Nearshore Americas

Mobile Market Feels the Pain of Honduras Coup

On June 28th of this year Interim President Roberto Micheletti ousted President Manuel Zelaya after the former rancher insisted on plans to hold a referendum to alter the national constitution. Days after the coup soldiers flew Zelaya at gunpoint into exile. Zelaya’s rivals accused the left-leaning politician of wanting to use the referendum to abolish a ban on presidential re-election. Since then Zelaya, backed by his supporters, attempted to return to the country but was forced to seek refuge in the Brazilian embassy to avoid arrest.
Senior U.S. and international diplomats flew to Honduras to broker an agreement and quell the chaos in the country. But talks recently collapsed and the impasse remains. As a result of Central America’s worst political crisis in decades, growth in Honduras’ mobile and fixed line telecoms segments — estimated to generate revenues of around US$1 billion — has begun to see a slowdown, according to telecoms industry experts. The political chaos is hurting the nation’s GDP and will acerbate the impact of the global economic crisis.
Restricting growth
José Magana, an analyst at Pyramid Consulting, says that the political crisis in Honduras is already having an impact. “We are starting to see a slowdown in net additions in the mobile sector.”
According to Magana, although mobile subscribers are expected to reach 6.8 million at year-end, compared to 5.9 million at the same time last year, net additions are likely to slow in the second half of 2009. “Mobile operators in Honduras will see, at best, half of the net subscriber additions in the second half of this year compared to the first half of 2009.”
Magana points to Luxembourg-based Millicom, which operates under the name Tigo to illustrate his point. Tigo is the country’s number one mobile operator. They reported additions of just 81,000 subscribers in the third quarter of this year compared to around 200,000 subscribers in previous two quarters. Magana warns, “The same pattern is occurring in the other operators.”
Magana says that the operators are experiencing a drop in voice calls and SMS. But Tigo, which has the largest subscriber base, can leverage discounts to resist defections and is likely to remain in a strong position.
Jose Otero, president of Signals Telecom Consulting, says that the closure of border crossings or the imposition of curfews at night can hamper normal trade flows and commercial activity. Also as unemployment increases, families could be forced to reduce the amount of money directed towards telecom services, he said. Therefore, a reduction in average revenue per user (ARPU) may occur.
Otero warns that mobile operators’ business units offering international inbound roaming are feeling the crisis more than other units and segments such as broadband growth may decelerate.
Investments remain
Industry experts say that the major operators in Honduras are unlikely to divest. Operators such as Tigo and Claro, controlled by Carlos Slim’s América Móvil, may show more caution in expanding their 3G networks, but they are experienced in emerging markets.
An unnamed source at Tigo, in a written statement, confirmed that the operator’s operation will remain permanently in the country. “Our company does not interfere in political affairs of the countries where we operate and Honduras is no exception. We respect the sovereignty and laws of each country where we operate.”
Otero believes that Honduras’ state telecoms operator Hondutel has been most negatively impacted by the coup as it is owned by the state. Other players such as Claro, Tigo and Irish-based Digicel have the financial strength to withstand the current crisis and continue to do business.
Wally Swain, senior vice president for emerging markets at the Yankee Group, warns that potential investors and existing operators will sit on their wallets. Swain says that lost opportunities can occur, but they are fewer if the economy is slow anyway. “Waiting is usually a good strategy when high uncertainty prevails.”

Sign up for our Nearshore Americas newsletter:

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

Add comment