Latam Special: Central America... more than just the middle man?
07 August 2012 | Guy Matthews
It’s easy to write off Central America as a poor relation to the far larger, headline-grabbing economies to the south. Is the region, however, starting to generate its own traffic rather than act as a mere staging post on the route north to south? Guy Matthews investigates.
The term ‘serving as a gateway’ is frequently brandished around in the carrier world. Turkey, India and various countries within the Middle East, all vie to serve as a gateway between east and west. Yet what is the real value in holding such a title, and can the concept be taken to other regions of the world?
The seven countries that make up the narrow strip of land between north and south America (Costa Rica, Panama, Guatemala, Honduras, Nicaragua, El Salvador and Belize) have had more than their share of civil unrest and political instability over the years. But the region is healing fast, expanding economically, and starting to realise some of its potential.
“Central America is already an important part of the regional Latin American telecommunications infrastructure,” believes Mateo Ward, CEO of IFX International Carrier Services (IFX-ICS), a company newly demerged from enterprise-focussed IFX Networks and dedicated to furnishing the international carrier community with connectivity across Latin America.
Regional cable systems, he says, pass through Guatemala, Panama and Costa Rica, turning these countries and their terrestrially connected neighbours into business and communications hubs.
“Yes, Central America is made up of small domestic economies, but many of our international carrier customers are requesting services that take them there. Any time one of their enterprise customers needs to connect a local office there, they call us and ask us to install a circuit to that location,” says Ward.
“As a result, we are serving locations throughout Central America, based on a real business need from one of our carrier partners to serve an end customer.”
Interconnecting north and south
Gas Natural Fenosa Telecom is part of Spanish multinational Gas Natural Fenosa, which operates in 24 countries around the world commercialising natural gas assets. Its service portfolio is wholesale only, providing dark fibre, transport capacity, private line, metro, national and international coverage over SDH and DWDM. It also provides local and backhaul circuits, internet services, virtual PoPs, satellite and co-location services.
Its presence extends from Spain to Panama and Colombia, and to the NAP of the Americas in Miami. Gersson Fernandez, international sales executive on the business development team of Gas Natural Fenosa Telecom, says the company has become highly active in Central America, working as a carriers’ carrier for a spectrum of international customers.
Central America, he believes, has grown significantly in importance within the telecoms world of Latin America in recent years. In the last year alone, the company has entered the Costa Rican market and deployed a 2,500km network.
“A need for new diverse routes to reach multiple destinations has driven us to grow our network there more and more in the past three years,” he says. “We’re continuing to grow and deploy throughout Central America. Demand has already driven us to interconnect Nicaragua with Panama by means of a fully-owned 100% fibre terrestrial network, and we’re deploying to San Salvador in El Salvador.”
In the mid-term, the company is hoping to position itself as the first to own a terrestrial network throughout Central America, providing services to the main cities without the needing to interconnect at the NAP of the Americas.
According to Fernandez, operators in both North and South America are becoming interested in the company’s new network, since it has a presence in most of the cable landing stations up and down the Central American isthmus: “We offer ease of interconnection between these various submarine systems and our terrestrial network, reaching inland to countries with a more diverse solution than the ones presented at the moment,” he claims.
The region’s top two
There’s no doubting that, of the seven Central American economies, two predominate – Panama and Costa Rica – and the rest follow in their wake.
Panamanian GDP per capita is the highest in Central America, and it is amongst the five fastest growing countries in the whole of Latin America. This makes the outlook promising for Panama’s telecoms market, says BuddeComm analyst Lisa Hulme-Jones: “Telecoms revenues in Panama are expected to reach about $910 million, with mobile services and broadband being the fastest growing sectors,” she says.
Panama’s wider significance is that it is hooked up to the global digital superhighway via a number of subsea cable systems. But internally it presents a different face.
Competition is limited, with incumbent Cable & Wireless Panamá (C&WP) reluctant to unbundle its local network and keen to maintain its virtual monopoly in the delivery of ADSL access.
Panama’s mobile sector is a brighter picture, with penetration about 30% higher than the regional average. Two new mobile players – Digicel Panamá and América Móvil’s Claro – entered the market around three years ago breaking up the duopoly held by Cable & Wireless Panamá and Telefónica’s Movistar and significantly lowering pricing.
Through its ‘Internet for All’ project, Panama’s government is committed to further development. In 2010, Panama became one of the first countries in the world to offer free wireless broadband access nationwide, reaching 80% of the population. “There is no real wholesale market in Panama,” says Hulme-Jones. “ISPs must build their own infrastructure to offer services. The wholesale prices demanded by Cable & Wireless Panamá make the resale of ADSL unviable.”
It is a position, however, that C&WP appears to be enjoying: “The economic outlook for Panama has improved dramatically over the past few years,” says Felix Camargo, executive director for carrier business with Cable & Wireless Panamá.
There is an increased optimism, he says, around the future of the country due to the major infrastructure projects taking place. In transport, the expansion of the Panama Canal is expected to double the route’s capacity by 2014, while there are also numerous major subsea cable infrastructure projects planned [see boxout]. “A lot of this flurry of builds has Panama as the crossroads looking north to south and east to west. It’s a very exciting time,” says Camargo.
