Denis O’Brien is the founder and Chairman of the Board of Directors of Digicel Group, the transnational company based in Ireland and owner of Digicel, one of the five telecommunications companies that operate in El Salvador and that in recent years has invested some $400 million in its modernization.
O’Brien was in El Salvador this week to announce the new investments in his company. In an interview with Diario El Mundo, he talked about the company’s investments, its vision of the internet, and its sharp criticism of social networks and streaming companies for not paying taxes in the countries where they operate or contributing to technological investments. Also, about his concern about how social networks misinform and manipulate societies.
How do you see the dynamics of internet consumption in El Salvador and the world after the COVID-19 pandemic?
Everyone is consuming more data. A lot of people are still working remotely, and people have to size their networks or network capacity for that. One of the biggest issues for telcos and investors around the world today is the high level of capex, which is why we’re all spending 18% of our revenue on capex to grow these networks , but our income vanishes because people are on cheaper data all the time, so there is inflationary pressure and the value of the US dollar rises at higher interest rates, so your return on employee capital is 7%, which is very low.
What has to change here is something that is going to be innovative, and that is that, today in El Salvador, 60% of the data in use on our network comes from OTTs—OTT means Over the Top, and it is a service of » free transmission»—like Netflix, Google, and Facebook, do not pay anything for that distribution. The European Union in recent months has really looked at it. The economic studies record a cost per customer of 45 euros per year for them to provide service for a full service and maintain the demand for OTT, but we do not recover any money, and this is why, from an investment point of view, the telecommunications business is so challenging at the moment.
But now the European Union, I think, is about to take, in my opinion, a groundbreaking decision where they will force beneficiaries to contribute cheaply to the cost of the network, and when that happens, hopefully, the industry will be able to recover.
We’ve been providing free distribution for all these guys for the last 8 or 9 years, with no money at all, and this has nothing to do with stopping the progress of the internet or OTT. It’s like me owning an airline and operating flights from El Salvador to New York and giving everyone free seats is a dead business model. So I think there is a real change.
Yesterday I spoke with ministers and regulators from the Caribbean region, and I think they will act too.
We have invested $400 million since 2019, and our coverage is expanding, but more importantly, our network is becoming faster; we want to ensure that there is enough space in our network.»
But there must be a global trend because if El Salvador acts alone, we will be isolated.
If a country like El Salvador tells Facebook we are going to charge you, you are going to contribute to the cost of the network, they are going to say no, they are going to say: we are going to close Facebook in El Salvador, and El Salvador would have to stop that, but yes, all the countries in the region, 25 countries, all together, and say: hey, this has to stop.
The other thing is, your newspaper pays all kinds of taxes, like we do, but Netflix takes millions of dollars out of this economy and doesn’t pay any contributions. That’s parasitic. That’s a very bad way of doing business just from a point of social view. From my point of view, how is it that the governments of all these countries manage to provide health and education services without taxes? So everyone has to pay, but these guys from Silicon Valley have won for the last ten years, and they don’t pay. They have the most beautiful business model of any business I have ever seen, and now they have to pay.
What they did in Australia with the newspapers is they made Facebook and Google pay for the content. So the content you generate is valuable.
Speaking of El Salvador, how is the deployment of the 4G network going? How much of the territory do you expect to cover in 2022 and how many clients?
We started with 4G. We started investing heavily in spectrum for 30-40 million dollars in 2019, so we built during the pandemic and now we’ve invested 400 million since then. Our coverage is increasing, but more importantly, the speed of our network works without congestion, so we make sure there is enough space on our network for people to connect and quickly download a movie or content they want to use.
What about 5G? Do you hope to be able to deploy the 5G network in the near future in El Salvador?
Unless the big OTT companies contribute to the cost of the network, through revenue sharing or charging fees, I don’t think 5G is going to work, and I admitted that yesterday to the regulator, Siget, and explained it to him. He was listening and understanding. All the regulators in the Caribbean countries think the same. They get it. You can’t build a 5G network unless everyone contributes. We need more towers, more fiber, more connectivity, a big investment. So it’s not going to be what we thought it would be unless everyone makes a contribution. It doesn’t make sense or strategic to invest money and get no return on capital. That’s anemic. It’s a fool’s paradise.
What challenges do you see in El Salvador to increasing connectivity, considering that there is still little penetration of high-speed networks in rural areas?
Again, make sure Netflix, Google, and Facebook contribute to that. A Whatsapp call on your phone is a similar experience to a call on Digicel, but they’re not registered here; they don’t pay taxes; they don’t pay license or spectrum fees; they don’t have employees. That’s one of the reasons why this is so important. They have to pay.
How do you perceive the business climate in El Salvador? How do you feel about it? What could be improved?
The business climate is improving, the recovery from COVID has been pretty good, and I think they had the advantage of closing early; the government had to take a lot of steps to handle covid which I think they did very well, and now I think they’re benefiting.
I think the government is making decisions based on pragmatism rather than politics, what is best for the country, and I think what they did was very good, probably the best in the region.
What is Digicel’s strategic plan in the country after its failed sale attempt?
That was a long time ago. About 12 years ago, we received an offer from Claro. We invested. We doubled our investment. We are particularly happy with our local management team, and we think as a foreign direct investor. This is a good place to invest money, unlike other countries in the region. For example, I would not put my money in Panama. I would invest in Afghanistan before Panama. It is amazing madness. The government kills foreign investment in Panama. So, I feel very good investing here in El Salvador. The way their economy is digitizing, it’s really innovative, the fact that they have a digital currency.
What role does the Digicel ESA operation have in relation to the Digicel Business Group?
We have been here for 17 years, I have been here 30 or 40 times. I come here every year. I have been here three times in the last few years, so I come here very often. It is a very important model for us.
What are Digicel’s differentiating values?
I think we are a challenging brand. We are not part of the established mentality. We are different in our relationship with our clients. We do not have traps, simple prices, you need to be a lawyer to read some of the plans of some of our competitors, so we want to that people receive a good value proposition and good speed, a digital experience. You cannot be copying your competitors, you have to be different. That is why we are a challenging brand here.
Technology evolves every day. We talk about the Internet of things. For example, is Digicel interested in this topic?
We’ve done deals with major Internet of Things companies. I think it’s a small company. I think everyone has big visions, but the reality is small, valuable, but not mega.