Read the Case and answer each of the following questions:
What do you think of the reception for Digicel around the world?
What did Denis O’Brien learn in the United States?
What did he learn in Europe?
What does it take to set up a cell phone operation in a new island state?
Answers: long paragraph or two paragraphs.
On The Cover/Top Stories
Bernard Condon08.11.08, 12:00 AM ET
Despite coups, corruption and kidnappings, cell phone maverick Denis O’Brien keeps pouring money into the world’s poorest, most violent countries. His bet: Give phones to the masses and they’ll fight your enemies for you.
Denis O’Brien professes not to understand why wall Streeters think his telecom business is risky. He says this while sitting in an office in Papua New Guinea that is protected by razor wire and a half-dozen guards carrying shotguns and pistols. O’Brien’s Jamaica-headquartered company, Digicel Group, began offering cheap cell phone service recently in this Pacific hellhole. The murder rate in PNG is one of the highest in the world, corruption is rife, and the government recently threatened to seize 130 cell towers that O’Brien had erected at a cost of $120 million.
Is there anyplace as inhospitable to capital as PNG? Haiti would qualify. O’Brien has put money in there, too–several hundred million dollars. Five of his workers in Haiti have been kidnapped so far. In East Timor O’Brien is pursuing a license despite a rebel uprising this year that left the country’s president with a bullet in his chest. And then there’s Fiji, where he had to abandon cell towers for a time after a coup.
He concedes a bit to the worrywarts by noting that his experience in Fiji was a “nightmare.” But he’s not about to stop putting capital in dangerous places. “If you just focus on risk, you can’t do a thing,” he says. A swashbuckling entrepreneur of 50 who swears often in his Irish brogue, O’Brien has built a $2.2 billion personal fortune by dominating the mobile business in a dozen poverty-stricken countries (in all, he’s in 27 countries and territories). Combining shrewd political instincts, a relentless drive to cut costs and a little Irish charm, he’s put phones into the hands of 7 million people in seven years.
He sums up his strategy thusly: “Get big fast. [Damn] the cost. Be brave. Go over the cliff. [The competition] doesn’t have the balls.”
O’Brien doesn’t let government obstructionism or corruption deter him. He dots countries with cell towers, sometimes before rulers even grant a license, then slashes the price of mobiles on opening day to get the masses using them fast. It’s a bet that poor people who have never had phone service before won’t let the politicians take their phones away without a fight. Thus does O’Brien avoid the fate of many Western investors in corrupt, violent countries–being forced to sell out on the cheap. That’s what happened to Royal Dutch Shell’s oil well on Russia’s Sakhalin Island and to aes’ power plants in Kazakhstan.
In an April riot in Port-au-Prince, Haiti the mob not only spared Digicel stores from its burning and looting but even gathered in front of a few of them and cheered. Says a jubilant O’Brien, as he reads an e-mail on the news, “They’re calling us the Company of the People.”
If riots and coups aren’t risk enough, O’Brien is moving into El Salvador and Honduras to confront a rival with far more resources. Mexican mobile phone titan Carlos Slim Helú, the second-richest man in the world, is already selling in those countries. “I don’t think about Slim every day,” says O’Brien, who claims he has taken 20% of the market in El Salvador in one year. (Slim, in turn, has bought a cell phone company in Jamaica, setting up a battle on O’Brien’s home turf.) O’Brien is also eyeing the U.S., where only 80% of the population has a cell phone. He says he could close the gap fast by selling cheap handsets activated with codes on prepaid phone cards, as he does in poor countries. “They’re snobbish,” he says of the U.S. operators’ disdain for such tactics.
O’Brien also owns a network of 42 radio stations in eight European countries, a golf resort community in Portugal, a plane lessor with a fleet of 93 in Dublin and a firm, just two years old, that runs Internet job-recruiting sites in six countries, including eight in China. He’s got quixotic publishing ambitions, too. He keeps upping his stake (25% at last count) in Independent News & Media, controlled by a rival Irish billionaire, Anthony O’Reilly, whom he’s trying to oust.
Digicel is his biggest gamble, though. Total revenue: $2 billion. The Caribbean operations backing his bonds just announced $505 million in operating profit (earnings before interest, taxes and depreciation), double the year-earlier figure, on $1.6 billion in revenue for the year ended in March. His goal: cell service in 45 countries in two years, generating more than a billion in operating income.
