The Cell Islands

By Kathleen Kingsbury

For most people in the corporate world, the Caribbean is the perfect spot for that next much needed vacation. Irish entrepreneur Denis O'Brien, however, eyed the island nations and saw just one thing: customers. In 2001, O'Brien had a bit of cash burning a hole in his pocket from the $2.46 billion sale of his first telecom venture, Esat Telecom Group PLC. By chance, he came upon a small notice from the government of Jamaica announcing that it was opening its local phone market--long monopolized by British telecom giant Cable & Wireless--to competition. At the time, Jamaicans had to wait an average 2.5 years for a landline, and only 4% of the population used cell phones because rates were exorbitant and coverage shoddy. O'Brien promptly plunked down nearly $50 million for a license, and the cell phone start-up Digicel was born.

Five years on, Digicel has taken Jamaica by storm. Introducing inexpensive rates and phones and improved service, the company signed on more than 100,000 subscribers within 100 days of setting up shop. Today, more than 82% of Jamaica's 2.7 million residents use cell phones, and 70% of them are Digicel customers.

What's more, O'Brien has done some island hopping. Digicel boasts 3 million subscribers in 22 countries throughout the Caribbean, Latin America and the South Pacific, as well as more than $600 million in revenues for the last fiscal year. In early 2007, he plans to establish Digicel in at least three new countries, including the one that might be overly ambitious, even for O'Brien: the U.S. and its $100 billion cell-phone market. O'Brien says he sees an underserved population, noting stats from the International Telecommunications Union that show only about 68 phones for every 100 Americans. "We're going to have to completely change how Americans view cell phones," says O'Brien. Exactly how he'll pull that off, he says, is "the kind of thing that if I told you, I'd have to kill you."

Still, it's doubtful he'll stray much from the recipe that has brought him so much success in the Caribbean. Take Haiti, for example. Digicel's due diligence consisted of ceo Colm Delves driving around the capital of Port-au-Prince for three hours. He concluded that the nation had a rich cash economy, and O'Brien quickly committed $130 million. That money went first to a massive marketing campaign. Next, Digicel began to sells its phones, all brand-name models, for less than half the price of its closest competitor. It even gave some away.

But an American approach modeled on Haiti could be Digicel's downfall, says Yankee Group analyst Wally Swain. The U.S. is a viciously competitive market filled with deep-pocketed, giant competitors. "All they've faced before are sleepy incumbents," Swain says. "The U.S. is a different animal. They should stick with what they do well."

That, of course, is what O'Brien says he's doing. Digicel will target American customers who are young, poor or immigrants-- groups that traditional operators eschew--with the type of prepaid, GSM service widespread outside the States. Even in that niche market, start-ups Virgin Mobile, TracFone and others will give Digicel a run for its money--a lot of money at that. Currently, O'Brien owns more than 80% of Digicel, its 2,000 employees hold an 8% stake, and the private-equity firm Blackstone Group has about 3%. But O'Brien hasn't ruled out an ipo to fund his American adventure, one that's expected to be worth an additional $2.5 billion. "I've launched a Tet offensive on every possible objection," O'Brien says, "because there's nobody who doesn't deserve a new phone."