IFC’s Guillermo Mulville, a regular speaker at TowerXchange Meetups and columnist in the TowerXchange Journal, shares with our readers his views on the complex Guatemalan telecom industry. With issues concerning security and lack of infrastructure, very low towerco penetration and plenty of room for growth, the local telecom tower industry is one we need to keep a close eye on.
TowerXchange: What is your view on the current status of the Guatemalan telecom industry? And its tower sector?
Guillermo Mulville, Head of TMT for Latin America, IFC:
Guatemala has the biggest telecom sector in Central America, which is consistent with the fact that it has the largest population in this region. The telecom sector generates revenues of about US$3billion per year which is about 5% of GDP.
The mobile market share is heavily concentrated between the three largest operators. The investment climate is improving but concerns remain regarding security and poor infrastructure. We expect the sector to continue expanding in the following years due to improving macro conditions. Potential opportunities will emerge around the deployment of 4G networks.
The independent tower market business model is not well developed yet. 80% of the towers are still owned by MNOs, which is higher than Central America’s average of 30%. However, operators are now focusing on using capex for their core business growth and the trend is to move their tower assets to independent tower companies. MNOs are investing less in passive infrastructure and creating potential opportunities for sale and leaseback agreements and build-to-suit projects. This is important so as to assure higher capacity in big cities and coverage in rural areas. Towerco penetration rate of 20% and tower density of around 4,500 subscribers per tower provides for a huge growth potential, particularly with the shift from 3G to 4G.
TowerXchange: How big of a problem is security in Guatemala? And how does that affect network and infrastructure development?
Guillermo Mulville, Head of TMT for Latin America, IFC:
Security issues have historically affected investor confidence in Guatemala and they have obviously impacted telecom networks and infrastructure deployments.
Security concerns are somewhat correlated with extreme poverty and half of Guatemala’s population still lives below the poverty line, while 13% live in extreme poverty. A weak security situation would continue to obstruct economic development. The country ranks as 81 on the World Bank Doing Business Report 2016, showing no improvement compared to last year’s ranking but while the challenges of operating in-country are recognised by the investor community, the market consensus is leaning towards an expected overall improvement.
TowerXchange: What is the impact of political events such as the recent elections in Guatemala and its industrial development?
Guillermo Mulville, Head of TMT for Latin America, IFC:
The country has recently faced corruption scandals that harmed the investment environment and investor confidence, especially during the last semester of 2015.
Jimmy Morales, the recently elected president, will commence his term on January 1, hopefully putting an end to the recent political uncertainty. Mr Morales’ posture is considered as pro-business. He has campaigned on the promise to clean up Guatemalan politics and to implement political reforms.
Regarding the telecom sector, relevant legislation and broad regulatory announcements have been passed in the last few years. In 2011, Guatemala’s regulator SIT announced that seven bands were suitable for the deployment of 4G, which opened the door for high speed data services. In 2014, the highly debated Law on Control of Mobile Telecommunications was meant to empower the SIT to regulate infrastructure installation, In 2015, a new tax regarding charges for each line in operation had an impact on the sector, with telcos returning to SIT a combined six million inactive lines. These inactive lines were mainly a consequence of the high percentage of prepaid customers in the sector. The market has a lot of margin to evolve and expand its postpaid accounts and therefore ensure a healthy growth in the following years.
TowerXchange: Is the IFC involved in any specific project in the country?
Guillermo Mulville, Head of TMT for Latin America, IFC:
IFC has been investing in the country for decades. Currently we have an investment portfolio of US$255 million, mostly focused in the financial sector, with the balance being mainly in transport and agribusiness companies. In the telecoms sector, IFC used to be a lender to Continental Towers, but the loans have been fully prepaid. A few years back, IFC also structured a US$135 million syndicated loan to Tigo, but has since been prepaid. Presently, we are analysing several investment opportunities.
TowerXchange: A relatively poor country with high rate of mobile subscribers and the need for major upgrades… What’s the outlook for its future?
Guillermo Mulville, Head of TMT for Latin America, IFC:
Guatemala’s SIM penetration of 103% is above the regional average. ARPU is relatively low due to the prepaid nature of the market. However, we believe that Guatemala’s mobile market may gradually shift more towards postpaid so ARPU will remain steady.
The mobile market has already grown tremendously, by around five times between 2004 and 2011, with mobile broadband subscribers doubling in size for the period 2010-2012. As is the trend globally, mobile data will lead the growth of the telecoms industry.
This growth will need a significant investments in infrastructure. Although 2.5G still represents the predominant technology, 3G connections are rapidly catching up, driven by network upgrades and the affordability of smartphones. By 2017, 3G is expected to be the leading technology in the market, while 4G/LTE connections enter a rapid growth path.
