Digicel Group Holdings Limited (DGHL) announced that Digicel Panama S.A. intends to apply for voluntary liquidation and withdraw from the telecommunications market in Panama.
According to a Digicel Group statement on April 6, "This regrettable decision has been made following the Panamanian Competition Agency's (ACODECO) approval of the Cable & Wireless and Claro merger, in which the Panamanian government is also a major shareholder and which effectively spells the end of competition in the telecoms market for smaller players."
The "announcement will not come as a surprise to the Panamanian government and regulator," continued the operator's statement, which added:
"Since the announcement of the merger, Digicel Panama has repeatedly conveyed in writing to the authorities that approval of the merger without appropriate remedies would result in our exit as we cannot continue to fund the semblance of a three-player market. In addition to the initial licence cost, the continuous requirement to buy additional spectrum through auctions, together with the exorbitant renewals costs contribute to a high cost regulatory environment.
Despite this, the merger has been approved and the combined entity, in which the Panamanian government is a 49% shareholder, has already engaged in predatory pricing and below cost selling with a significant deterioration in the market in recent weeks. We asked the regulator to intervene but he has ignored this request. This will make it impossible for Digicel Panama to operate profitably and undermines the case for any further investment in the market."
DGHL noted it has undertaken numerous strategic initiatives over the last two years in relation to Digicel Panama.
These initiatives have included: the appointment of an investment bank to actively market the business to financial and strategic parties; extensive engagement with the Panamanian Competition Agency in relation to the proposed merger; and proposals to migrate customers to another operator "which were not taken forward," said DGHL. "We have at all times behaved responsibly," added the company's statement.
Digicel Panama informed its employees and partners in Panama of its decision and gave them an assurance that Digicel and Digicel Panama will fully honor their commitments to them.
Digicel holds its equity in Digicel Panama through an unrestricted subsidiary of DGHL for the purposes of bond indentures. Digicel Panama is not consolidated in Digicel's financial reporting, but treated as an investment in an associate.
As such, DGHL said the decision will have no impact on Digicel's profitable operations in its 31 other markets globally, and does not expect the impact of the liquidation announcement to have a material impact on Digicel's financial condition.