Costa Rica: Can ICE telecom survive?

Mobile voice and data technology packages are telecommunications companies’ most profitable products. It’s no different for the national-run Costa Rican Electricity Institute (ICE), which relies on mobile voice and data to make its profits in that sector. But potential shortcomings and an inability to compete with private competitors could drive ICE’s telecom division out of business in a few short years.

That is conclusion of a market intelligence study conducted by the firm Pyramid Research for Costa Rica’s Vice Ministry of Telecommunications. The study predicts a 75 % loss of telecom market shares for ICE in the next years, meaning that most of its current telecom revenues will be divided between competitors any minute at this time to enter the market: Spain’s Telefónica, known locally as Azules y Platas, and Claro, a subsidiary of the Mexican company América Móvil.

As a result, ICE could lose an estimated $623 million in potential profits by 2015 in a Costa Rican cell phone market that is expected to grow by 6.1 % over the next years, well ahead of the 3.7 % average expected increase for amount of Latin America.

América Móvil and Telefónica last January agreed to pay $77 million and $95 million, respectively, to operate cell phone frequencies during the next 15 years in Costa Rica’s recently opened telecom market (TT, Feb. 18).

Dark Days Ahead? A recent market study warns that private competition will cause critical financial problems for the Costa Rican Electricity Institute (ICE).
Mónica Quesada | Tico Times
According to the Pyramid statement, ICE’s marketing strategy will likely target high-end customers who use the 3G brand Kolbi, formerly launching a 4G network around 2015. ICE will as well likely focus on serving “post-paid” clients who are billed for use of services. Currently, the Latin America telecom market is trending towards pre-paid services.If that trend continues, most customers will switch to pre-paid lines by 2015.

“At this point, I cannot say what percentage of subscribers we are willing to keep, because that is confidential data that we are not revealing to competitors,” ICE Executive President Eduardo Doryan said. “What I can assure is that we are going to defend our gain as much as possible, and we shall prevail as the major telecommunications company in Costa Rica.”

So far, details on how Doryan’s company will remain competitive are less than clear. Instead of talking strategy, Doryan prefers to mention marketing slogans from ICE’s completed, at the same time as the national monopoly brought electricity to the darkest corners of the country: “Motivated by clients for the good of Costa Rica.”

The Pyramid study as well provides some other insights on how the battle for telecom shares will take shape in the next years. Broadband services will triple and paid television services will increase by 51 %, resulting in even additional pressure on ICE at the same time as local cable companies Amnet and Teletica enter into the Internet phone services arena.

The Tico Times asked ICE spokeswoman Monserrat Salas if the company’s next projects include investment in Internet television and Internet-based phone services, but Salas did not respond by press time.

The contrast between the study’s conclusions and optimism expressed in statements by ICE representatives is stark. ICE directors promise the company will continue as the leading provider of telecommunications solutions in the country. On the ground, repeated service failures are raising doubts.

The majority recent service outage was Feb. 21, at the same time as 800,000 ICE customers were left without cellphone service because of a countrywide network failure.

&ldquo reason ICE may become an unsuccessful competitor is that regulatory agencies lack the operative and technical capabilities to spot if private companies are not complying with concession terms or are getting involved in monopoly-like agreements,” said Gilberto Arce, economist and telecommunications columnist.

Arce believes that private competitors have several advantages over ICE. &ldquo [chance] is that they are multinational corporations, which help them meet marketing costs much better. They as well know how to face competition, because they have been in business for additional than 20 years, and it provides them with a fine considerate of Latin America economies,” he said.

Electricity: ICE’s Trump Card?

Regardless of how ICE’s telecom saga ends, public officials say that electricity generation and sales will keep the national company alive. But even that argument has some ICE supporters worried.

“If ICE fails to compete in the telecommunications market, that’s the end of it, because electricity and power generation is the kind of business where you have to invest millions of dollars, and profits may take several years to collect,” said a source at ICE who asked to remain anonymous because he is not authorized to speak to the press.

ICE President Doryan disagrees: “We are changing [ICE] into a authentic service company [that’s] efficient and agile and has excellent customer service. That’s how the best and most successful companies in the world function.”

Costa Rica is the 26th international market that Telefónica will operate in. The company has 280 million users and competes in 14 other Latin American nations of them in Central America.

América Móvil, owned by the world’s richest man, Carlos Slim, operates in 18 other nations, has 270 million customers and has generated additional than $12 billion in revenue.

ICE says its network currently provides cellular service to an estimated 3 million of Costa Rica’s 4.5 million residents.