in the country. When you lose investment, you lose quality,” Sansón says. “In Honduras, there were three cell phone service providers, but that turned out to be too many and one left. Nicaragua’s market is even smaller than Honduras’. So if you ask me if there room for three competitors in Nicaragua, we think no.”
The government, however, is eager to attract more telecom investment, especially from China, according to the Sandinistas’ recent public overtures.
“We are opening a bidding process due to the need to have more than two telecom companies in the country,” said Orlando Castillo, director of the government’s telecom regulatory agency, Telcor. Castillo said the country needs a third competitor because the two existing service providers aren’t investing enough in the expansion of cellphone coverage to rural areas of the country—a claim CLARO says is patently untrue.
Indeed, the numbers suggest the existing service providers have been investing aggressively in expansion of services in Nicaragua. CLARO has invested more than $600 million in upgrading and expanding its network and services, which now cover all 153 municipalities. Movistar, too, is investing $100 million to rent 18 new towers and double its coverage in the interior of the country.
Nicaragua now has 4.2 million mobile phones in circulation in a country of nearly 6 million people—an increase of 275% in cellphone use in the past six years. In the rural countryside, more people have access to cellphones than electricity.
Rolling out the red carpet for China
Three days after the government announced its bidding process with an advisory in the official daily La Gaceta, investment promotion agency ProNicaragua rolled out the red carpet for Chinese telecom company Xinwei, which came to Managua bearing promises of everything from an $800 million investment in Nicaragua’s telecom industry to a $30 billion water canal and dry canal project.
A week later, Laureano Ortega-Murillo, son of the presidential couple, announced the Sandinista government’s plans to buy a $300 million satellite from another Chinese company, China Great Wall Industry, which on May 30 signed a Strategic Cooperation Agreement with Xinwei for a joint venture to expand their telecommunications and satellite markets.
According to the agreement between the two Chinese telecom companies, both parties will closely assist each other on “financing major overseas projects and emerging businesses layout.”
“The signing of a strategic cooperation agreement marks the alliance of a comprehensive strategic partnership in the global communications and satellite market so that the nation’s strategically important emerging industry could grow stronger and bigger, the ‘going global’ strategy could be better implemented, the influence of China’s technology and standards in the international market will be strengthened and for the products of China’s aerospace technology and Xinwei will enjoy an excel reputation in the international market to realize the economic growth of all nations,” reads a Xinwei release on its agreement with China Great Wall Industry.
Nicaragua, it appears, will be the test case for that new Chinese alliance. It would also appear that Nicaragua’s so-called bidding process has already been decided even before the terms and requirements of the new operating license are made available for purchase on Sept. 19.
Representatives of CLARO and Movistar have both said they will monitor the bidding process to make sure it is transparent and that the presumptive new Chinese operator will be playing by the same rules as the existing telecom companies.
Xinwei, meanwhile, is already talking as if the new license is theirs for the taking.
“The technology that we will bring to Nicaragua is basically 4G technology, which is the best that is being produced at this moment,” said Xinwei’s Xu Guangham, during his visit here Sept. 6. “Xinwei has patents for this technology that applies to developed countries, but our intention is to bring this technology to countries like Nicaragua to better develop their telecommunications.”
Xinwei’s patent is for “McWiLL” product technology, an “independently developed 4G advanced mobile communication system,” according to the company’s website. Internationally, Xinwei has a full service operating license in Cambodia and is duplicating that model in Russia, the Ukraine and North Korea. Nicaragua would be the Chinese company’s first venture as a service provider in Latin America.
Despite the Sandinista government’s insistence on social responsibility and accessibility, the Xinwei representative did not mention his company’s plans to expand cellphone coverage to the remaining 15% of Nicaragua’s rural poor who haven’t made it beyond 0G technology. It’s also not clear if Xinwei’s target market would be Nicaragua’s private sector or the government.
Either way, Xinwei could win the bidding process just by showing up. So far, no other companies, including regional players Digicel and Tigo, have expressed interest in purchasing a Nicaraguan operating license, which itself will produce a nice chunk of cash for the government.
If the Chinese company does enter Nicaragua, it will apparently be to compete with CLARO for the high end of the market with 4G technology.
CLARO is the only company in Nicaragua that offers 4G, or 4th generation technology, with an Internet speed of up to 5MB (equal to the fastest cable Internet speed currently available in Nicaragua). CLARO just introduced 4G technology to Nicaragua this year and says it has had good results in Managua, but less-than-expected results in other parts of the country where customers are still buying less expensive 3G smart phones with slower Internet velocity.
1G and 2G mobile phones are basic analog cell phones with no Internet service.
So if Xinwei is interested in competing for the 4G market, as the company’s spokesman said, it will probably be in the capital, since Nicaragua’s 4G market is in Managua, not Kukalaya.
On the other hand, CLARO’s experience in Nicaragua over the past six years has proven that when it comes to pushing the expansion of technology here, it is possible to put the cart before the horse.
Next: Part II: How Nicaragua is leapfrogging technologically to catch up to more developed countries.