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El Salvador sees Digicel as 'price maverick'

Published:Wednesday | October 3, 2012 | 12:00 AM
Mexican billionaire Carlos Slim. - File photos
Founder and chairman of Digicel Group, Denis O'Brien.

To El Salvador, Digicel Group is a 'maverick' that opened up price competition in the market.

The fear of losing that edge was raised by the regulator in the Central American country when it once again denied the sale of local Digicel assets to rival Claro, arguing it would hurt competition.

Digicel told Wednesday Business on Tuesday that it will reserve comment until it analyses the ruling.

The Jamaica-based telecoms had projected a gain of about US$350 million from its tri-country deal with Claro, a subsidiary of America Movil.

The Jamaica and Honduras transactions have already been consummated.

It's the second time that the deal has been denied by El Salvador's Superintendency of Competition.

In a 129-page document last week, the regulator noted that the merger would "adversely affect the dynamics of competition" and "welfare of consumers" in the mobile and fixed telephony market.

Superintendent of Competition Antiguo Cuscatlan noted in the document that the Claro/Digicel acquisition would create "legal, economic, strategic and technical" barriers for new entrants.

Six providers operate in El Salvador with Claro, the largest, earning US$368 million in 2010 followed by Digicel with US$124 million, according to the document. No other provider comes close.

The regulator noted that the merger would create an enlarged entity with "economies of scale" which would take a large chunk of radio spectrum leaving less favourable spectrum for new entrants. "The continuous spectrum of only 10 MHz is not very attractive for new operators wishing to compete strongly in the market," said Cuscatlan.

The regulator described Digicel as a maverick which pioneered price drops, and said the acquisition would reduce rivals and the potential for price competition.

"Digicel has the features of a company trait 'maverick' which follows international best practices," said the ruling. "[Digicel] has held during the past few years a driving role of competition by means of their practices, pioneers in offering rates lower."

Digicel is controlled by Irish billionaire investor Denis O'Brien; and Claro by Mexican billionaire Carlos Slim Helu.