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Summary

Hondutel started 2016 by announcing an investment of $5.3m to increase its reach and improve the quality of services in the country. In the past few years the operator has suffered losses because of financial mismanagement, corruption, and a too-large workforce as well as low-quality services and competition in the market. 2015 proved to be an important year in the process of its resurgence.

Hondutel making profit after restructuring

State-owned operator Hondutel had been struggling with financial woes and reported a loss of $30m in 2013, which led to the shutdown of its customer service centers and suspension of 700 low-productivity workers and half of its management positions via an early retirement plan. It was also in 2013 that the government of Honduras intervened and started running Hondutel, allocating $3.7m to improve the operator’s network infrastructure so that its subscriber base could be increased and more revenue generated. This resulted in a 63% reduction in losses in first nine months of 2014, but that was not enough to get Hondutel out of the red.

In 2015, Hondutel continued its strategy of reducing manpower to save costs so it could introduce new services in the mobile and broadband sectors. These operational modifications and major restructuring of the business produced positive results: the company registered a profit ($3.5m) for the first time in five years, a great sign considering that it has been facing bankruptcy for the past few years. However, it still needs to generate a profit of $4.4m in 2016 to avoid bankruptcy, which according to Hondutel is well within its reach as it will continue working on cutting costs and investing in launching new services.

Hondutel is looking to continue its company turnaround by improving both mobile and fixed services. While there has been a decrease in fixed-line voice subscriptions, mobile subscriptions are gaining. Along with this, smartphone penetration grew from 30% to 40% during 2015, so there is a definite increase in data consumption through mobile phones. Hondutel has started investing to improve its mobile coverage, launching 4G services and selling data plans bundled with smartphones to attract more customers, further increase smartphone penetration, and generate more revenue. Hondutel is also planning to launch fiber broadband, which will cost about $800,000, as well as cable TV and IPTV, indicating that it will probably try its hand in multiplay services to attract customers.

Hondutel forecasts a profit of $4.4m by the end of 2016 – just the amount it needs to avoid bankruptcy – which looks quite achievable considering the estimated cost-cutting of $20m and aggressive investments to increase subscriptions in mobile, broadband, and pay TV. Although things are looking better for Hondutel, fierce competition and more job cuts might hamper the company’s growth, and the possibility of privatization or a public-private partnership might increase if the company isn’t able to achieve its targets.

Appendix

Further reading

America Movil Update, December 2015, TE0001-001009 (December 2015)

Millicom Group Update, December 2015, TE0015-000359 (December 2015)

Author

Amit Kumar Rai, Analyst, North and South America

amitkumar.rai@ovum.com

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