Article Courtesy from Business Panama

Panama - The New Digital Frontier
by Nils Petterson

Panama is the new strategic location for Internet Data center and telecommunications companies in Latin America due to the burgeoning technology industry in the area and the country’s growth as a technology hub with the best submarine Fiber Optic Connection in Latin America. Leading Internet companies and Carriers are already leveraging the benefits using Panama as the gateway for the region.

Important players like Global Crossing, MCI, Sky Online, New World Communication, Cable & Wireless and Nautilus have decided to install Network Operation Centers in Panama, taking advantage of the geographical location providing an abundant supply of submarine fiber optic communications circuit on both coasts and which makes possible interconnection close to North and Latin America, Asia, Europe, Africa and the world over redundant routes.

“Panama has become an increasingly important technology hub for Latin America," said Nils Petterson, the founder of ALTEC1, the first internet data center in open two years ago in the City of Knowledge Tecnopark in Ft Clayton - a US military base converted into a Technology Park, research center and Education Campus, the vision of Mr. Petterson opened the door for companies such as DELL, Telecarrier, Spherion, MCI, Unicef, Isthmus Crossing, who opened up a presence in Panama and established" Network Access Points (NAPs)”, Data Centers, a Call Center aimed at supporting and serving the growing demand for those services in Latin America and a prime choice for companies from anywhere in the World in need of a secure place to store data and secure communication based on the availability of fiber optic cables, the geographical location, the fiscal incentives granted by the local government, the dollars-based economy and the social stability of the country.

Most of the data transmission technologies found in developed countries like ADSL, Cable modem, ISDN, wireless , frame relay , Ethernet and ATM with support for high speeds and broadband services are widely available in Panama from several suppliers including Cable & Wireless, Tele Data, Telco Virtual, GbmNet, Sky on Line. Union Fenosa, ACP (Panama Canal Authority) and Etesa who have built a Telecommunication Network to compete again the main operator and offer connectivity across the Isthmus of Panama.

Panama’s Internet Data centers gives the region's technology companies the ability to choose from the premier telecom companies to optimize their Internet presence and improve business performance and revenues, providing the best infrastructure, security, scalability, performance, connectivity, reliability and convenience for web sites and E-Business in a Tax Free environment. Response times for end-users, is among the fastest in the industry, thanks to the direct access to all the largest submarine Fiber Optic cables including Pan American, Global Crossing PAC & MAC, Maya 1, and Arcos 1.

PANAMA’S COMPETITIVE ADVANTAGE

• Availability of several Neutral Data Centers , built with world class quality and fully redundant

• Panama is the landing point for several fiber optic sub-marine cable systems on their way to Latin America and the rest of the world including:

• Maya 1 connecting with Honduras, Mexico and Miami

• Pan American connecting USA, Colombia, Ecuador, Peru, Chile,

• Global Crossing PAC network linking Mexico and California and South America

• Global Crossing MAC network linking all South American Cities

• Arcos 1 linking all the Caribbean Islands and Central America territories.

• Tax Free Environment: No Tax in the City of Knowledge and Howard.

• The U.S. dollar is used as legal tender in Panama.

• Banking institutions in Panama have strong ties to both Latin American and G7 countries. There are more than 120 banks in Panama City, making it a serious player in the international financial arena.

• Panamanian law firms are amongst the world most international, and have substantial exposure to Latin American clients.

Panama as a distribution center for the world: Panama has long been the physical and cultural gateway to Latin America. It is the main distribution center for commercial goods and merchandise to Central and South America. The Colon Free Zone is one of the world's largest redistribution points, and as the economy of Latin America continues to expand, this trading role of Panama will grow in importance. The demand for trade financing will escalate accordingly. In the cultural sense Panama is the transition point from the industrialized world to Latin America. It is one of the few countries that are equally capable in common law as in civil law; in English as in Spanish.

SECURITY:
 

• No Earthquakes

• No Hurricane

• No active volcanoes
  
   

QUALITY OF LIFE:

• No pollution

• Pleasant weather all year round

• Natural environment

• Fully bilingual
   

MARKET OVERVIEW

Panama's population is estimated at 3 million. Approximately 72% of Panamanian households have a telephone line. Local calls represent 80 % of total traffic.