Camargo is excited not just for his home market, but for the wider Central American scene: “There’s lots going on in Costa Rica, and Guatemala is growing, El Salvador too,” he says.
“I’m very bullish on the whole spectrum of Central America in fact. We’re seeing expansion in broadband riding on the back of tablet and social media adoption, not as much as you’re seeing in some Asian economies maybe or the US or Europe, but growth nevertheless. In Panama, you’ve nearly got 200% mobile penetration. The potential for growth in the kind of services carriers can offer is very exciting.”
Costa Rica: Leading by example
The biggest development in the Central American market over the past few years, however, has been the opening of the Costa Rican telecoms market. Although it has not been as rapid as most had hoped.
“Of all Latin American countries, Costa Rica has possibly been the most resistant to either the privatisation or liberalisation of its telecoms sector,” agrees BuddeComm analyst Lucia Bibolini.
“The new regulator, Sutel, faces a challenging task. State-owned ICE and its subsidiary Racsa have been the monopoly providers of virtually all telecommunications services in Costa Rica except for pay TV.”
Moves to greater openness, started in 2009, are expected soon to galvanise the country’s mobile telephony sector. Mobile penetration is still low in Costa Rica compared with other Latin American countries. Digicel, América Móvil, Millicom International Cellular, and Cable & Wireless Communications are all keen to win licences.
“Costa Rica’s broadband market is the most advanced in Central America, with the highest broadband penetration for this sub-region,” says Bibolini. “Geographical distribution however is unequal, with a much higher digital gap than in the case of telephone services. Compared with the whole of Latin America, Costa Rica’s broadband penetration lags behind Chile, Argentina, Uruguay, and some Caribbean islands.”
Costa Rica is interconnected with other Central American countries via a terrestrial network coordinated by the Comisión Técnica Regional de Telecomunicaciones (COMTELCA). This regional broadband telecoms network, known as Red Regional Digital de Telecomunicaciones de Centroamérica (RRDTCA), interconnects the countries of Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, as well as Mexico.
The economic leadership shown by Panama and Costa Rica, and the primacy of their telecoms markets within the Latin American region, look likely to be challenged over the next few years. Guatemala is not far behind, and will be the beneficiary of new cable landings boosting its international credentials.
And the political troubles of Honduras, while not over, are subdued enough to give some hope for growth. Masson Aldana, IT director with Honduran network operator Cable Color, says the domestic communications market of the country is thriving: “Prices are coming down, and a wider range of services are being offered,” he says.
“We’re seeing growth in areas like VoIP, security for corporates and video on demand (VOD). We provide residential services, like triple play, and also provide data capacity for other service providers over the fibre we own that runs besides the country’s main roads. We’re currently expanding that network.”
Room for another international transit hub?
As the domestic telecommunications markets of Central America develop and as international connectivity with the wider world improves, it is pertinent to ask where the region’s true international significance lies.
If Central America develops further, can it be a key hub for Latin American traffic generally? If not in Central America, then where is the major Latin American hub of the future, bearing in mind that Miami in the US has performed that role over the past decade?
Along with the Caribbean, Central America already has a vital role as a transit route between North and South America, argues Camargo of Cable & Wireless Panamá.
“This hasn’t changed, but now you’ve got a lot of growth in locally generated traffic too,” he says. “Places like Brazil are creating huge volumes of traffic now that pass through Central America. And there are lots of international carriers looking for wholesale connectivity into the region, and they should come and talk to us.”
It remains to be seen, however, how much value can be derived from being the place “that traffic passes through”. “How much of the traffic that Central America sees is staying in the region? Certainly if we’re talking about major hubs, it’s difficult to see what’s going to stop Miami being the main destination for the Latin American region in the medium term,” says Alan Mauldin, research director with research firm TeleGeography.
Ultimately, there is no escaping the fact that existing traffic from Latin America wants to get to Miami. There is no real incentive for that to change while the US city remains the cheapest option, and even if there was going to be a different Latin American hub, in which of the many competing countries is it going to be in?
“You get points politically across the region by talking about reducing dependence on the US, but maybe it would be better if they talked instead about halving the price of broadband,” says Mauldin.
Planned subsea cable systems landing
in Central America
As Latin America grows in importance as a destination for global traffic, new systems are now being planned to add route diversity and capacity to the older networks.
Although funding has not yet been fully arranged and no contract yet exists for its construction, the ambitious WASACE project fires the imaginations of many with its planned series of interlinked routes taking in Africa, Europe, North and South America. As plans stand it would feature a branch to Panama.
The America Movil-1 cable (AM-1) is also on the drawing board, but if built would add greatly to north-south capacity, stopping off in Guatemala.
“Having more options always makes sense,” says Alan Mauldin, research director with analyst firm TeleGeography. “You see emerging regions that get three new cables, and even that is not enough.”
“Yes, it’s good news when a cable is dropped”, says Wally Swain, senior vice president with analyst firm Yankee Group. “But that’s not the whole story. You need backhaul from the cable heads into the country.”