Digicel’s near-300-page IPO registration document includes 29 pages of potential risk factors that could affect the business in the years ahead.
Competition from rival Cable & Wireless is one of the first mentioned. In March, C&W acquired Columbus International, whose shareholders included John Malone, the US's biggest landowner who controls cable TV group Liberty Global, which in turn owns UPC Ireland.
Mr Malone now owns 13 per cent of the enlarged business.
Digicel acknowledges that some of its competitors "may have more advanced technology" and a "greater coverage area" than the company.
The document notes that in the year to the end of March 2015 about 60 per cent of Digicel’s revenues came from mobile voice. While its income from data is increasing, “there is uncertainty as to whether the future growth in such services will be sufficient to replace” declines in mobile voice.
Currency fluctuations are another potential problem for Digicel. The company’s $6.5 billion total debt is denominated in dollars but its revenues come from local currencies in the Caribbean, Central America and the South Pacific.
Many of these have weakened against the dollar in recent times, including the euro, which accounts for 7 per cent of Digicel’s revenues, primarily in the French West Indies.
Jamaica and Haiti account for 25 per cent of its revenues and their local currencies have depreciated in value against the dollar by 8.6 per cent and 4.7 per cent respectively.
Churn
Customer churn is another potential risk to the business, especially as 93.7 per cent of its subscriber base is pre-paid. This makes Digicel’s “customer base more susceptible to switching wireless service providers”, according to the IPO document.
The average level of monthly churn has risen from 4.2 per cent in the year to the end of March 2013 to 5 per cent for the year to the end of March 2015.
Mr O’Brien’s majority control of the business, which is set to continue after the IPO, is mentioned among the risks. “His interests may not in all cases align with other shareholders’ interests,” the document states.
Regulation features prominently in the list of risks. Mobile termination rates and network interconnect rates are generally regulated, and these have been reduced in many of its markets. Digicel is also being subjected to more regulation in Jamaica, and has been subjected to additional taxes and levies in many markets over the past decade. The Bermuda-based company might also become subject to taxes on the island after March 31st, 2035.
Technology
The rapid pace of change in technology is also cited as a potential problem for the business, possibly rendering its products obsolete. Another challenge is sourcing content from third parties for its mobile and cable TV services.
Digicel notes that some of its operations are exposed to service disruptions from a natural catastrophe. For example, Haiti was the subject of a major earthquake in 2010.
Financing the expansion of the business is noted as a potential difficulty. Digicel’s capital expenditure last year amounted to $648.7 million. And the document outlines the drain on the group by Digicel’s loss-making Panama affiliate, in which Denis O’Brien personally owns a controlling stake. This subsidiary owed the group $306.1 million at the end of March, while the carrying value of the investment was just $6.6 million.
