THE COUNTRY OF Ireland has produced its fair share of business tycoons over the years, but few can rival the success of Denis OBrien. The 56-year-old executive struck it rich in mobile telecommunications in Ireland in the 1990s, then cashed in and moved abroad, well before the Celtic Tiger became the first casualty of the European debt crisis.
Today, OBrien is owner and chairman of Digicel Group, a Kingston, Jamaicabased company that operates mobile networks in 31 countries in the Caribbean, Central America and the Pacific. The business has made him a wealthy man indeed: Digicel paid OBrien a dividend of $650 million on his 94 percent stake in the group earlier this year, padding a fortune that Forbes estimates at $5.6 billion and making him Irelands richest son (albeit a resident in tax-friendly Malta).
Emerging-markets countries with poorly developed fixed-line networks have been eager adopters of mobile communications, and Digicel has ridden the growth wave from Haiti to Panama to Papua New Guinea. The group boasts 14 million subscribers, a number that grew by 8.5 percent in the 12 months ended March 31. Revenue slipped 1 percent though, to $2.75 billion, while earnings before interest, taxes, depreciation and amortization edged up by less than 2 percent, to $1.22 billion. OBrien attributes part of the problem to competition from so-called over-the-top (OTT) operators, which sell cheap communications services over the Internet, and he promises to play hardball with them.
Still, he sees plenty of growth ahead. Digicel is boosting capital expenditures by about 30 percent this year, to roughly $550 million, to develop 4G mobile services and expand a fiber network that provides communications services to companies and governments. Digital and value-added services generated 23 percent of Digicels revenues in the latest year, up from 20 percent a year earlier. We just see opportunity to make investments in our networks, which will generate more profitability and more income, the entrepreneur says. While Digicel occupies the bulk of his attention, OBrien has other irons in the fire. He has launched a recruiting business in China and last year acquired Monster.coms operation there, ChinaHR.com. He is mulling an IPO of the business in the next 12 to 18 months to fuel its continued growth. And through private holding companies, OBrien owns European radio stations and a controlling 29.9 percent stake in Independent News & Media, a leading Irish newspaper publisher.
The last investment hasnt been one of OBriens finest. He began building a stake in 2006, when the companys shares were trading at about 2.50 (then $3.03); a debt crisis and a digital revolution later, they plunged below 3 cents early last year before recovering to stand at about 16 cents today. Independent journalists hit OBrien hard in 2011, when an official investigation into business-government corruption found that he had made payments of 500,000 to Irelands thencommunications minister, Michael Lowry, shortly after OBriens Esat Digifone consortium won the bidding for Irelands second GSM mobile license in 1995. (He would later sell the company to the U.K.s BT Group.) OBrien dismissed the investigation report as the most lengthy and expensive comic ever produced.
OBrien achieved a measure of payback in 2012, when he wrested control of INM from Sir Anthony OReilly, a longtime rival and one-time holder of the title of worlds greatest Irish businessman. OReilly had outbid OBrien to acquire Irish telephone company Eircom in 2001. This time OBrien led a boardroom revolt that ousted OReillys son Gavin from the CEO seat at INM.
Digicels chairman recently discussed the outlook for mobile, the merits of private ownership and the need for philanthropy with Institutional Investor International Editor Tom Buerkle in New York.
Institutional Investor: You got in the mobile business almost 20 years ago. Is it the same business today?
OBrien: Oh, its completely different. Its a much more complex business to manage, and I think more and more theres greater opportunity than we ever foresaw. We are just massing out our footprint in every one of our markets.
Youve announced a big capex surge. What are you spending it on?
Were obviously rolling out more and more 4G, expanding our networks, because theres a ferocious appetite for data. The second thing were doing is were laying fiber networks to our major customers and also to our towers. Were buying up cable businesses. And were looking at television offerings across all our markets. I think more and more in the emerging markets were seeing whats happened in the developed markets. In a country like Papua New Guinea, theres a ferocious demand for information. And we see television as an extension of that. So were putting together 14 to 30 channels for Papua New Guinea.
Can you continue to maintain margins?
Were doing a lot of bundling. Were doing plans. Were not doing unlimited plans, which we think is completely nuts weve seen people fall over doing them, particularly in the U.S. So were pricing it to go, and we think over the medium term prices will stabilize.
Does the net neutrality debate here in the U.S. affect you?
Absolutely. Basically, the cellular industry has been bought by the OTT operators. Weve spent billions of dollars on networks, and then weve allowed these OTT operators to come in, get on our pipelines and go straight to our customers. I see a major change, talking to the owners and CEOs and chairmen of major telephone companies theyre all pissed off. And I think theres going to be a lot of change in the next six to 12 months.
How do you regain control of the revenues?
Well, if you take Viber, who are trying to aggregate international phone calls and drop them in on our network for free, breaching laws in Jamaica and Haiti on termination fees and taxes, we just cut them off. Or else they have to pay a termination fee like everybody else. You cant have somebody giving everybody a free ride with their business model without paying for the capex and the investment.
Youre in a variety of countries tied together more by size and level of development than by geography. What ties the group together?
We look at the world as a market and say, Where are the opportunities? and we just go for them. We dont look for the problems.