The telecommunications sectors have great potential to contribute to the economic development of Panama via direct investment in technology and infrastructure. Other sectors with growth potential are depending on technology such as tourism and transportation, through the multi-modal transport infrastructure that includes the canal, ports, highways, railroad and telecommunication.
The telecommunication market first opened in January 2003, and a legion of companies with and without experience have receive a license from the “Ente Regulador de los Servicios Publicos” (the local FCC) who have granted more than 1800 licenses to 176 operators, the primary objective for most of the new players is International long distance and the use of services such as VOIP (Voice Over Internet) and VON (Voice Over the Net). The Regulatory Authority has ruled that in order to provide these services a license needs to be obtained. In an apparent attempt to stem telephone company revenue losses due to Internet telephony, the new operators TELECARRIER, CLAROCOM and CABLE & WIRELESS, who use the technology for reducing their cost of operation but are trying to block the access to the free world, have asked the government of Panama to block 46 UDP ports by all Internet service providers. The ports include those that are commonly used for voice over IP as well as some that are used for other purposes, apparently with the idea that these, too, could be used to circumvent the POTS (plain old telephone system, a term of art) in making telephone calls.

According to the largest local telephone company, the amount of traffic generated by VON or VOIP represents a market of approximately US$30 million. VOIP’s future is still unclear because the case is in the hands of the Supreme Court of Justice who will rule on the use of VOIP.

CALL CENTERS
15 licenses have been issued for Call Centers since the government of Panama agreed to eliminate a US$1 tax on international calls in order to make call centers competitive with the rest of the world The principal participants are DELL, Health Link Networks, Language Line, Sitel, Spherion , and 4500 jobs have already been created.

ON-LINE GAMBLING.
Panama has now passed its fully regulated Internet Gaming laws. This makes it the only regulated jurisdiction in the world now issuing licenses to those operators wishing to stay on the good side of US law. Panama’s laws are of the same high standards as the Isle of Man, and Nevada’s large casino-resorts’ choice for I-gaming.
We expect a large exodus of companies from other Central American countries like Costa Rica and several Caribbean islands where the situation is unclear and the price of bandwidth is astronomical compared to Panama where several companies, including Global Crossing, TeleCarrier, and Sky on line are dumping the capacity at $ 300 per GB in comparison with $ 5000 to $ 12,000 per GB in other countries in the region.

MOBILE COMMUNICATIONS
Two authorized operators, Cable & Wireless and Bellsouth Panama, are fighting each other to gain customers, but the price is still the highest in the region because of this dual monopoly .Total cellular phone users reached 750,000 in 2003 with good prospects for continued growth in the future, especially for pre-paid services. Approximately 85 % of the estimated total market for wireless services (US$133 million) comes from pre-paid services. The remaining 15% comes from post-paid services, oriented primarily to corporate and personal high consumption users. Bellsouth, the largest cellular operator, accounts for 55% of the market. The other 45% is controlled by Cable & Wireless Panama. In 2003 Cable & Wireless Mobile launched its new GSM/GPRS platform on 850 MHz, launched to upgrade its current TDMA platform, with capability for data transmission services. Bellsouth also launched a new platform (CDMA) which became operational in December 2002. Market growth due to the new platforms is expected to be at least 16% above the prior year.
A challenger, Tricom, based in the Dominican Republic, which is offering cellular look- alike products based on Motorola’s IDEN digital radio trucking technology is trying to enter the market and the Supreme Court is resolving the legal issues regarding the services directed to the corporate market to reduce the high cost of cellular . At this moment, however, the penetration of Tricom does not exceed 6% of the total market
 

VOICE SERVICES
Voice Services include local, domestic, international long distance and public pay phones. Since the privatization of the government-owned operator (INTEL), Cable & Wireless has been offering basic services on a five year exclusive concession. This market condition granted by law ended on January 2nd 2003, when the market was opened to competition. With 420,000 lines installed (around 12.6 lines for each 100 inhabitants), on a digital platform installed by ALCATEL and Ericsson, Panama offers first class service compared to most of the Latin American countries. The total voice market in Panama is estimated at US$ 424 million. Local Services, including domestic long distance, represent about 80% of the total.
 

LOCAL SERVICES
As of August 2003, over 14 new operators have applied for Basic Service concessions. Operators such as Bellsouth, Telecarrier, Cable Onda, Galaxy Communications, Tricom, one world communication and Advanced Communications are already in operation and a price war is helping the customer to have a choice of services and price. Most of those concessions are only targeting the most populated zones of the country, mainly Panama City and Colon, leaving the rest of the country to be served by Cable & Wireless. This situation is largely due to the investment required not only to provide the service but to comply with the service standards set by the local telecommunications authority.
 

DOMESTIC LONG DISTANCE SERVICES
Nine new licenses have been issued to operators that are going to provide Domestic Long Distance. Most of the operators currently own network infrastructure being used to transport data and to provide Internet services and last mile with Cable & Wireless, the price of a national long distance call was reduced from 0.15 to 0.10 by Telecarrier.
 

