A country where a mobile market duopoly is in place is hardly attractive to investors and independent tower companies who usually look at potential to achieve scale, critical mass and competition among more than two carriers to launch operations. But if the same country grants a nationwide license to offer mobile, fixed, broadband, data transmission and pay TV services to a third carrier who promises to invest as much as US$700mn ahead of launching services, the game changes quite considerably. And Chinese Xinwei could be a real game changer in Nicaragua thanks to its considerable upfront investment, projected total US$2bn expenditure in the country and potentially disruptive role in breaking the duopoly while raising the glass ceiling on tenancy ratios beyond those originated from Claro, Movistar and a handful of non-traditional MNOs.
To date, América Móvil’s Claro and Telefónica Movistar have had it relatively easy in Nicaragua, with Claro on 53% market share and Movistar following with 47% (over 4.8mn users). It must be noted that their market share changes quite often and, although we report Claro being the first operator in the country, different sources quote various shares as shown in the Mott MacDonald’s Share Square featured in this case study.
With SIM penetration at 120%, the potential for growth is still considerable and Xinwei could be the catalyst the Nicaraguan tower market has been waiting for. Or not..
Xinwei: the gap between expectations and reality
In recent news, the Chinese economy has been under scrutiny in light of the poor performance of the Chinese stock market. The share value of the telecom giant Beijing Xinwei Telecom Technology Group Co. didn’t pass the market test over the past few weeks and has dropped more than 50% during the month of June. In fact, according to official data of the Shanghai Stock Exchange, on Wednesday 8 July, Xinwei shares were valued at CNY31.60 (US$5.08) against the value recorded on June 17 of CNY60.66 (or US$9.76).
Xinwei is not only interested in establishing its telephony business in Nicaragua but is also one of the driving forces behind the Nicaragua Interoceanic Grand Canal, the shipping route currently being constructed through Nicaragua which should then connect the Caribbean Sea with the Pacific Ocean for an estimated cost of US$40-50bn. Commentators are currently questioning whether Wang Jing, the Chinese billionaire behind Xinwei, and his pool of investors are actually able to support the infrastructure project as well as the carrier launch in Nicaragua in light of the CNY12,000mn credit line (or US$1.92bn) granted by the Development Bank of China and the debts the company is piling up.
However, Xinwei is currently rolling out its mobile network and Managua is the first municipality being covered by the Chinese giant. Moreover, local sources suggest that Xinwei is currently in touch with towercos such as SBA Communications and Torrecom to become a tenant on their towers and the financials discussed above would suggest that the company could have an interest in signing lease agreements rather than building its own towers.
Regulatory weakness doesn’t help market growth
It’s been noted how the Nicaraguan regulatory body, Instituto Nicaragüense de Telecomunicaciones y Correos, or Telcor, has so far failed to take strong measures to fully unlock the potential of the telecom sector in the country. In fact, Nicaragua does not have a specific regulatory framework with regards to towercos and infrastructure sharing.
Several local news outlets reported back in 2014 the inertia of Xinwei who at that point hadn’t started setting up its network after two years of licensing. Commentators were particularly critical about the absence of reactions from Telcor.
One voice was particularly loud in the crowd. As declared by the former director of Telcor, Ana Nubia Alegría, the failure to start any kind of operations within 180 days from the grant of the license would technically imply the nullification of the same, as stated in the concession contract. The 180-day term can actually be extended for just cause but in the Xinwei’s case, its silence lasted from November 2012, when granted the license to time of writing: significantly more than the 360 day limit!
Doubts were initially raised by the unknown terms of the concession contract which was assigned without divulging its financial terms.
Rural areas and electrification challenges
Compounding the complicated reality of a developing country still under a mobile duopoly, any carrier looking at entering or expanding its existing coverage will have to face the challenge of Nicaraguan poor electrification rates.
Nicaragua’s low electrification rate of 77.9% means its electrification rate is above only Haiti but lower than any other country in CALA. But having improved from 73% back in 2010, the country is moving in the right direction, thanks to international projects developed by the World Bank among others.
In spite of current efforts, 68% of Nicaragua’s rural population doesn’t have any access to electricity and is mostly served by diesel generators. However, it is to be noted that the country is pushing hydroelectric and solar projects thanks to conspicuous tax breaks programmes with the aim to reach out and connect remote areas.
As an example, the Association of Rural Development Workers—Benjamin Linder (commonly referred to as ATDER-BL), a Nicaraguan NGO, has actively involved local communities in the construction of various types of infrastructure to provide electricity. So far, ATDER-BL has developed tens of electrification projects across rural Nicaragua such as building thirty small hydroelectric plants and over 225km of power lines which have granted electricity of 40,000 people in remote areas.
Four towercos: are there too many?
To date, there are four towercos active in Nicaragua including SBA Communications, with approximately 285 sites, Torrecom owning a portfolio of almost 100 sites, NMS and Continental Towers Corp. So far, mobile network operators haven’t divested their tower portfolios and towercos are still mainly working in build-to-suit projects.
TowerXchange believes that the total tower count in Nicaragua should be around 1,000 sites, with both carriers still heavily involved in expanding their coverage and adding sites to their counts.
In contrast, GSMA, in its early 2014 report titled “Beyond Coverage: The opportunity for mobile operators to improve access to energy in Latin America”, mentioned that the two carriers in Nicaragua should own approximately 1,500 sites between the two.
whereas we doubt Claro is planning to divest its towers, Movistar are believed to have already sold the majority of their Nicaraguan towers to SBA Communications, and are now estimated to own less than 100
What is clear is that whereas we doubt Claro is planning to divest its towers anytime soon, Movistar are believed to have already sold the majority of their Nicaraguan towers to SBA Communications, and are now estimated to own less than 100.
Conclusion
Nicaragua is one of the poorest countries in the region with approximately 60% of the population living below the poverty line. However, it has been experiencing a wave of economic growth since 2010, when its GDP started rising. However, its overall conditions are still far from ideal and its mobile sector registers very low penetration rates if compared with the rest of the region.
The country needs international investment, business savvy and increased competition to properly stir its mobile sector, which has been so far limited to a duopoly dominated by Claro. The entrance of Xinwei as third player could very well disrupt the status quo but so far doubts have sparked with regards to the Chinese telecom giant’s plans.
Breaking the duopoly would be the first step towards modernising the national mobile sector and towercos would surely benefit from the entrance of a new player, for which speed to market will be essential, if and when Xinwei actually commits to a major rollout. However, all these potentially positive developments will need to be supplemented by a strong regulatory push in the direction of infrastructure sharing and enhanced competitiveness and transparency. The ability of Telcor to liberalise the Nicaraguan market has been under scrutiny and we can only wait to see if any positive developments follow.
