Will competition ruin ICE?
The Costa Rican Electricity Institute (ICE) has been the king of the national telecommunications industry since it was created in 1963. During the last 50 years, ICE designed the nation’s electricity grid, brought light to the far-away corners of the country, provided television and cable services, and created the first and only cellular telephone network.
But since the passing of the Central American Free-Trade Agreement with the U.S. (CAFTA) on Jan. 1, 2009, which allowed competition to enter the telecom market, the reign of ICE has been under threat. As two large multinational mobile phone providers, América Móvil and Telefónica, prepare to begin offering cellphone service to Costa Rican customers in the upcoming months, one question lingers: Will ICE remain competitive?
“Our intention is to maintain the highest amount of market share possible,” ICE President Eduardo Doryan said in an e-mail to The Tico Times. “Because of that, we are preparing ourselves to put up an intelligent and competitive fight.”
A Piece of Costa Rica’s Soul
ICE was established in 1949 during the administration of José Figueres. Since then it has been known locally as the people’s company. Created during a time of revolution, ICE, like the abolition of the national army, became a point of pride for Costa Ricans. It provided jobs, electricity, energy and something Costa Rica could claim as its own.
“ICE has a place in the soul of Costa Ricans,” said Juan Manuel Campos, a lawyer with Ciber-Regulación Consultores, a firm that specializes in telecommunications law.
“[ICE] can exploit the sense of nationalism and long-term bonds they’ve created with Costa Ricans. ICE was responsible for the development of the nation’s electricity grid and telecommunications market, and they did it with great success. People feel like ICE is something that belongs to Costa Rica. That is an emotional advantage that the other companies will not have,” he said.
As for competition, ICE has never had any. It’s never had to design sophisticated promotional strategies, nor discuss market shares. In the past, anyone who’s ever wanted a cell phone in Costa Rica, like it or not, had to go through ICE.
That’s about to change, and in order to be successful, ICE is going to have to change too.
In recent months, ICE staff launched a publicity campaign that produced promotional ads and marketing material to reassure Ticos that the company is on a mission to remain “a tu lado” (by your side), as their marketing slogan promises.
In January and February, ICE offered owners of TDMA model phones, which are now obsolete, a free phone upgrade at any national service center.
ICE also gave away tickets to events at the new National Stadium, which opens in March. All the customers that purchased a new cellphone plan through Kolbi, ICE’s cellphone service, were given a chance to win tickets to the stadium’s inauguration, the Shakira concert, the soccer game versus Argentina or the soccer game versus China, all which are being held at the new National Stadium.
“We are changing the institution so that it is transformed into a true service company, one that’s efficient, agile, and has excellent customer service. That’s how the best and most successful companies in the world function,” Doryan said. “From there, our strategic plan relies on our principal philosophy, represented by our slogan, ‘Motivated by the client and the good of Costa Rica’.”
Giants on the Doorstep
While ICE adjusts its business model to prepare for competition, its new competitors are already well-versed on the rules. Costa Rica is the 26th international market that Spain’s Telefónica will operate in. The company has 280 million users and competes in 14 other Latin American countries, four of them in Central America. In Costa Rica, they’ll operate under the name Azules y Platas.
América Móvil, owned by the world’s richest man, Carlos Slim, operates in 18 other countries, has 270 million customers and has generated more than $12 billion in revenue. Its Costa Rican name is Claro.
ICE says its network currently provides cellular service to an estimated 3 million of Costa Rica’s 4.5 million residents.
“If this were a game of soccer, it would be like taking a team from the amateur leagues and putting them on the field with professionals,” said Campos. “ICE hasn’t had practical experience in a competitive market. Now that competition is entering the market, they are obligated to learn how to compete very quickly. The other companies already know what to do. In the case of Telefónica and América Móvil, they dominate other markets in Latin America. They already know how to penetrate a market and what strategies to implement to gain market share. The Costa Rican market won’t be an exception.”
In addition to experience, the two new providers have significant capital and advanced technology that ICE so far can’t produce. Both foreign companies have agreements with Apple and can immediately begin selling the popular iPhone. Currently, the only way to get an iPhone is to buy it abroad.
In April, Apple co-founder and CEO Steve Jobs reported that more than 50 million iPhones had been sold worldwide.
In terms of financial clout, in January, América Móvil revealed plans to invest $77 million on its expansion here, and Telefónica committed $95 million toward investment.
“There is a possibility that ICE could lose 30 to 40 percent of its users in the first year of competition,” Campos said. “In order to protect the amount of users they have, they must improve the quality of service and applications that they currently offer. If not, they could see a massive abandonment of users.”
Campos also said that the large number of pre-paid users with ICE service could be enticed to side with the competition. ICE’s pre-paid clients have no official contract with the company and pay only when necessary to refill their phone credit.
“There are more than a million pre-paid users with ICE,” Campos said. “With that type of volatility, it will probably result in many customers simply trying out what else is out there, and ultimately buying service from the competition.”
Despite the looming shadow of the two giants, Doryan said ICE isn’t going anywhere.
To explain his contention, Doryan drew a comparison between ICE and state-owned Banco Nacional, which experienced growth after the banking system was opened to competition in 1996.
“What I can assure is that we will strongly defend our revenue and that we will remain as the principal telecommunications company in the country,” Doryan said. “[It would be] something similar to Banco Nacional, which not only maintained its position as the national leader, but also grew when the national banking system opened up private banks. Now they are the biggest and strongest bank in Central America, while still the state’s property.”
When the two companies do finally begin to offer phones, packages and services in upcoming months, the long-awaited competition for cell-market share will officially begin. Then it will be up to Costa Rican consumers to decide. Whether they’ll choose to have ICE “on their side” remains to be seen.
Check out next week’s edition of The Tico Times for another inside look at how competition in the telecommunications market will change the face of the Costa Rican Electricity Institute (ICE).
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