I think European companies, American companies, have had this thing of looking at all the problems about a country instead of looking at the opportunity. And I think thats where Asian and Indian and African investors have really stolen the march. And were in their mode rather than the Caucasian European market.
I was reminded last night by the guy running our Papua New Guinea business that when we went into Papua New Guinea, we thought wed get 200,000 mobile users. Today we have 2.4 million, 2.5 million users, and its surging. Were looking at opening another 300 towers in the region. If a market is only 50, 60 percent penetrated, the opportunity is to get to 100.
How big a part of the business is extending cable to companies, and whats the growth trajectory?
[Information and Communications Technology] is probably about 5 percent [of revenue]. We think we can get that to 15, 20 percent over the next three years. Its a very good margin business, and in many cases its better margin than selling mobile services, so we see that as a really great opportunity. We just did a deal recently with the government of Turks and Caicos to do the whole government communications platform, e-gov. Were going to meet governments and come up with really first-world solutions.
Does consolidation in the major markets, like the proposed merger of Sprint Corp. and T-Mobile US, have an implication for your business?
I think eventually it will because theyll all get word of what were doing, and theyll just fill up their saddlebags with cash.
Having two very strong operators and two weakish operators here in the U.S. is not a great model. The idea of putting T-Mobile together with Sprint is a pretty good idea. Sprint have fantastic spectrum. T-Mobile have done pretty good at postpay in the past three or four quarters. And I think it is a bit of a no-brainer in terms of that deal. Were going to see the same in Europe. Theres consolidation in Ireland: [Hutchison 3G Ireland] have bought O2s business. So I think more and more the model is going to be three operators. From a regulatory point of view, prices have never been lower; thats not the issue. Its how do you provide the networks and the services people want. On their own, T-Mobile and Sprint cant really spend the money to be a forceful competitor of Verizon.
Youve invested 500 million in Independent News & Media. Why are you throwing money into a dying industry?
I made that decision in 2005. I was in the media business in Ireland. I thought it would be a good hedge to diversify. Independent News & Media was a good business, but then we discovered the business was badly run and had no Internet strategy. It was my mini-Afghanistan, basically. I had to dig my way out of it.
Well, Obamas getting out of Afghanistan. Why are you still there?
The previous management blew up the business and put on 900 million in debt. So weve had to sell off parts of the business. Weve had to do two capital raises. We brought bank debt down to probably net 100 million. We got a great chairman, Leslie Buckley, to go in. Hes restructured the business. We did a deal with the banks. We did a deal with the pension fund. It was a very tough job over the past two years, but now were in a situation where the business is performing pretty well. I might make my money back over ten years. Im more like an Asian investor, for that, anyway. Patient.
Why did you get into recruitment in China?
We were in the recruitment business in Ireland and developed into about 13 countries, and we sold it to a German company about nine months ago. We bought six businesses in China in 2007, 2008. We then went into the regions, went to all the second-tier, third-tier cities and developed websites and sales teams for 25 offices across China. Our brand was a junior brand, whereas ChinaHR was a senior brand. So we had discussions over the past two, three years with Monster about buying ChinaHR, and eventually they decided to sell it to us about a year or so ago.
The business is probably $50 million, maybe more, growing fast. We see an opportunity probably to develop the business into an out-and-out No. 3 player.
What have you learned about operating in China?
Theres a learning curve from a cultural point of view. Its very difficult for foreign managers to operate in China and to be successful running teams. More and more of our senior management team are Chinese nationals. A year ago it was nearly all foreigners. Now more than 60 percent are Chinese.
Theres debate about the merits of public versus private ownership. Have the public markets become uncompetitive?
I think the listing rules, particularly in London, for example, are unrealistic. But we run our business as if its a public company. We have an independent chair of our audit committee. We have plenty of independent directors on our board. We run our business as if it was a Nasdaq business because we had a Nasdaq business before, so it kind of has come naturally to us. We have a very strong board, and we spend a couple days a month together, meeting every business that we own.
You run a successful business; youre very wealthy. When you hear people say capitalism is in crisis, how do you respond?
When I look at the Wall Street protesters or people who were down at Westminster, a lot of them are highly intelligent people. Some of the points they make are absolutely right. If you look at the financial crisis, a lot of that responsibility was on a particular part of the community that created that. I think its at our peril that we dont change direction in some ways so that never happens again.
I think the model of capitalism make money, make money, make money certainly in an emerging market has to change because if youre a major multinational and you dont do something decent in a country but you make a substantial profit, youre a gobshite, basically. If someone wants to build a sustainable business in Africa or in Asia, the Caribbean, South America, theyve got to do some good in the community.
What does that mean in your business now?
We make a substantial amount of profits in Haiti. We dont want to be seen as conquistadors or robber barons, so weve said to ourselves, Okay, we have a division in our business thats as important as any other department is, and this division by September will have built 150 schools in Haiti. Each of those schools has 600 kids. All the teachers have been trained. Theres a food program as well.
I think the Clinton Global Initiative is a better model than all the other get-togethers in the world today because hes getting people to come to New York in September to make a commitment to do something with their wealth, their power, their influence. I think what hes doing is the way forward for the business community.