Build to suit (BTS) tower companies tend to be attracted by densification plans, and the launch of 4G LTE usually entails substantial investments by carriers to enhance their network capacity. However, in spite of all three active operators having commenced their 4G rollout across Bolivia, the country has so far failed to attract independent towercos, possibly as a result of a history of nationalisation of key international organisations.
In this editorial, TowerXchange takes a look at the country’s mobile market, its promising growth pattern as well as its troubles to attract international towercos.
Back in May 2008 Bolivian President Evo Morales decided to re-nationalise the Empresa Nacional de Telecomunicaciones (Entel), after months of disputes with its majority shareholder Telecom Italia. The move was in line with Morales’ plans to nationalise key sectors including telecoms, gas and power. Negotiations with Telecom Italia became tense when Morales demanded a payment from the Italian telco of US$60mn to cover unpaid taxes and fines for failing to provide good service in rural areas and complying with coverage obligations.
Telecom Italia brought the case before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in spite of the Bolivian government threatening to withdraw from it due its perception of ICSID often taking the side of international companies rather than governments.
The controversy settled a few months later when the Bolivian government agreed to pay US$100mn to Telecom Italia and the parties signed an agreement to cease any further demands.
Telecom Italia isn’t the only international organisation that Morales’ Administration decided to nationalise. Over the following couple of years, Morales celebrated International Workers’ Day - May 1 - by nationalising key companies in the hands of international investors such as Air BP, Pan American Energy, ELFEC, Rurelec and GDF Suez’s subsidiary Corani.
Back in 2013, the President did threaten to nationalise the other two mobile network operators active in Bolivia; Trilogy’s Viva and Millicom’s Tigo. Specifically, Morales accused the two companies of avoiding cooperation with criminal investigations by providing useful information in a timely manner when requested by the police. While insisting that the operators were obliged to help the authorities, Morales never mentioned specific cases or referred to actual investigations. To date, both Viva and Tigo are active players in the mobile market.
Positive signs from the Bolivian economy
In spite of its natural resource wealth, Bolivia is still to date Latin America’s poorest country. However, its per capita GDP has risen by 25% since 2005 and is expected to grow by 4.5% in 2016 (vs 3.7% regional average).
In July 2015, Fitch upgraded its outlook on Bolivia to BB/Stable thanks to its improvements to the sustainability of its hydrocarbons production and its overall regulatory framework while the country’s inflation has been consistently below regional average (2016E: 4.9% vs 7.3% regional average).
Morales’ nationalisation strategy did limit the flow of international investments but since 2011, such investments have more than doubled (US$0.9bn in 2011 vs US$2.1bn in 2014) and, according to Fitch, the risks of nationalisation have considerably eased since 2013. It’s also important to note that the government has paid US$690mn in compensation to expropriated international companies.
Although still the poorest country in the region, according to the World Bank the percentage of people living below the poverty line decreased from 51.3% in 2009 to 39.3% in 2014.
No country for independent towercos?
Since its nationalisation, Entel has focused on granting universal access to the Bolivian population under its “Territory with Total Coverage” initiative which has been pushing to enhance the role of mobile networks rather than fixed lines.
The lack of commitment to technological innovation has resulted in the level of service being considerably behind regional standards, network capacity being insufficient and SIM penetration being the lowest in the region at 98% (source: GSMA Intelligence).
The overall inadequacy of the Bolivian network has recently resulted in fines against the three operators. In fact, this past February, the national regulator, Autoridad de Regulación y Fiscalización de Telecomunicaciones y Transportes (ATT), has sanctioned each of them US$4.5mn for bad service and call drops during the year 2015.
As a measure to improve its offering, dominant player Entel has recently announced a US$1bn five-year investment plan which will focus mainly on enhancing the quality of mobile infrastructure and ensuring coverage of rural communities. Tigo invested US$130mn to expand its infrastructure across the country and Viva committed to US$80mn in 2015.
The emphasis on mobile infrastructure would usually have attracted BTS-focused towercos to enter Bolivia to support mobile network operators in their coverage extension and network densification plans. It should also be noted that one of Bolivia’s operators’ towers have been offered for sale on several occasions in recent years. However, there are still no international towercos in Bolivia, perhaps because doing business in the country isn’t easy.
In fact, Bolivia ranks 157th (out of 189) in the World Bank’s ease to do business chart and it has so far failed to leverage its richness in potential natural resources, especially since nationalising gas and power companies. To date, the country’s GDP stands at US$6,500 or 156th out of 230 worldwide, which places Bolivia among the poorest countries in the American continent.
The ease to do business chart reports aspects such as starting a business and dealing with construction permits - which can take more than 200 days to expedite - for which Bolivia ranks in 178th and 150th place. These positions could well scare off BTS firms looking at doing business in the country, while the ability to enforce contracts isn’t one of Bolivia’s strength either.
The threat of nationalisation combined with a less than favourable business environment, especially in the construction sector, has so far hindered the development of the telecom sector and the entrance of independent towercos, although TowerXchange still feels that that the Bolivian market could present interesting opportunities for towercos seeking to acquire assets, especially since the launch of 4G LTE.
Bolivian telecom sector still poised for growth
The Bolivian telecom market is indeed growing fast and generated revenues of up to US$1bn in 2014 which could rise to US$1.5bn by 2019 according to a 2015 report by Pyramid Research.
As of December 2015, Bolivia had 10.2mn subscribers out of approximately 10.7mn inhabitants with Entel leading the market share (49%), followed by Tigo (31.5%) and Viva (19.5%). Entel started offering 4G LTE services back in April 2014 and was soon joined by Tigo (July 2014). Viva announced its 4G LTE launch in July 2015.
With all three MNOs now rolling out 4G LTE across the country, cell site densification is a top priority and the entrance of BTS firms in Bolivia could positively impact the growth and overall modernisation of the local telecom sector.
Beyond the dynamics of the telecom industry and its growth projections and in spite of Fitch’s improved outlook on Bolivia, international tower companies might still seek a certain degree of reassurance before committing to any level of investment in the country. And that might be tricky to obtain.
