Digicel US$6.2 Billion in Debt – Trouble Ahead?

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Digicel Experience Store in Port-au-Prince, Haiti

Digicel, which has 14 million subscribers across its global footprint, is struggling under a US$6.2 billion debt burden. Declining revenues from mobile calls and its acquiring and pumping of cash into its expanding fibre network have stressed the Irish based company.

CreditSights debt analyst Michael Chakardjian suggested Digicel’s debts may be “unsustainably high” and advised bondholders to sell some of their holdings. Meanwhile Digicel told bondholders it will quickly reduce office and structural costs to revive earnings, while it waits for revenues to grow on the back of recent major investments in fibre.

But it is this major expenditure which clearly has Digicel in its current financial situation, and its banking on pie-in-the-sky investments in fibre are merely speculation not buoyed in any real or tangible near term projections.

In 2013 it was announced that Digicel would acquire Middle Caribbean Network, Southern Caribbean Fibre, Antilles Crossings and a number of related assets from Global Caribbean Fibre, acquiring a wholly owned submarine fibre optic cable network of approximately 2,100km with capacity from Trinidad to Guadeloupe.

“By their own admission, the company is trying to do something they have never done before . . . we believe management’s deleveraging plan comes with substantial execution risk,” said Chakardjian. He went further to say that Digicel’s prospects for revenue growth is of concern.

Digicel founder Denis O’Brien
Digicel founder Denis O’Brien

Voice calls account for more than half Digicel’s income but, like the rest of the industry, are falling fast. Data, fibre and cable are currently not growing fast enough to stem the discrepancies identified.

In the fast evolving data and communications world voice communications have morphed into an all digital service running on data rather than the traditional voice-only service. With most network traffic moving towards indistinguishable data classification over-the-top (OTT) services have caused carriers to practically cannibalize their own services by services they offer simultaneously.

Attempts to stem the tide of data technologies doing damage from within Digicel was in hot water with regulator ECTEL recently for blocking Whatsapp and other OTT services like Viber which use Internet services to access free or significantly cheaper voice services outside its  regions of operation.

With the soon to be ratified 5G specification, Digicel and other providers will be even harder pressed to invent creative ways to recoup from dwindling returns. Voice minutes are going the way of the dodo and with the IOT (Internet of things) almost upon us, the world is fast becoming a marketplace of data-only services. In the not too distant furure (circa 2020) customers will purchase data devices with only a data plan.

The very fast moving technologies in data and voice which made Digicel competitive against the incumbents (read monopoly) are now responsible for its own dependence on a quickly disappearing voice cash cow. What will be the repercussions for Digicel operations in the Caribbean and elsewhere?

Digicel is incorporated in Bermuda and its markets comprise: Anguilla, Antigua & Barbuda, Aruba, Barbados, Bermuda, Bonaire, the British Virgin Islands, the Cayman Islands, Curacao, Dominica, El Salvador, Fiji, French Guiana, Grenada, Guadeloupe, Guyana, Haiti, Jamaica, Martinique, Nauru, Panama, Papua New Guinea, Samoa, St. Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines, Suriname, Tonga, Trinidad & Tobago, Turks & Caicos and Vanuatu. Digicel also has coverage in St. Martin and St. Barts in the Caribbean.

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