In April O’Brien was in the midst of a five-day, four-country visit (via his Gulfstream G550) to keep tabs on his assets. “Why does no one think about reducing costs in this company?” he fumes. In Western Samoa, where Digicel has captured 32% of the population in 18 months, O’Brien lashes out at staff, flown in from various countries, for sins like buying eight vans instead of six (potential savings, $44,000). Next a staffer reports happily that people in the Kingdom of Tonga are apparently buying the rumor, spread by Digicel, that it will launch in October. “Keep spreading it,” O’Brien advises. (Digicel began the invasion in May, taking competitors by surprise.)
Then he hears of plans to invite the king of Tonga, not the prime minister, to cut the ribbon at a store. “Weren’t they throwing stones at him a while ago?” O’Brien wonders. Indeed, antimonarchist rioters managed to burn down much of the capital. But no time to dwell on the king–O’Brien has to fly to three more countries today, and his next meeting is in Vanuatu, 3,200 miles away. “Every man for himself,” he yells to two dozen young staffers as they rush to vans heading to the airport.
O’Brien inherited business smarts from his father and a rebellious streak from his mother. The father, who sold veterinary supplies to horse breeders, is Catholic; the mother, Protestant. Neither family showed up at their wedding. His mother, a human rights activist with a special animus for President Reagan, would badger him to join protest marches.
After university in Dublin, and a Boston College M.B.A., O’Brien became a banker, then set out to build a QVC-like channel for all of Europe. When that collapsed he went into hock, started a Dublin radio station, 98FM, and began selling ads furiously. That was the forerunner to Communicorp, today one of the largest radio networks in Europe.
He dipped into the cell phone business in 1995 when he won a license in Ireland to set up a mobile phone network, Esat Telecom. A government investigation into a former communications minister accused of a variety of corrupt dealings is looking into whether O’Brien won the license on a bribe. O’Brien hotly denies he did so and says that at Digicel–incredibly given the countries it’s doing business in–he’s never been asked for a bribe, much less greased any palms.
In any case he loaded Esat up with debt and got 550,000 customers in three years. In January 2001 he sold the company for $2.9 billion to BT Group–$300 million of it going to him and $250 million to his workers (even the janitors had options). After the sale his mother phoned to complain about Moscow’s abuse of the Chechens. O’Brien spent the evening marching in a circle in front of the Russian embassy. Later he used a bit of his wealth to set up Front Line, a nonprofit that trains rights advocates on how to avoid getting thrown into prison and tortured. It also evacuates those in danger of being killed–15 so far this year.
Shortly after unloading Esat, O’Brien spotted a 3-inch-square ad in the Financial Times inviting bids for a mobile license in Jamaica. He likes to say he was drawn to the region because of all the Irish “troublemakers” banished there by the English after a 1649 invasion. But the real pull was that this was a country where only the elite had access to phones. In a place like that, he could get the masses to love him.
He paid $48 million for a license and rolled out a battle plan he would use on other invasions: spend lavishly on the network (1,000 towers in Jamaica), build clean stores with cheery staff (a rarity in many developing countries) and lure customers by offering new services like per-second billing and big discounts from the competition (80% less for phones and 50% less for calls).
O’Brien also drew on his inner P.T. Barnum, throwing cell- tower parties with live reggae music and starting an American Idol-type contest called Digicel Rising Stars, in which the best amateur performers are chosen by national vote (using Digicel phones, of course). Only 10% of Jamaicans used cell phones before Digicel arrived. Now 90% (2.4 million people) do. Three-fourths of them are using Digicel phones.
He is expanding across the Caribbean. In Trinidad & Tobago, where the state mobile phone firm was dragging its feet on connecting Digicel calls to its own customers, O’Brien harangued government officials to speed things up, even phoning one Christmas night to complain. After the launch the state firm started dropping Digicel calls anyway, making its new competitor look bad. O’Brien took his case to the people, taking out ads in T&T’s papers listing life “Before Digicel” and “After Digicel” and held a press conference. The state firm eventually relented. In its first four months Digicel bagged 600,000 customers and is narrowing the gap now with the state in market share.
Battle of the Billionaires
In June 2005 O’Brien bought a license in Haiti. The country has no nationwide electric grid to power cell towers, so Digicel had to deliver barrels of diesel to its sites, sometimes by donkey. Customs officials refused to release 75 cell towers from a warehouse for nine months, relenting only a few weeks before launch (and after Haiti Chief GhadaGebara paid a visit to a hard-to-find government official at his paramour’s house). Then a familiar problem: a refusal by the two rival incumbent firms to connect Digicel calls with its customers.
