Panama’s ICT sector is a key enabler of the country’s high-growth, services-based economy. Strong technical infrastructure coupled with a robust legal regime present favourable conditions for local and international technology companies. The “Global Information Technology Report 2015”, published by the World Economic Forum, ranked Panama 51st amongst 143 countries in terms of the quality and potential of its ICT infrastructure. With this score, Panama is amongst Latin America’s leaders in the field, outranked only by Chile (38th) and Costa Rica (49th).
Indeed, Panama is characterised by its dynamically developing ICT market. It was one of the region’s first countries to install 4G technology and offer all the latest Blackberry, iPhone and Android devices. Additionally, the Panamanian government has been promoting and supporting the development of telecoms infrastructure as a vital part of its strategy to modernise the country. One of these key programmes is the enhancement of the e-government system and the introduction of other initiatives for the full digital inclusion of Panama’s citizens. The most important of these initiatives is the Internet for All Project, implemented in 2010, which aims to provide Panamanians with free wireless broadband internet access throughout the country.
Until 2003, Panama’s fixed-line telephony segment was monopolised by Cable & Wireless Panama (CWP), which is 49% owned by the UK’s Cable & Wireless Communications, 49% state owned and 2% owned by the company’s employees. The opening of the market to competitors 12 years ago led to the expansion of offerings, as fixed-line services are provided by four additional operators: Cable Onda, ClaroCom, Digicel Panama and Movistar.
Cable Onda is a Panamanian company that, unlike the others, does not offer mobile services and, in addition to its fixed-line and internet services, is one of the major providers of pay television in the country. ClaroCom, operating since 2003, is Panamanian owned and has become the market leader in the international calls category. Digicel Panama and Movistar, on the other hand, are both part of international corporations – Jamaica-based Digicel Group and Spanish giant Telefónica, respectively.
In spite of the opening of the market to new players, CWP remains the leader in the fixed-line segment, recording an income of $122m in the 2013/14 fiscal year. The revenue for fixed residential lines decreased by 10% in comparison to the previous fiscal year, as an increasing number of customers decide to migrate to mobile services. Nevertheless, data collected by the Department of Telecommunications at the National Authority of Public Services ( Autoridad Nacional de los Servicios Públicos, ASEP) shows that the number of active fixed lines reached 662,939 in December 2014, up 3.6% since 2012.
As explained by Zelmar Rodriguez, former general administrator of ASEP, the number of fixed lines has grown in the past few years, with growth largely attributed to the expanding economy, along with the construction of a number of new residential and commercial properties. Residential connections constitute 68% of the fixed-line market, while 32% are installed in commercial premises. That said, ASEP data from the last eight years reveals that the number of commercial fixed lines continues to increase, whereas residential subscriptions are decreasing. Trends suggest the market will be evenly divided between these two groups.
Although rather low compared to other countries in the region, in 2014 Panama’s fixed-line density was 14.8 per 100 inhabitants, with total penetration reaching 37.1% of households, decreasing by 0.8% in comparison to 2013. This marked a slowdown compared to previous years when growth reached 1.3% in 2013 and 1.7% in 2012. Users of fixed lines during 2014 primarily made local calls, amounting to almost 1.1bn minutes, followed by international calls at over 190m minutes and national calls at almost 177m minutes. The duration of all three types of calls has decreased since 2013. The cost of dialling locally in Panama City from a fixed line is approximately $0.1 per minute for the first three minutes, thereafter decreasing to $0.05 per minute.
In October 2001, Panama passed the Call Centre Incentives Law, which eliminated the $1 tax on international calls that had been in force previously. The intention of the Panamanian authorities was to leverage the country’s favourable location, good ICT infrastructure and attractive fiscal policy to establish a call centre outsourcing hub for the region, ultimately creating new jobs. The strategy attracted a number of foreign companies and Panamanian authorities have already granted more than 25 permits for the installation of new call centres since the implementation of the Call Centre Incentives Law in 2001, creating more than 5000 new positions for Panamanian employees.
The centres established in Panama serve companies such as Dell, Caterpillar, Hewlett Packard, Sitel and C&S American Solution (LG Electronics), among others. Most of the customers being served by Panama-based call centres dial from the US, although some of the centres also provide their services to clients in other countries in Central and South America, Canada and Spain. The minimum wage is estimated at $2.4 per hour, and can rise to a maximum of $4, depending on an employee’s productivity.