INTERNATIONAL LONG DISTANCE (ILD)
Forty-seven new licenses have been issued to new operators of ILD This used to be the most profitable market segment, requiring a lower infrastructure investment... Most of the new players are relying on third party network infrastructure and carriers to transport voice traffic. Interconnection agreements, service level agreements and local loop availability are the most important issues being faced by new entrants in this segment, and the dominant operator is trying very hard not to facilitate the entry of new competitors The market winner is CLAROCOM who is take away a large chunk of the market from Cable & Wireless and making an alliance with TRICOM and Net2Phone with an as yet unclear status but with a huge quantity of traffic and customers, no data is yet available from Telecarrier or other challengers.
 

PAY PHONES
Eleven new operators have obtained licenses to offer services representing a $ 50 million market mostly in the largest city, leaving the greatest part of the country without telecommunication services due to the high cost of installation and operation; Cable & Wireless is already asking for fair treatment from the Ente Regulator for universal access.
PRIVATE VOICE CIRCUITS
Since January 2003, ten operators have been granted licenses to offer private voice circuits.
 

DATA SERVICES
At least fifty companies have licenses to offer services for last mile and Internet dedicated access solutions; the widespread use of wireless technologies such as Spread Spectrum and LMDS solutions, fiber optic and ADSL targeted to corporate and private users has been evolving since 2002. The market leaders are Alianza Viva, TeleCarrier, Cable & Wireless, GbmNet, Broadband, Telco Virtual, ACP, DataTel, and Ufinet who have an agreement to use the dark fiber with ALTEC1/OPTYNEX
The leader is TELECARRIER who took over several companies including Alianza Viva, TeleData, net2net and Fuzion telecommunications and is still trying very hard to resolve technical issues caused by a wide range of disparate equipment from several manufacturers.
Data services account for a market size of US$75 million, with approximately 9,500 point-to-point private circuits in operation among operators such as Cable & Wireless, Cable Onda, Telecarrier, GBnet, Broadband.
 

INTERNET
Seventy-seven providers are trying to survive with 145,000 paid internet accounts and an average 3 users per account, and more than 4000 direct connections through leased lines and other dedicated links, Public kiosks have been installed around the country by SENACYT a Government-sponsored institute , and INTERED a public peering point . The number of Internet dial-up connections kept growing in 2003 with the introduction of new prepaid services and charges per minute of connection.
In 2002 Cable & Wireless launched an aggressive campaign to penetrate the Internet market with ADSL technology. The Kilobyte price for dedicated Internet access dropped significantly, as the main providers such as Cable & Wireless, Telecarrier and Cable Onda lowered their rates. The new pricing structure benefited both residential and corporate markets, reaching a level of $39 per month for a dedicated 128K connection. Internet access, hosting and first tier IP services represented approximately a US$27 million market, showing an increase of 18% over the prior year.
 

PANAMA BASIC DATA

BUSINESS OPORTUNITIES
The telecommunications sector offers excellent growth opportunities for the immediate future with very low investment using the existing infrastructure provided by Cable & Wireless and other incumbent enterprises.
 

THE BEST OPPORTUNITIES ARE:
IDC (Internet Data Center), disaster recovery center, Collocation, Hosting, Data transmission and data switching, Internet access, internet Kiosks, value added mobile services, and on-line payment platforms.
Voice over IP (VOIP) has the highest growth potential Over the last year VOIP has been considered an illegal activity by the telecommunications regulatory office but this solution is already offered by more than 40 companies and the market leader is NET2PHONE who have more than 6,000 customers and 90 % of the Colon Free Zone customers who used to be the largest international long distance customer segment. The Ente Regulator is trying his best to fine the companies without any success and is under severe pressure from international and local organizations to reverse the decision to block the 24 internet ports, which would create regional chaos in the industries because of the submarine fiber optic cable carrying the traffic to the region.
On the positive side, one VOIP provider submitted an appeal before the local Supreme Court which was accepted in late November, thus temporarily overturning the resolution while the Supreme Court reviews the case this company was taken over by TELECARRIER one of the leaders of the reclaim to the authorities.

It is very easy to apply for a license from the Ente Regulator. As of this date more than 1,371 licenses have been issued and there is no limit to the quantity of new operators. However the market tends to be highly concentrated, as 6 operators control 80% of the market. The most important players are Cable & Wireless, Bellsouth, Telecarrier, Clarocom, Altec Internet Data Center, Cable Onda and Telco Virtual.

The remainder are small companies operating long distance switch , trunking radio services, paging, Internet services, data transmission, fax store & forward, teletex, and many ”paper companies” without finance or a real intention to participate actively but just trying to make money by selling the licenses to new investors.

Complete information related to the public services is available from the Ente web page: www.enteregulador.gob.pa that at the moment is only available in Spanish.

Article Courtesy of Business Panama
The American Chamber of Commerce (AMCHAM)
and Deal Inc.
 

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