The outstanding success of WOM (Chile) (link to WOM Chile presentation) in the years 2015-19+ led to multiple business opportunities in the telco space in Latin America being brought to the attention of the sponsor. LF was involved in the appraisal of some of these, including in the Dominican Republic and in Peru, as well as a first Bogota visit in 2018 to acquaint ourselves with the Colombian telecom market and to appraise the potential takeover of Colombia’s struggling mobile challenger Avantel, co-owned by the IFC and a US financial sponsor at the time with a loan from Washington-based OPIC.
Colombia’s 50 year civil war between the government and the FARC guerilla had only ended in 2016 with the comprehensive peace agreement conceived by President Santos, and the country was infamously known mostly for its narcos, its violence, its kidnappings, its cocaine cartels and related Netflix series (as well as the writings of Nobel Prize winner Gabriel Garcia Marquez) – to the dismay of many Colombians. Infrastructure investment had been lacking in many sectors as a result, holding back this country’s development with Latam’s 3rd largest population of over 50m people, only exceeded by Brazil and Mexico.
What was less well known is that its telecom sector had suffered many years of abusive dominance by Mexcian-owned CLARO (AMX), assisted by incoherent regulation susceptible to special interest lobbying. This dominant position was not aided by weak competition of TEF-owned MOVISTAR, which had acquired 70% of the Colombian state-owned incumbent and was afflicted by both subpar management and legacy network, and which Spanish mother company TELEFONICA had put up for sale as early as 2019 without receiving any bids for years (link). By 2023 the rating agencies were downgrading the Colombia affiliate of Movistar given its weak cash flows and high debts (link).
Effective competition was also not provided by former challenger TIGO, 50% co-owned by Medellin’s municipal utility, which had failed to produce one centavo of free cash flow in over 9 years in the marketplace, despite having 11.5m subscribers by 2019; as a result of which its listed mother company MILLICOM was trading at banktupcy levels of equity by 2023, having lost over 85% of its market cap in the preceding 9 years. (A situation duly capitalised on by adroit French telecom investor Xavier Niel, who acquired effective control of Millicom in 2023/24; Niel/ILIAD also having acquired LF’s former client PLAY in 2022 (see ‘The Polish Mobile Job’).
Colombia, to its credit, has had a strong macroeconomic performance in the 21st century, an independent central bank, a strong constitution, decent checks and balances in its institutions, and a young population with a strong work ethic and a positive disposition despite the many challenges faced by the country. Bogota, with its 10m inhabitants and no metro and daily afternoon rains, requires daily comutes -- often by motorcycle -- for 90-120min one way; local meetings usually started at 8am and our Colombian colleagues would be on time without fail, to our constant amazement. The administration of President Duque was keen to close the digital divide, with 40% or some 20m Colombians without any form of internet connectivity in 2019 (link).
The 2019 auction for radio frequencies, including the valuable 700MHz spectrum ideally suited to a mountaineous and geographically challenging country like Colombia, offered the perfect entry point. By May 2020, LF had completed a number of assignments for the sponsor, including building the initial business plan for WOM (Colombia) together with the incipient core management team, performing commercial and financial due diligence on the add-on acquisition of struggling Colombian mobile challenger Avantel, assisting the sponsor and the company to raise some USD 300m in performance bond guarantees to back up the deferred 20 year spectrum payment plan (a public procurement requirement under Colombia’s laws), and preparing the initial competitive vendor financing process. LF’s efforts on this were co-led by 20yr-telecom-expert Karol Depczynski, and Chilean veteran analyst Kamil Bork.
WOM (Colombia) won both 700Mhz and AWS spectrum and the sponsor acquired Avantel, creating the basis for the emergence of a strong well-funded and well-endowed mobile challenger. Key management board members credited with the creation of PLAY (PL) and WOM Chile, including CEO Chris Bannister and CTO Stefan Evergard, joined the new company (link to info on WOM market entry and link to Avantel acquisition).
LF is proud to have played a key role in the years 2019-2023 to assist management and the sponsor in building a formidable mobile challenger under the most difficult of circumstances, which included (without limitation):
A. Four partially responsible regulators and the attendant legal and regulatory complexities;
B. A brutal and borderline legal competitive fight back by dominant operator CLARO (AMX), which pulled every regulatory, legal and technical delaying and spoiling tactic to protect is continent-leading EBITDA margins and free cash flow from the challenger;
C. Foolhardy matching by TIGO and TEF of WOM’s initial 40% price discount challenge upon launching in April 2021, undermining market ARPU and threatening the cash flows of TIGO and TEF just when incremental network roll-outs, spectrum renewals and associated performance bond requirements put both companies at risk of major downgrades and cash flow challenges;
D. Recruiting 3,000 staff and building over 5,000 towers in record 3 ½ years despite the first global pandemic since the 1918 Spanish flue, creating unheard-of challenges and throwing everybody into untested waters;
E. Inconsistent government policy due to multiple changes in the telecom ministry and susceptibility to undue lobbying influence by existing operators, exposing the fault lines in Colombia’s legal and regulatory framework;
The sponsor committed up to USD 1 billlion of equity to this business, testimony to its conviction in the market opportunity, its confidence of the tried-and-tested management team, and the by-and-large supportive regulatory and legal framework in Colombia (article from Forbes enclosed).
