As the deadline for the long-awaited spectrum auction approaches that will end the monopoly of publicly owned Instituto Costarricense de Electricidad in Costa Rica, all five major Latin American operator groups remain in the race to win a new licence. A middle-income country with mobile penetration at only 56.6 percent, Costa Rica is an attractive market for each of the five big regional players: America Movil, Telefonica, Millicom, Digicel and Cable & Wireless.
An analysis of the news
Costa Rica offers huge potential for growth in terms of subscription count and revenues for new entrants. After market liberalisation, we forecast a 48-percentage-point growth in mobile penetration between 2010 and 2015, to over 100 percent,” said Daniele Tricarico, analyst at Informa Telecoms & Media. “Each of the five operator groups has a different footprint across the Caribbean and Central America and South America region and, if awarded spectrum, is likely to approach the market in a different way. Although GSM growth remains a priority in the short term, in the medium term the potential for 3G is considerable.”
It is likely that at least two of the five major Latin American operator groups will gain a licence in the Costa Rican auction, but ambitious newcomers, such as Russian 4G operator Yota, which is already present in Nicaragua and Peru, may also attempt to enter the market.
If awarded a licence, America Movil and Telefonica are likely to compete heavily on volume and price. The first two objectives of the two largest multinational groups operating in Latin America and the Caribbean, would be to target the large percentage of potential voice growth and lure GSM customers away from ICE through strong promotional activity.
Digicel and Millicom show potential to build more distinctive propositions. As it has done on several occasions in recently liberalised markets, Digicel could target the growing market of lower-spending customers, the youth and immigrant communities with, intense local marketing and sponsorship.
Millicom is in the best position to target higher-spending, urban costumers with attractive 3G and mobile broadband services, and to potentially launch quadruple-play offerings with cable-provider partner Amnet.
Finally, Cable & Wireless can draw upon its experience in neighbouring Panamá, the closest comparable market by size, geography and income levels, and focus on the voice market.
Although for new entrants the combination of Costa Rica’s low mobile penetration and Costa Ricans’ higher-than-regional-average spending power is highly attractive, a newly liberalised market will become competitive in a short time. In a fast-changing market, a clear strategy and service proposition must be supported by an efficient execution of plans.
“New entrants should not underestimate ICE. If the incumbent can overcome its service shortcomings and maintain its low prices, it will not be easy for new entrants to persuade subscribers to churn from ICE,” concludes Ms. Tricarico.