Industry Trend Analysis - No Obvious Target For Mobile Consolidation - JUNE 2017


BMI View: We do not expect that the proposed legislation easing mergers will lead to immediate consolidation in Panama ' s mobile market as the four players currently present are aware of the market ' s strong opportunities. It will require a n exceptionally good offer and worsening situations in other part s of their footprint for an operator to decide to sell.

The Panamanian Parliament is discussing a bill that seeks to reduce the number of mobile operators in the market from four to three. This move is due to the country's similarly-sized regional neighbours only having two or three operators competing in their markets. Four major players are present in Panama, Liberty Global, following its Cable & Wireless acquisition, Telefonica, America Movil and Digicel.There is no real indication that the bill has been driven by an appetite for consolidation among operators. The bill does, however, give operators the option to pursue a merger and look for consolidation and below we analyse each of the four operators to see how likely it is that they might follow that strategy.

Canal Underpinning Growth
Real GDP Growth (%), 2016-2026
e/f = BMI estimate/forecast. Source: National Sources, BMI

The main reason why Panama has four mobile operators is its macroeconomic outperformance in the region. This has been underpinned by the Panama Canal, both through trade volumes and recent construction. The country has the highest GDP per capita in the region, standing at almost USD15,000 in 2016 and rising to over USD27,000 in 2026, this makes it a very attractive market for operators as they look to sell more advanced and premium services. Real GDP growth is also high, at over 5%, but this is likely to decline slowly in the short-to-medium term as a phase of construction is ending, which will require a more sophisticated growth model, and due to the downside risks linked to global trade.

A Market Primed For Advanced Services
GDP Per Capita (USD), 2016-2026
e/f = BMI estimate/forecast.Source: National Sources, BMI

The country's structure, as well as the dynamics in the mobile market, means there are no obvious targets for consolidation and that a deal is unlikely to be struck in the short term. However, each operator will have its own reasons to want to either sell its stake or purchase a rival's:

  • Telefonica: the market leader is the least likely to be part of any potential consolidation, either as a seller or a buyer. Buying a competitor would make it the clear market leader, with the regulatory pitfalls that entails, and we do not believe the group will sell in what continues to be an attractive market, even as it looks to reduce its debt at the group level. The operator will continue with its strategy of focusing on data services and LTE specifically.

  • Digicel: as the only operator not offering LTE services, it may be tempted to purchase a rival in order to fill that gap. Digicel has always been opportunistic when it comes to expanding its services but, like Telefonica, we do not expect it to be a seller.

  • Liberty Global: Liberty Global became a major player in the country after its acquisition of Cable & Wireless. While the group has made convergence a key part of its strategy in Europe, with several MVNO deals in Europe and a joint-venture with Vodafone in the Netherlands, it could be tempted to focus on getting a greater advantage in triple-play by selling its mobile operation and investing in fixed services.

  • America Movil: this is the smaller player in the market and the one under the most pressure internationally. Regulation in its domestic market of Mexico has hit the group's revenues and profitability and, while it continues to see Panama as a market with strong opportunities, a high offer for its network may be too good to refuse.

No Obvious Target
Mobile Market Share (%), 2016
Source: National Sources, BMI