By mid-2023, WOM (Colombia) had completed 85% of the job, including building the best-ranked network in the country, creating a motivated and high quality team of 3,000 FTEs led by a strong management team, leading the all-important Net Promoter Score (NPS) rankings in most categories, and seeing competitors moving to a less combative attitude as the staying power of management and sponsor as well as the WOM quality showed its mettle, yet again.
LF had assisted by structuring a first USD 200m competitive vendor financing (signed in 2021 and closed in early 2022), and having a 2nd senior financing for a triple-digit USD million amount ready to finance further network rollout by mid-2023. Citibank was far advanced by mid-2023 in structuring a tower monetisation deal similar to the Chilean precedent of 2022, which would have raised over USD [xxx]m of divestment proceeds for WOM (Colombia) over time.
At this critical juncture, there were unfortunately negative knock-on effects from the publicly-visible debt refinancing challenges of sister company WOM (Chile) (for details see ‘Epilogue on WOM Chile in The Chilean Mobile Job, 2015-19’). A USD 100m publicly-announced and only partially disbursed investment by WOM (Chile) into WOM (Colombia) was first delayed and then cancelled in Q4 2023 (link). These very public difficulties also affected the closing of the incipient Colombian tower deal.
An outsider’s perspective on the high correlation between Chilean and Colombian developments was provided in a May 2024 credit research note by an analyst at New Street Research covering WOM (Chile)’s high yield notes, who observed: “ WOM Chile filed for Chapter 11 last month (April 1), followed a couple of weeks later by a local filing for WOM Colombia. Colombia’s relatively modest financing difficulties were likely sealed by the Chilean filing and we review events in Chile to work out how a seemingly successful scaled wireless operator (close to 25% market share of service revenue, 37% EBITDA margins) ended up here. Asset quality is not the issue, we think, rather a liquidity crunch as rates rose which couldn’t be overcome - and despite leverage which optically at least wasn’t so alarming.” (for the full analysis see this link)
The LF team worked tirelessly with the sponsor in Q4 2023 and Q1 2024 to raise incremental third party financing for WOM (Colombia) from over 70 potential investors around the globe. The intrinsic strength of the WOM (Colombia) equity story was one of the most compelling we have marketed in the mobile industry. Key supportive arguments included in the November 2023 teaser pitch were:
Partnering with a very successful sponsor, who has built the leading challenger in Europe (PLAY, 2004-2020) and in Latam (WOM Chile, 2015-now), and who has put that winning approach to successful use in Colombia since 2020.
Colombia is one of only three OECD countries in Latam, has a long rule-of-law tradition, and a supportive regulatory environment.
Favourable competitive environment. High mobile EBITDA margins in the market (45+%) reflect profit opportunity, and relatively high churn (4-5% p.m.) reflects mobile subscribers’ dissatisfaction with incumbents and resulting market opportunity for a quality challenger like WOM.
A strong growth market, with 52m people and strong demographics as well as pent-up mobile demand due to underinvested infrastructure until the 2016 peace agreement.
A best-in-class all-Latin American management team that is taking market-leading market shares in postpaid gross adds (25% in Q3 2023) and is the only operator in the market consistently taking away subscribers from competitors through mobile number portability, and which has achieved 11% market share in postpaid B2C in 2 ½ years in the market (launch in April 2021), placing it among the all-time best performers of mobile challengers around the world (according to study by telecom consultancy AD Little).
The best mobile network in the country, having deployed a record 5,000+ 4G-only base stations in three years, with the network exhibiting a leading Net Promoter Score (NPS) among all mobile operators in the country. WOM has an excellent spectrum position in all three band frequencies. It also has a leading retail network, and its products and services are best-in-market, with postpaid NPS #1 and prepaid NPS a close #2 in the market.
WOM (Co) currently has 5m subscribers (of which 2m postpaid, +50% since end-2022, a market-leading share, and 3m prepaid, +86% since end-2022) and run-rate Q4 2023F revenues of USD [xxx]m, growing 70%+ yoy.
The company expects to be EBITDA positive by Qx 202x and CF-positive by Qx 202x.
Complimentary debt financing and infra monetization are well advanced, including a 2nd senior 8y vendor financing of USD XXXm, which is expected to sign in Q4 2023; there is further upside through potential tower monetization, complementing the new equity-to-be.
These achievements are visible in the following two slides from mid-2023, which are based on WOM (Chile)’s 2023 IR materials and are thus public domain:
LF formally ceased advising the sponsor and the company in February 2024.
In mid-January 2025, WOM (Colombia) and the local ministry of telecoms announced that a new investor, SUR Holdings, had acquired WOM Colombia and would provide funding for its future growth (Bloomberg article, dpl article).