In 2014, OnQ Contact Centre, an American company specialising in health care labour outsourcing, opened the first call centre in the interior of Panama, in Santiago. The choice of location was related to the attractiveness of the city, recently discovered by foreign investors. Santiago is the biggest city in the province of Veraguas and has good infrastructure including an airport and connection to the PanAmerican Highway. The city also boasts a number of higher education institutions that provide a trained workforce for the local market. These supporting factors may well contribute to the further economic development of inland Panama.
Mobile telephony services are provided by four operators: Movistar, Claro, Digicel and +Móvil (CWP’s brand). Panama boasts one of the highest mobile phone penetration rates in the world. ASEP statistics estimate that the number of mobile telephone subscriptions in 2014 surpassed 6.2m, which means that on average there are 158.6 SIM cards for every 100 inhabitants. Over the past eight years, this rate has almost doubled, from 86.6 SIM cards per 100 inhabitants in 2007. Mobile telephone revenue accounted for 61% of total ICT revenues in 2014, surpassing $612m.
As in the case of fixed telephony, the mobile segment is also dominated by CWP. Its +Móvil brand covers 50% of the market, with an income of $33m in 2013/14. Thanks to continued new investments in ICT infrastructure, the coverage offered by Panamanian operators has been improving significantly. Movistar, for example, invested some $15m in a new overland fibre-optic network passing through Central America to Mexico. Also, in 2014, ASEP assigned 88 new frequencies for Digicel and 10 MHz for Telefónica/Movistar and 10 MHz for CWP in the 700-MHz APT band for LTE deployment. At the time of writing, the four mobile networks covered 95.8% of the population, and 27.7% of Panama’s territory.
A majority of users opt for pre-paid plans (90%), while only 5% of clients decide to contract post-paid services. The popularity of purchasing pre-paid SIM cards may be related to their vast availability and the simplicity of the transaction. Unlike post-paid contracts, the customer is not required to present documents such as a resident card or confirmation of employment to purchase a pre-paid plan.
However, the “Mobile Telephony in Latin America 2014” report, published by Consumers International, reveals many complaints made by pre-paid mobile users. The main objections made were regarding unregulated services and confusing plans offered by the operators. The mobile clients draw attention to the fact that in the majority of cases the companies fail to clearly specify how many minutes, text messages or MB of data are included in the pre-paid plans. Likewise, it seems quite difficult to find any information on the cost of additional calls, messages or data consumed beyond the stipulated amount.
On the other hand, the report also mentions the factors that contribute to the low prevalence of post-paid contracts. According to the study, clients have objected to clauses in the contracts that could be considered abusive. In numerous cases, the terms provided by the operators stipulate that should the client fall behind in their monthly payments, any device purchased within the contract may be confiscated. Moreover, consumers often complain that certain terminology used in the contracts is too technical and lacks detailed explanations. These issues have led some Panamanians to be wary of committing to post-paid plans, which would bind them to a particular mobile operator for standard terms of between 12 and 18 months.
ASEP’s data reveals that most outgoing calls are national calls to numbers from the same operator, amounting to almost 3.6bn minutes in 2014. The second most common calls are those made between two mobile phones from different networks, amounting to 1.3bn minutes. Calls from mobile phones to fixed lines and international numbers both constitute a rather negligible part of the structure, with 317m and 209m minutes, respectively.
The reason for the relatively small footprint of international calls for the mobile industry is related to the fierce competition from fixed-line providers, especially ClaroCom, whose main promotional strategy is to offer attractive rates to call abroad. The company’s competitive prices have attracted a growing number of customers and, as a result, ClaroCom has been successful in gaining a stable and relevant position in this specific market segment.
The consistent growth in the number of mobile subscribers is related to the vast and increasingly attractive offers of new pre-paid data plans, combined with the availability of affordable smartphones. As a result of the expansion of 3G and 4G technologies in Panama, the penetration of mobile data services grew by 31% in 2013, leading to a 48% increase in revenues from the segment.
As for +Móvil users, the usage of data packs increased by 37% in the 2013/14 period when compared to the previous fiscal year. Conversely, the voice segment decreased by 13% over the same period. In response to the trend of increasing data consumption and falling voice services, CWP recently launched expanded capacity of its 3.5G HSPA+ and deployed 4G long-term evolution services for its mobile subscribers. This required a $120m investment in infrastructure and, at present, the service is only available in selected areas of Panama City. At present 4G LTE service is only available in select areas of Panama City and David Chiriqui. The operator aims to reach nationwide coverage, with expansion plans starting in June 2015.
