Digicel ditches Panama as M&A kills competition

Digicel is closing down its operations in Panama, claiming that it has been squeezed out as a result of an anti-competitive environment.

Specifically, the Irish-owned Caribbean telco group blames the merger of two of the market’s big three mobile operators, Cable & Wireless and Claro, which was recently given the go ahead by competition authorities. While the tie-up leaves a three-player market in Panama – previous market leader Tigo and Digicel being the other two – Digicel insists it cannot operate in these conditions and is throwing its toys out of the pram.

The telco said it will apply for voluntary liquidation and withdraw from the market.

“This regrettable decision has been made following the Panamanian Competition Agency’s (ACODECO) approval of the Cable & Wireless and Claro merger (the “merger”), in which the Panamanian Government is also a major shareholder and which effectively spells the end of competition in the telecoms market for smaller players,” Digicel said, in a statement.

Liberty Latin America’s Cable & Wireless Panama business agreed to acquire Claro Panama from America Movil for US$200 million in September. ACODECO gave the green light for the deal last month.

ACODECO did attach conditions to the deal, such as reserving the right to monitor the merged outfit’s behaviour for a period of three years, and, according to Bloomberg, requiring the two companies to operate separately on their own networks for the next 10 months. But clearly this was not enough for Digicel, which has been campaigning hard to block the merger.

“Since the announcement of the merger, Digicel Panama has repeatedly conveyed in writing to the authorities that approval of the merger without appropriate remedies would result in our exit as we cannot continue to fund the semblance of a three-player market,” the telco said. It then listed the various cost burdens it faces in Panama, such as the cost of its licence, the requirement to participate in spectrum auctions, and “exorbitant renewals costs.” All of the above “contribute to a high cost regulatory environment,” Digicel insists.

And while that may be true, it’s hardly an issue that is new to telecoms operators. Furthermore, there’s clearly more to its decision to pull out that just the merger of its rivals. At group level, Digicel “has undertaken numerous strategic initiatives over the last two years in relation to Digicel Panama,” the firm said. So clearly its operations there have been in trouble for some time.

“These initiatives have included the appointment of an investment bank to actively market the business to financial and strategic parties, extensive engagement with the Panamanian Competition Agency in relation to the proposed merger and finally proposals to migrate customers to another operator which were not taken forward,” it explained.

Essentially, Digicel is saying that it has tried to sell its business, but failed to find a buyer. Tried to buy itself some more time by blocking to C&W/Claro tie-up, but failed on that score too. And attempted unsuccessfully to persuade the regulator to let it offload its customers. The merger is not the root cause of its decision to pull out, but is perhaps the straw that broke the camel’s back.

It’s something of an ignominious end for the company that helped shape a competitive landscape in Panama. As industry analyst Paul Budde puts it: “The mobile sector has flourished since the arrival of Digicel Panamá in 2008 and of América Móvil in 2009, which ended the duopoly long enjoyed by Cable & Wireless Panamá and Telefónica’s Movistar.”

Telefonica sold its Panama business to Millicom in 2019 and the company, which also swallowed up cableco Cable Onda, has since been rebranded as Tigo.

“The mobile market has effective competition among these players,” Budde said, in the introduction to a market report published at the back end of last year.

But effective competition is not always satisfactory to the telco bean counters.

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