Costa Rica - Challenges Ahead For Costa Rica's ICE

09 May 2011 • by Natalie Aster

Future Subscribers Set To Rise - But For ICE?

Cellular Mobile Phone Subscriber Growth In Costa Rica

The state-owned Instituto Costarricense de Electricidad (ICE) is under pressure to improve its network ahead of the launch of Apple's iPhone 4 in May 2011. About 15,000 people are on the waiting list. However, BMI doubts ICE will be able to handle the increased data demand, considering the current over-saturation of the ICE network, which often leaves clients with interrupted service. Additionally, ICE is set to lose its monopoly status before the end of 2011. BMI believes serious structural changes are necessary for ICE to avoid heavy subscriber losses to América Móvil's Claro and Telefónica's Movistar, which are expected to enter the market in Q411.

iPhone users usually consume more data than other smartphone users and this can put added strain on networks. The ICE network is already operating over capacity and requires considerable improvements in order to avoid the fate of AT&T in the US, where the network collapsed following the commercial release of the device. ICE announced it is taking precautionary measures to handle the increase in data demand and says it has strengthened areas of the network that are specific to smartphone users. However, BMI is doubtful such measures will be sufficient to handle the increased data volumes, considering the failures which have troubled the operator in the past.

ICE clients often face issues with their network, such as going directly to voicemail and getting a network failure message. The ICE network has capacity for an estimated 2.95mn clients, but reports 3.1mn subscriptions. In February 2011 a network failure resulted in 800,000 3G users having no service for 90 minutes, due to over-congestion of the network. With the added pressure of iPhone usage, BMI believes such problems will increase.

However, problems of over-congestion may be over for ICE by 2012. The operator is currently the last remaining telecoms monopoly in Latin America, excluding Cuba, but - following a ruling by the Central America Free Trade Agreement (CAFTA) member countries - the telecoms sector is to open up to foreign competition. Two licences were awarded to América Móvil and Telefónica, which are expected to start operating in Q411.

BMI welcomes this ruling and believes Costa Rica will benefit strongly from an increase in competition. ICE suffers the fate of many monopolies: without competition to maintain services at a high standard, the company is plagued by inefficiencies which are left unaddressed. For example, the company did not launch prepaid services until 2010, a move responsible for the high levels of subscriber growth during that year. We do not expect these levels to be maintained, although with the launch of Claro and Movistar, we expect subscriber growth to increase in 2012. Due to all the network failures, a study for newspaper La Nación estimated that about half of ICE's mobile customer base will migrate to the new operators due to dissatisfaction with ICE's service.

BMI’s telecommunications reports feature independent 5-year forecasts on the future strength of each country's ICT market, covering fixed-line, mobile and internet segments, and analyses latest regulatory developments and corporate news, including investment activity, mergers and acquisitions, joint ventures and partnerships. All leading operators and manufacturers are fully profiled, highlighting their quarterly financial performance, capital expenditure plans and latest contracts.

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