Pay TV Regulation: How Regulation is Shaping Growth in the Multiplay Market
Eulalia MarĂn-Sorribes Research Analyst CRT Regulatory Forum Cartagena, Colombia, September 3-4, 2012
Agenda ∂ Executive summary
∂ Latin American context
∂ Regulatory scenario: Argentina, Mexico and Brazil
∂Telco strategies to overcome regulatory hurdles
∂ Pyramid perspective
Sources: Pyramid Research.
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Executive summary ∂ The declining revenue from traditional voice services, the deceleration of data growth and the rising participation of cable companies in the traditional telco space (voice and broadband) are increasingly affecting telcos’ traditional business segments . ∂ Over the past few years, telecom operators have tried to broaden their scope of action by intensifying activities in the media segment and by bundling services together to improve ARPU, increase customer loyalty and reduce churn in their voice and data segments. ∂ The existence of regulatory hurdles in some of its largest economies, such as Mexico and Argentina, and previously also Brazil, originally aimed at reducing market concentration. Restrictions in these markets have traditionally been imposed to curb market power of established telecom operators. The introduction of these restrictions in some of the largest economies in the region has had mixed results for the pay-TV market.
Sources: Pyramid Research.
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Agenda ∂ Executive summary
∂ Latin American Context
∂ Regulatory scenario: Argentina, Mexico and Brazil
∂Telco strategies to overcome regulatory hurdles
∂ Pyramid perspective
Sources: Pyramid Research.
4
The declining revenue from traditional voice services and the deceleration of data revenue growth are increasingly affecting telcos’ traditional business segments Fixed service Revenue Evolution in Latin America, 2010-1017 $45 $40 $35 $30 US$ (bn)
$25 $20 $15 $10 $5 $0 2010A
2011A
2012E
2013E
Total Voice Service Revenues Sources: Pyramid Research Fixed Communications Forecast Q1 2012.
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2014E
2015E
Internet Service Revenue
2016E
2017E
Triple play packages limited by Pay-TV barrier imposed by regulators in selected markets ∂ Latin America’s Pay-TV penetration rates are very heterogeneous across the region, with Argentina at the high end at nearly 70% and Brazil at only 24%. ∂ To level the playing field and help smaller operators, many regulators throughout Latin America have imposed regulations that prevent incumbent telecommunications service providers from directly entering the Pay TV market. These rules have impacted players like Telmex in Mexico, Telecom and Telefónica in Argentina and Telefónica/Vivo and Oi in Brazil. ∂ This approach, however, has not met the regulator’s stated objective to increase competition, lower prices and thus increase penetration for services. Failure cases like Brazil are causing some regulators to open up to the idea of allowing incumbents to offer IPTV and triple play services. Others, such as Mexico’s Cofetel, seem unmoved.
Pay-TV Penetration in Latin America, 2011 Bolivia
4%
Guatemala
7%
Paraguay
9%
Nicaragua
13%
Ecuador
13%
Peru
Regional Average 34% 20%
Honduras
22%
Brazil
24%
El Salvador
26%
Colombia
27%
Panama
30%
Uruguay
39%
Costa Rica
40%
Mexico
41%
Venezuela
42%
Chile
44%
Puerto Rico
53%
Argentina
69% 0%
20%
40%
60%
Household Penetration Sources: Pyramid Research, Media Forecast, Q1 2012.
6
80%
Regulatory restrictions limiting growth of IPTV in the region IPTV household penetration in major Latin American markets, 2011 and 2017E 5%
4.62%
4.59%
5% 4% 3.41%
Penetration
4%
3.33%
3% 3% 2% 2%
1.32%
1.10%
0.87%
1% 1%
0.25%
0.04%
0% Colombia
Chile
Mexico 2011
2017
7
Brazil
0.00%
Argentina
Sources: Pyramid Research, Media Forecast, Q1 2012.
Argentina and Mexico’s triple-play markets remain underdeveloped Multiplay subscriptions by country and type of package, 2011 Colombia
Chile
Brazil
Mexico
Argentina
0%
10%
20%
30% Double-Play
40%
50%
Triple-Play
60%
70%
80%
90%
100%
Quadruple-Play Sources: Pyramid Research.
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Restrictions in the top economies drag down growth of triple-play in the region Evolution of bundles in Latin America in terms of subscribers, 2008-2017 80 70
Subscriptions (m)
60 50 40 30 20 10 2008A
2009A
2010A
2011A
Double play
2012E Triple play
2013E
2014E
2015E
2016E
2017E
Quad play Sources: Pyramid Research, Multiplay Forecast, Q1 2012.
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North America and Western Europe are the top markets for triple-play adoption Multiplay subscriptions by region and type of package, 2011
North America Africa & Midle East Asia & Pacific Central & Eastern Europe Western Europe Latin America 0%
10%
20%
Double-Play
30%
40%
Triple-Play
50%
60%
70%
80%
90%
100%
Quadruple-Play Sources: Pyramid Research, Multiplay Forecast, Q1 2012.
