Access Alert: Colombian telecoms industry faces shakeup with potential Millicom-Telefonica merger

Colombia’s telecoms market has sparked considerable attention involving two of the country’s biggest telcos in recent days, with Millicom bidding to acquire Telefonica’s operations. Even if the news came as a surprise, there were clear hints of such intentions when both companies joined efforts in the 5G auction held in December 2023.

Context

Both Tigo (Millicom’s brand in Colombia) and Movistar (Telefonica’s brand in Colombia) have gained approval from the Superintendency of Industry and Commerce (SIC), the competition watchdog, to merge their Radio Access Networks on an unparalleled move in the country. As a result, a five-year plan must be implemented, including the return of spectrum in the 850 MHz (25 MHz) and AWS (40 MHz) frequency bands, as well as a governance and competition plan.

Currently, the mobile market is concentrated in four Mobile Network Operators: Claro (45% – AmericaMovil), Movistar (25% – Telefónica), Tigo (18% – Millicom), and WOM (7% – NovatorPartners). A merger between Movistar and Tigo could potentially propel Tigo to an unprecedented 43% market share, challenging Claro’s supremacy in the market.

However, even if it looks to reinvigorate one of LATAM’s top markets, such a move is far from straightforward.

Context

Both Tigo (Millicom’s brand in Colombia) and Movistar (Telefonica’s brand in Colombia) have gained approval from the Superintendency of Industry and Commerce (SIC), the competition watchdog, to merge their Radio Access Networks on an unparalleled move in the country. As a result, a five-year plan must be implemented, including the return of spectrum in the 850 MHz (25 MHz) and AWS (40 MHz) frequency bands, as well as a governance and competition plan.

Currently, the mobile market is concentrated in four Mobile Network Operators: Claro (45% – AmericaMovil), Movistar (25% – Telefónica), Tigo (18% – Millicom), and WOM (7% – NovatorPartners). A merger between Movistar and Tigo could potentially propel Tigo to an unprecedented 43% market share, challenging Claro’s supremacy in the market.

However, even if it looks to reinvigorate one of LATAM’s top markets, such a move is far from straightforward.

Four elements to consider

• At first glance, the arithmetic is simple: the sum of the market share of Tigo and Movistar would put them just 2% behind Claro. However, this raises concerns about competition. Concentrating 88% of the market in just two players could potentially cause competition risks and jeopardise consumer benefits. Should the merger move forward, the competition watchdog would likely define transition measures to protect users and market competition, as has been the case in the past.
• While Millicom and Telefónica have made a public demonstration of intentions, the merger is more complicated than they would like it to appear. Firstly, the Colombian government holds 32.5% of the company’s shares, so the discussion might involve policymakers, authorities, and conversations regarding the potential benefits for the nation. Millicom will have to sit and negotiate with Telefónica in Madrid and the Colombian government in Bogotá. Nevertheless, the merger could also involve Millicom buying out Telefonica’s shares but not the nation’s and will still control the company.
• The discussion about Millicom buying the City of Medellin EPM’s shares in Tigo is all but new. Just last year, conversations about capitalisation took place amid political turbulence in the city. As a result, new capital was injected into the company just before the 5G spectrum auction held in December, boosting the company’s competitive outlook.
• Finally, Atlas Luxco, which already owns 29% of the shares in Millicom, sent a reinvigorated offer to acquire the company. Millicom had previously rejected an offer but is yet to reject Atlas’ most recent effort.

In sum, the M&A landscape in Colombia will involve numerous challenges for both Colombian authorities and industry stakeholders. The outcomes from such a landscape will define the reconfiguration of the country’s telecommunications industry.

What’s Next?

Stakeholders should look at this with some degree of scepticism. The complexities involved in M&A are not to be overlooked, and the future of Colombian connectivity will be defined by difficult decisions, under public scrutiny, in a country that has traditionally led regional efforts regarding connectivity and digital policies.

Key elements to consider:

• Authorities’ approach to competition: Is it better to have a two-horse race or to boost other agents in the market? Whichever avenue is chosen, the competition authorities might need to consider risks derived from concentrating the market in just two players, such as higher prices, lower quality, and reduction of coverage, with no guarantees that keeping the current structure will be more efficient either.
• Long-term planning: Colombian policymakers should be clear as to what are their intentions in terms of shaping the connectivity industry. The reconfiguration of the market involves not only the absorption of Telefonica’s operations but also a new approach regarding spectrum for mobile services, infrastructure sharing, and entrant-protection measures, including fixed-service bundling.
• Will 5G be the key to consolidation? The Colombian authorities successfully allocated four 80 MHz blocks of spectrum in the 3.5 GHz band for 5G services. However, eight months later, WOM (the newest Mobile Network Operator (MNO) in the market) and the entrant Telecall are yet to offer 5G services. The general approach for the biggest players has consisted of an aggressive mobile phone campaign and the promise of faster networks under the enhanced Mobile Broadband (eMBB) use case. That said, monetisation questions are to be answered as MNOs have opted for an increase in speeds (for those users with 5G-capable smartphones) at no increase in their monthly plans. In addition, with few incentives to increase mobile broadband coverage, the question is whether 5G will be a new ground for competition once Millicom absorbs Telefonica.
• Will investment cycles change? Colombian MNOs tend to increase their investments as a result of each spectrum auction. However, the Tigo-Movistar merger could potentially change this trend. The merger involves the return of 65 MHz to the authorities due to the spectrum caps rules, the number of sites is likely to be reduced as the companies have similar coverage in the main cities. However, the integration of networks will likely involve a more robust upgrade to software-defined networks, additional efficiencies in backhaul deployments, and a more vigorous offer to clients.

Access Partnership closely monitors the development of connectivity and digital transformation efforts in Latin America. If you want to learn how to navigate the challenges of Colombian and Latin American regulations or gain a more detailed understanding of the challenges ahead, please contact Geusseppe Gonzalez at [email protected].

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