In May 2006 O’Brien launched anyway with a clever come-on: Customers with phones from rivals could trade them in for a free Digicel one. Hundreds of people lined up outside Digicel stores for three weeks in scorching heat. “Let the people know we give a damn about them,” O’Brien lectured staffers. Within days he had struck a deal to slap the Digicel logo on water bottles, then had workers hand them out along the lines while dancers gyrated to live music from flatbed trucks.
In one week Digicel had 120,000 customers, and its rivals agreed to interconnect. O’Brien now has 2 million Haitian customers, 64% of the market.
By the end of 2006 private equity firms were circling Digicel. The company had 4 million customers in 22 Caribbean countries and was generating $220 million a year in operating income. O’Brien was sitting on a beach in Barbados looking over two buyout offers for $3.8 billion when it hit him: Why not buy the whole company himself? One month later he sold $1.4 billion in bonds, enough to buy minority investors out of their 22% stake, put a few hundred million into the business and pocket $800 million for himself, free and clear. Total debt: $2.8 billion. O’Brien prefers to think positively of the tight budgets that borrowing demands: “If you have limited resources, you have to be more clever, more skillful, more defiant.” Tell him many big telcos have a lighter debt burden and he snaps: “They’re doing nothing but sitting on their arses.”
O’Brien was soon moving into the Pacific. Digicel staffers flew to Tonga to inspect a state mobile outfit for sale, only to discover crucial documents had been burnt in those antimonarchist riots. (O’Brien bought the firm anyway.) In Fiji Commodore Frank Bainimarama had just seized power and subjected Digicel’s chief there to a four-hour interrogation. Would the $20 million Digicel spent there go down the drain? No. A week after the coup O’Brien was sitting on a veranda with the new ruler, sipping tea. “Everyone was saying, ‘Don’t go. It’s unsafe,'” he says. “But that’s exactly the time to go in.”
Government officials in Papua New Guinea weren’t so amenable at first. Soon after Digicel won a license in an auction in 2006, telecom minister Arthur Somare invalidated it on a hazy procedural ground. Lawsuits quickly followed, and O’Brien kept his license. (We should point out here that Somare is a son of the prime minister.) In any case Somare then submitted a bill to parliament to nationalize O’Brien’s operations. The fight got so bad that the man who oversaw the original auction, Thomas Abe, received anonymous threats against his family and had to move houses several times.
Digicel had a lot to lose. It had erected dozens of towers and poured concrete for dozens more. O’Brien used this to his advantage. He brought members of parliament into Digicel’s main office to show them a wall map of PNG with pushpins representing planned cell sites in villages that never had a landline connection. The plan to nationalize Digicel was defeated.
Somare wasn’t through. A few months later he decreed that Digicel could not beam microwave transmissions from its towers, potentially rendering them useless. O’Brien’s response: He launched his service on the sneak, selling phones for a heavily subsidized $6, one-fifth the state monopoly’s price. He gave away a chip that allowed state phones to run on Digicel’s network. He also gave away $6 prepaid phone cards–250,000 of them in only ten days.
Within five months Digicel had 350,000 customers, 200,000 more than the state firm, and letters began to pour into newspapers ridiculing the state for threatening a rival. “Childish and pathetic,” sniped one letter. An editorial called for competition to shake up the water and electricity monopolies, too. O’Brien contacted friends in foreign embassies to lobby the government to not touch the company. “The EU funds PNG. So do Australia and New Zealand. So we used diplomacy,” he says. A former PNG army commander was quoted ominously in a magazine saying governments that ignore the people’s will are often toppled by coups.
The threat from the state has now largely faded away. Says auction overseer Abe, “Fishermen and farmers are calling me to say, ‘Good for you for standing up to the government.'” Indeed, it’s hard to overstate the impact cell phones are having on poor citizens. Fittler Larsen, a impoverished betel nut seller in a PNG squatter settlement of 20,000, is making more money now that he can call wholesalers to check if new shipments have arrived. “I used to spend half a day getting supplies,” says the 19-year-old, standing barefoot amid half-naked kids. “Now I can stay here and sell more.”
Back in the Caribbean, O’Brien bought a license in Panama and visited Nicaragua twice in quest of one (while getting Reagan nemesis President Daniel Ortega to sign a photo to his mother: “Greetings to a fellow revolutionary”). O’Brien, never one to suffer doubts, proclaims, “You run like MacArthur from island to island–and you conquer. This is going to be a very big business.”
Battle of the Billionaires