Connecting Consumers

Tricom, the Dominican Republic’s homegrown telecommunications company, is a pioneer in lots of ways. When Grupo Financiero Nacional, a local conglomerate, created the San Isidro Free Trade Zone in the late 1980s, the company identified an opportunity in offering low cost telecommunications services. The San Isidro Tele port began providing voice, data and video telecommunication services and the business evolved into what today is known as Tricom. In 1998, Tricom became the first company in the Dominican Republic to list on the New York Stock Exchange in an initial public offering that raised $74 million. Tricom’s logo, a black and white spotted dog, is instantly recognizable to Dominicans, who take great pride in Tricom’s success. It has the only completely digital local access network in the Dominican Republic, a mobile and wireless network that covers 80% of the country and a submarine fiber optic cable system that offers local, long distance, mobile telephony, Internet and broadband data transmission services.

The Dominican Republic has one of the most sophisticated telephone systems in the Caribbean, and the telecom industry is one of the fastest growing sectors in the country, expanding 26.2% during the first half of this year. The country’s former monopoly telecom operator, Codetel, has been in business since 1933 under US corporate ownership. Today Codetel, a wholly owned subsidiary of Verizon, has 750,000 access lines and 320,000 cellular subscribers, and remains the dominant telecommunications company in the Dominican Republic. After the government passed a telecommunications law in 1998 that established the legal framework for a competitive environment, other companies entered the market and spurred growth and competition in the basic services market as well as the wireless and value added markets. The local regulator, Indotel, was created in 1999 as an independent agency funded by a tax on customers.

Rapid Growth
According to the central bank, the telecommunications market generated $1.3 billion in business last year and has grown at a rate of 18.6% a year since 1996. Yet the country is still remarkably underserved in terms of communications. According to Indotel, the ratio of local access lines per 100 inhabitants was 10.9 in the Dominican Republic at the end of last year compared to 33.2 in Puerto Rico. The ratio of wireless subscribers per 100 inhabitants is higher, at 13.9.

The technology boom of the late 1990s helped Tricom launch its pan American expansion in Central America and the United States. The company has a US subsidiary with switching facilities in New York and Miami and carries almost half of the southbound voice and data traffic from the US to the Dominican Republic. With the help of technology developed by Motorola, which owns 26% of Tricom, the company plans to deploy a wireless communications system in Central America. But like other telecommunications companies, it faces a more cynical investment climate. “Uncertainty is high in the global economy and we don’t see a high season for the next couple of years in the telecom market even though we are very stable in terms of operations and services,” says Ramón Tarragó, Tricom’s chief financial officer.

Panama and Beyond
The company is pushing ahead with its mobile service network in Panama where it is selling an advanced integrated radio telephone and dispatch communications system knows as iDEN, a technology developed by Motorola. The system offers multiple wireless services in one Nextel handset. Tarragó says since April 2002. Tricom has attracted 5,000 new customers. “We have an investment of $40 million in Panama,” he says. “Nextel cell phones sell at $70 a piece, which is high compared to the region and we are expecting breakeven cash flow at the end of next year, which is on target with our forecast.” Although Tricom still plans to exploit opportunities in the smaller economies of Central America, such as Guatemala and El Salvador where it won operating licenses, it is unlikely to do so until next year.

Still, competition for telecommunications services increased in 2000 and 2001 with the arrival of two foreign companies. France Telecom’s Orange invested $278 million in 2000 to build a wireless network in the Dominican Republic in its first project expansion into the Americas. By April 2002, it had already attracted 340,000 customers. Orange has financed its push into the Dominican Republic with $130 million in loans from the International Finance Corporation, the private sector lending arm of the World Bank, along with local currency financing of $38 million from Banco Popular and $110 million in equity and subordinated debt.

Centennial, which began operations in the Dominican Republic in October 2000 has about 7% of the market share for cellular traffic, is engaged in a battle to win customers from the dominant players. “‘We see subscriber growth rates that lead us to believe that we are attracting both new customers to the industry and switching from other carriers,” says Richard Gasink, executive vice president for Caribbean operations at Centennial. The company’s Santo Domingo’s facilities offer advanced mobile Internet services, including wireless Web browsing, e mail and video streaming. Centennial acquired a 70% stake in All America Cables and Radio Inc. in the Dominican Republic, which supplies international long distance services and supplies a broad range of voice, data and Internet communication services. In less than a year, Centennial Dominicana built its 45 kilometer fiber optic ring and acquired fiber capacity in the Arcos network to establish direct communications with Puerto Rico and the United States.

Future Growth
Tricom’s Tarragó says that the telecom market in the Dominican Republic is far from saturated and the market remains very competitive. “Tricom competes on service, we have impeccable service in wireless and that is widely recognize by our customers,” he says. Tricom branched out into the pay TV market at the end of last year when it paid $64 million for shares in TCN Dominicana, a subsidiary of Telecable Nacional, the only concession to operate cable TV in the Dominican Republic. The cable network serves Santo Domingo and the tourist areas of Puerto Plata and La Romana with over 64, 000 subscribers. Tricom is focused on digitalizing the network and expects to increase its subscriber base on its pay TV services as well as offering high speed Internet access over Telecable’s cable network.

Tarragó says the company continues to be innovative and dynamic and is well positioned to weather the global telecommunications slump. It completed a rights offering last year and refinanced $110 million in short term debt, extending the maturities. Tarragó stresses that Tricom’s local and international financiers did not require financial covenants on the loan refinancing. “They were very flexible and continue to support us.”