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Digicel-Claro deal approved with limits attached

Published:Wednesday | August 31, 2011 | 12:00 AM
The headquarters and store of Claro Jamaica in New Kingston. - File
Denis O'Brien, chairman and founder of Digicel Group. - File
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Steven Jackson, Business Reporter

Jamaica has approved Digicel's acquisition of Claro Jamaica, but Prime Minister Bruce Golding said Tuesday that it is on the proviso that Digicel conti-nues operating two separate networks, in what is meant to be a check on the market leader's dominance.

Digicel wanted to integrate the operations into a single network but Golding rejected that plan.

"Digicel will therefore be required to maintain a separate network and complete a separate build-out of 90 per cent penetration of the island as required under the original Claro licences. Fulfilment of these obligations will be vigorously monitored and enforced," said Golding in a prepared speech delivered in Parliament.

"I have approved the acquisition of Claro by Digicel and the assignment of relevant licences without any modification to the licences and the obligations contained therein. This means that Digicel will be required to fulfill all of the obligations contained in the Claro licences with regard to the type of facility and specified service that must be provided, its interconnection obligations, licence limitations and network expansion obligations".

Digicel put out a prepared statement in reaction to the prime minister's announcement saying it would not comment ahead of approvals at the Central America end of the tri-country deal. However, the Claro name, which belongs to America Movil, will disappear from Jamaica if the transaction goes through.

Under the transaction, which essentially marks a retreat from each other's turf, Denis O'Brien's Digicel Group is selling his Honduras and El Salvador assets to Carlos Slim's America Movil, and buying its Claro Jamaica business.

Concurrently, Golding said that Digicel agreed as part of negotiations to reduce calling rates across networks by J$3 and J$2 for peak and off-peak periods, respectively.

That means it will cost 16 per cent less to call LIME phones from a Digicel phone during peak hours - down from J$17.70 to J$14.70 - but the reduction was insufficient for government member Karl Samuda and Opposition Spokesman on Telecommunications Philip Paulwell.

Golding admitted that he was concernedabout the impact the acquisition would have on competition and the fate of Claro's "517,000 subscribers".

Digicel said it would provide customers with details of changes once the transaction has closed.

"Digicel is still waiting on regulatory and Government approval in El Salvador and Honduras for the sale of its operations there to Claro," said the telco in a company statement issued by head of group public relations Antonia Graham.

"Until such time as the necessary approvals are obtained in all three countries and the proposed transaction closes, both businesses - Digicel and Claro - will conti-nue to operate independently."

Graham declined comment on the new name for the Claro network.

The Digicel/Claro transaction was initially set to close by the end of June but was delayed by regulatory scrutiny. The financial terms of the deal have not been disclosed, however, Digicel is set to receive a net cash payment, reportedly of US$350 million.

Digicel began operations 10 years ago in Jamaica and expanded into some 32 countries over the decade.

The company last year reported US$2.23 billion in revenue and a subscriber base of 11.5 million, more than two million of them in Jamaica.

Digicel's acquisition of Claro Jamaica gives it access to a 3G network in its home market.

steven.jackson@gleanerjm.com