Nicaragua courts Chinese telecom giants

Existing service providers are concerned that Nicaragua’s market isn’t big enough to justify another player. First in a two-part series on the future of Nicaragua’s telecom sector

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.

Connecting the Countryside: CLARO dishes are now a common sight on even the humblest of homes in rural areas (photo/ Tim Rogers)

“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.”

Shake on it: Xinwei and China Great Wall Industry sign a strategic cooperation agreement last May (photo / Xinwei)

“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.”

Going Global: Xinwei Chairman Wang Jing and his staff pay “deep condolences at memorial service of former topmost leader of DPRK Comrade Kim Jong II.” (photo / Xinwei)

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.

  • Sam Anthony

    Well, if CLARO offer better deals with good plans and discount for his customers, but sure people will still with CLARO. The problem in Nicaragua is only offer pre-paid plans that it is good for a high porcentage of people, but there are many whom could afford better plan in minutes/month, or call free between customers CLARO. So, increase your competitive offers and keep happy your customers.

    • Esteban García

      Sam, Claro already offer plans with unlimited minutes to call free between Claro customers, you may want to check their website

    • Javier

      I’m completely in favor of that, is not by limiting the number of competitors as Claro is saying that the quality will lower, since there will be less investment, is by competing and winning more consumers, to innovate and provide more add value to their offers. If there is a fourth or a fifth company interested, come in, compete.Why not?Of course, the end result is us with more option on the table.

  • Alberto

    Finally. I’m so happy another provider is coming into the picture. Claro and Movistar plans are ridiculous and their customer service centers are, well, you know what I mean if you live in Nicaragua. I hope that with more competition calling plans will become more cost effective for consumers without ridiculous calling restrictions from 1 provider to another.

  • http://no Damian

    Competition is healthy! The customer/client wins by having competitive prices and diverse choices. Monopolies and oligarchies are not to be trusted. Of course they will spin that the Nicaraguan market is different and having 2 providers is enough. More providers is simply better for the consumers!

  • mnelson

    Claro has bleeped bleeped the duck! Their service is terrible, they hire pretty idiots and don’t train them in their stores, they send irritating text messages constantly and have horrible customer relations. Thank god the chinese are going to kick their ass!

  • Karle

    “[T]he presumptive new Chinese operator will be playing by the same rules as the existing telecom companies.” Great, so a third company to rip us off and treat us like crap if and when we have a problem. As much as I’d love to think someone would come in here and do things differently, there seems to be no precedent for that. So long as the regime gets their cut, they seem to have free reign.

    • http://no Damian

      The service providers will compete against each other in order win marketshare. Their profits will get smaller but the most important part is that us consumers will get a better and more affordable service. This might also indirectly improve the few Nicaraguan Chinese restaurants around!

  • Rolando

    I am totally fed up with the high prices and poor service offered by Claro and Movistar. Time for a third option!

  • Ivan

    I subscribed to Claro 4 G about 4 years ago.I live in the area of San Marcos, Carazo. I lost accoun of how many I have complained to Claro about their signal coming ando going, not talking about the speed, you never get 4G my modem goes red, blue and green alike a stop light continuosly. Today I read a repor from Tim Rogers with Mr Sanson talking about Claro Technology. Incredible, his job should be a comedian not an asociate in a comunications company. He always shows in donations and this kind of interviews but he does not worry to fix the real problems with Claro. Dont even respond to letter I sent him. All bluff!

  • Ivan

    Esteban: have you tried that? (to call them?)
    Just try. They will ask for your account number, but the one in your receipt is not, they will ask for your chip nr but it does not match either, they ask you to dial 2 and then the comunication goes off as soon yo dial 2. Its a call center, no tecnicians from Claro. Its a mess

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  • Fred Lamb

    Roberto Sanson is a liar, I have dealt with him personally. I was being charged in excess for my service. I located his number on the internet and sent him a text message that I needed customer service as the people here in Jinotega were calling me a liar and refusing to correct the problem. He had a customer service person in Managua call me and feed me a line of lies about combining one service with another and that would reduce he price. The price went from C$477 to C$1000 per month and then Enitel/Claro started disconnecting my internet for 5 minute intervals from 4 to 6 times a day on week days and for 4 to 5 hours a day on Saturday and Sunday. They then sent me a notice to pay or be sued for C$2000 for a non-existent contract. When I tried to call Robert Sanson to speak to him about this he had blocked my phone from being able to call him.
    Claro is not a good company to do business with, they were just the first ones here, that is why most people do business with them. In my opinion the country could use a customer oriented phone/internet company here instead of the income based one that has control of the market now.