Atlantic Tele-Network: Among Giants
Corporate Spotlight
Written by John Zorabedian   
Tuesday, 01 April 2008
Atlantic Tele-Network: Among Giants - American Executive - RedCoat Publishing
Michael Prior explains how his company finds niche markets to compete against the telecom titans.
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With 2007 revenues of $187 million, Atlantic Tele-Network, Inc. (ATN) is small by the standards of the telecommunications industry, which in the US is dominated by giants like AT&T, Verizon, and Sprint. But ATN managed to grow its revenues by 20% and earnings per share by nearly 60% last year by expanding its business in underserved areas.

Michael Prior, CEO - Atlantic Tele-Network: Among Giants - American Executive - RedCoat Publishing
Michael Prior, CEO
Michael Prior, ATN’s CEO, said the company looks for niche markets in the US and parts of the Caribbean where the competition is limited and infrastructure is inadequate. The strategy worked well in rural areas of the US, such as Northern New England, where ATN operates its Sovernet wireline and data services subsidiary, and the Southwest, where its Commnet Wireless subsidiary provides voice and data wireless roaming services for major US carriers.

ATN acquired these companies in 2005 and 2006, respectively, building networks in geographic areas the big telecoms don’t really want to build but will exploit to reach more customers. “It’s filling in some white space,” Prior said. “We’re looking to provide services to the big carriers in a strategic way.”

The company has come up against some harsh competitive realities, however, in its markets outside the US. In Bermuda, the US Virgin Islands, and Guyana, a small Central American country of less than 1 million people, ATN’s trailblazing investments in infrastructure have resulted in efforts by a larger regional telecom to muscle them out of the market.

ATN entered Guyana in 1991 when the country was looking to privatize its telecommunications network. ATN purchased an 80% stake in the government company and invested heavily in building out the country’s wireless, local, and international networks, in exchange for an exclusivity deal on international calls for 20 years. In 2006, the regional telecom Digicel Group entered the market and has pushed the Guyanese government to open up competition.

“They have a history of coming in very aggressively to grab marketshare, some might say in a predatory way, and they have the resources to do it,” Prior said of Digicel, which operates networks in 23 countries throughout the Caribbean and elsewhere. “We know their history. They heavily subsidize handsets, even giving them away, in order to grab a big share of the market, and they also spend a lot of money on marketing and advertising.”

ATN has seen this before. Digicel bought out a competitor in Bermuda and began subsidizing artificially low prices to grab marketshare and drive out competition. “It’s not going to be easy if they are allowed to use all of those tactics,” Prior said. “It’s like the airlines. If the big airline is free to jam the price down on the route you’re trying to establish, they can eventually force you out of there and get pricing power. They can endure losses for a long time in order to ensure dominance.”

To remain competitive in Guyana, Prior said ATN is willing to give up its claim to exclusivity for international service in hopes of renegotiating the country’s regulatory scheme to foster fair competition. “We need regulatory protection against predatory tactics,” Prior said. “That may be hard to do in Guyana because it’s a small country.”

Since Digicel entered the Guyanese market for wireless, ATN has seen its profitability shrink. But the company continues to compete vigorously, and its long-established ties in the country, including local employees who know and live in the country, should allow the company to hold on against Digicel’s aggressive campaign.

“We compete now in part because we have good people working for us, all Guyanese, and they know their market,” Prior said. “Digicel, they’re tough. They’ve had a lot of success, but we hope we have some advantage in our people and our knowledge of the market.”

Payback
ATN’s business model requires a lot of capital investment, with payback on those investments coming over many years. In markets where it operates almost exclusively, the risks are high, but, if they execute well, the payback can be big. But there is a risk when competition gets wind of what’s happening in these smaller markets and seeks out a share. “The biggest risk to the payback is typically competitive risk,” Prior said. “What happens is you get price competition that can bring everybody down in that market. For small operators, the risk is higher when facing a regional or global competitor.”

To minimize that risk, ATN looks for smaller markets where it can grow rapidly, and then continue operating profitably as the market matures. “In the small markets, you really have a limit to the growth you can see,” Prior said. “You know there will come a time where you can’t expand the business anymore. But if you can continue to operate profitably from there with decent cash flows, that’s a good business to be in. As those markets mature, we look to expand in other areas as a way to grow.”

Because markets will eventually reach a saturation point, with less opportunity for growth, ATN’s different business holdings are not all performing equally well. Some companies expand rapidly, while others contract or hold the line.

And in the largest, most competitive market—the US—ATN has managed to find a niche where it can work symbiotically with the mega-carriers. “With our US wireless business, we’re working with the big guys,” Prior said. “It’s incumbent upon us to really deliver value to them and also make sure they’re aware of the value we’re delivering.”

Overall, the competition is good for the consumers, and in the wireless sector, even small markets can be profitable. “We try to protect the cash flows in markets where growth has slowed,” Prior said. “We look for new opportunities to grow because there will always be these niche markets that other people don’t find very sexy or interesting.”
 
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