Despite a recent slowdown, the number of internet users in Panama has continued to grow each year, to reach 1.6m in 2014. As such, the penetration rate represents 42.5 users per 100 inhabitants. There were a total of 316,000 internet subscribers in 2014, reaching its highest point in the past eight years. According to ASEP, 87% of internet subscriptions are for individuals and 13% are for companies and public institutions. The most popular type of internet connection among Panamanian consumers is cable modem, which covers 53.6% of the market, totalling almost 170,000 subscribers. The second most popular connection type is ADSL, representing 37.3% of the market share. The main internet providers in Panama are Cable & Wireless, Telecarrier, Cable Onda and Telecarrier/Cable Onda.
Panama possesses a number of key factors indispensable to the development of a dynamic ICT sector, and therefore aspires to become Latin America’s technological innovation hub. One of the first initiatives undertaken within this strategy was the establishment of the Secretariat for Governmental Innovation in 2004, which, after some modifications, now operates as the National Authority for Government Innovation (Autoridad Nacional para la Innovación Gubernamental, AIG). The institution’s main aim is to enhance public services by introducing the latest technological solutions.
The biggest achievement of the AIG has been the introduction of the Internet For All (Internet Para Todos, IPT) initiative in 2010. As one of the first such initiatives worldwide, the IPT offers free broadband internet access through Wi-Fi to all of Panama’s inhabitants. The service is now available nationwide in 1105 designated public areas in 41 cities. With a total investment of $32m, the network has contributed to an increase in the internet penetration rate, which has since surpassed 40%.
Additionally, the public sector has been working with ICT companies and some universities to foster innovation processes. At present, the Technological University of Panama (Universidad Tecnológica de Panamá, UTP), with some 22,000 students, is the country’s only educational institution with a business incubator and an accelerator. The UTP’s incubator focuses on promoting innovation and digitalisation. The project is ranked 73rd among 800 of the best incubators in the world, among the top 10 in Latin America and among the top 5 technology incubators in the world, according to Zoila Yadira G de Castillo, director of the Directorate of Knowledge Management and Transfer.
At the same time, following a strategy of developing new technologies, the National Secretariat of Science and Technology (Secretaría Nacional de Ciencia, Tecnología y Innovación, SENACYT) has also launched two business incubators and eight enterprise centres located in different parts of the country. In addition, SENACYT sponsors scholarships for studies abroad and grants free internet access on computers located in the institution’s “Infoplazas”. These, together with a number of other initiatives, constitute the country’s innovation strategy and represent an investment of about $4.4m in 2014.
Though the ICT sector in Panama has been advancing in the past few years, there are still some vital aspects related to the telecoms industry that need to be fostered. The most urgent issue is the insufficient number of IT specialists. As part of the innovation strategy, Panama’s authorities and universities have been encouraging young Panamanians to specialise in the field of technology. While an estimated 5000 IT graduates will enter the labour market in the near future, the national ICT sector will need some 25,000 new, highly specialised employees in the next five years, according to a study published by the Panamanian Chamber of Information Technology and Communications.
According to Iván de la Guardia, platform administrator at the online retailer CanalZon, the problem is likely to be further aggravated by the tendency for Panamanian graduates to seek employment abroad, a trend that has been escalating lately. This is likely to either put upward pressure on salaries for IT specialists in Panama or lead the market to solicit foreign employees to help close the gap in ICT skills.
Another important challenge mentioned by de la Guardia is the price of internet. Basic plan rates have decreased substantially in the past few years as a result of competition among service providers, and are low compared to other countries the region. However, faster internet plans – faster than 15 Mbps – can be more than 40% above regional averages in spite of the number of internet connections that pass through the country and the quality of the available ICT infrastructure.
Some improvements could be undertaken by the various mobile service providers to reduce the problem of failing reception, an issue reported by many mobile users to the Panamanian Institute of Consumer and User Rights. Despite a high rate of coverage, there are some areas where receiving reliable reception can be challenging.
Panama’s ICT sector has been developing rapidly and has significant potential for future growth, considering the strong conditions of the local economy. The number of mobile subscriptions in Panama is almost double the country’s population. For browsing the internet, a great portion of Panamanians use smartphones rather than computers. Considering this, there are numerous opportunities for mobile service providers as voice services have continued to lose traction to communication methods such as social networking and messaging.
Meanwhile, the steps taken by the Panamanian authorities to enhance digital inclusion of all citizens constitute another incentive for ICT companies, including internet providers and hardware vendors. Lastly, Panama aspires to become the region’s main call centre hub. If the country is able to win the confidence of foreign telecoms companies, it may soon attract investors from other related fields to become the leader in ICT outsourcing in the Americas.
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