Company Trend Analysis - CWP Investment To Underpin Faster Broadband Growth - AUG 2017

BMI View: Improvement in quality of services combined with LGI ' s multi-play expertise will initially give CWP an advantage in offering premium converged service s , but its competitors are likely to react quickly . CWP should be wary of provok ing its competitors into a price war that w ould see its margins and returns squeezed.

Liberty Global (LGI) subsidiary Cable & Wireless Panam a (CWP) plans to invest USD220mn over the next two years to improve the quality and breadth of its service portfolio. This is the first phase of a 10-year investment program for the incumbent. Among other improvements, CWP will be upgrading its mobile network backhaul, changing the fixed-line network from copper to fibre and developing its enterprise-side services.

Opportunities For Organic Growth
Panama - Broadband Subscriptions
f = BMI forecast. Source: BMI, ASEP

We expect this strategic investment to accelerate the growth of broadband usage in Panama. In our view, some of the main factors hindering growth in wireline services were the maturity of the mobile market and concerns over quality of fixed services. CWP was already seeing strong growth in triple-play subscriptions, and with improved quality of service its competitors will have to improve their respective offerings, leading triple- and quad-play subscriptions to grow at a faster rate. Furthermore, given LGI's expertise in offering converged services we could expect the decline in fixed-line voice services to slow on the back of rising multi-play subscriptions.

Panama has a high potential as a market for converged services, especially compared to its regional neighbours. The country enjoys favourable macroeconomic conditions, with GDP per capita levels at an estimated USD15,589 and forecast to grow at a 6.2% compound annual growth rate until 2021. The prevailing low levels of broadband penetration in the country also allow for some organic growth in the wireline segment.

CWP will be increasing connection speeds for consumers from 7Mbps to 20Mbps at no extra charge, and plans to eventually offer 300Mbps services. With this move, CWP's competitors will respond by offering better multi-play and standalone packages, which should sap momentum in the mature 'basic' mobile broadband market. CWP should, from its relatively advantageous incumbent position, be careful not to trigger a price war for multi-play services. If it plans to invest for the next 10 years it must do its best to keep margins as wide as possible, so it may realise returns on its investment.

We forecast broadband subscriptions in Panama to grow to almost 525,000 by 2021, up from over 331,000 in 2016. Short-term growth will come through rival operators reacting to LGI's investment by trying to capture as many customers as quickly as possible. Additionally, as CWP's upgraded services are brought online, we expect the growth rate to accelerate at least to 2021. As more is revealed about plans beyond the current two-year investment horizon we will update our forecasts accordingly. A major downside risk would be a price war, as it would make CWP likely to revise its 10-year investment plan.