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Agenda ∂ Executive summary
∂ Latin American Context
∂ Regulatory scenario: Argentina, Mexico and Brazil
∂ Telco strategies to overcome regulatory hurdles
∂ Pyramid perspective
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Restrictions in Mexico and Argentina markets have traditionally been imposed on telecom operators in order to prevent the market concentration… - Argentina’s media sector is governed by a controversial audiovisual communication law (Law 26,522) passed in October 2009. The bill set forth a new regulatory framework for the sector with a clear aim to “decentralize and democratize” the market by encouraging more local providers and by limiting the power of controlling groups, such as incumbent telecom operators Telefónica and Telecom Argentina, and media giant Grupo Clarín. -One of the novelties brought by this law (Section 30) was that it opened the door for telecom cooperatives to enter the media segment by allowing nonprofit organizations to launch pay-TV services and triple-play bundles.
- The Mexican telecom regulator does not specifically forbid telecom operators from launching pay-TV or IPTV services, and a few local players ― Maxcom (2008) and Iusacel (2010) ― have already launched IPTV services in the market. In fact, Mexico was one of the first countries in Latin America to regulate telecom convergence. - In October 2006, the regulator passed an amendment to the Federal Telecommunications Law that opened the door to operators providing other services not included in their original concessions, such as pay-TV, through compliance with a series of technical and legal requirements regarding number portability, interconnection and interoperability. - Mexico's leading fixed-line operator, Telmex has requested several times permission to provide pay-TV services nationwide. The authorities have ruled out that the operator had not satisfied all the requirements put forward by the regulator and maintained their prohibition.
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In Brazil the new regulation could help to level up market shares. - Under the former legislation, only cable companies with 51% of their stock held by Brazilian citizens were allowed to provide pay-TV services in their concession areas (most telcos were controlled by foreign companies). -The law also prohibited telecom incumbents from providing TV services via cable or IPTV services in their concession areas so many operators looking to launch pay-TV and triple-play services were restricted to VoD or DTH-satellite offerings. - The many restrictions that Anatel used to impose were in place to protect small pay-TV operators and encourage new players to join the market, generating competition and consequently driving higher penetrations. However, Anatel’s strategy backfired and pay-TV operators decided to focus only on very profitable markets, where their investments were certain to generate high returns. Anatel then overturned its regulation - Anatel recently changed regulation to allow incumbents to offer IPTV and to allow foreign capital companies to have control of Pay-TV operators in the country. Instead of controlling the operators, operator’s focus has now turned to the content.
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The impact of such regulations has ended up with mixed results in Argentina…. Media services market share by operator, Argentina, 2011
∂ In Argentina the pay-TV market is highly concentrated with cable service provider Cablevision accounting for 43.7% of the total pay-TV subscriptions in the country and 98.1% of the total cable-TV subscriptions. ∂DIRECTV is Argentina’s only DTH-satellite TV service provider and the second largest single pay-TV operator in the country with a rapidly growing 19.4% market share.
Others 20.4% Red Intercable 5.0%
∂ Big players cannot launch triple-play bundles as a result of current legal restrictions - Cablevision cannot offer voice services (via IP) and Telecom and Telefonica cannot launch pay-TV – but still dominate the market in their original segments.
Cablevision 43.7%
Telecentro 5.2% DirecTV 19.4% Supercanal 6.4%
Sources: Pyramid Research.
Sources: Pyramid Research, Media Forecast, Q1 2012.
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...Mexico… Media services market share by operator, Mexico 2011
∂ Despite the ban on Telmex, the Mexican pay-TV market remains highly concentrated and dominated by media conglomerate Grupo Televisa, which controls the pay-TV through via Cablevision, Cablemas and TVI (Cable) and Sky (DTH).
Mexico Maxcom 0.5% Telmex 0.0%
∂ Televisa is also Mexico's leading broadcaster and the world's biggest producer of Spanishlanguage programming for television, controlling top TV channels in Mexico.
Others 12.9%
Dish 15.7%
∂DTH-satellite operator Sky is Mexico’s leading pay-TV services provider with a 33.6% share of the pay-TV subscribers in the market and
Multivision 1.9%
∂Despite the ban on Telmex, the incumbent operator still dominates the fixed and communications market and mobile (via America Movil). Sources: Pyramid Research.
Cablevision 18.7%
Megacable 16.7% Sky 33.6%
Sources: Pyramid Research, Media Forecast, Q1 2012.
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…and Brazil. Media services market share by operator, Brazil,2011
∂ Two players (Net Servicos and Sky/DIRECTV) control the pay-TV market, with leading positions in the cable (89%) and DTH-satellite segments respectively (55%). ∂ Being the only option available to incumbent telcos, DTH-satellite has become the most popular technology for the prevision of pay-TV services.
Others 26%
∂ With recent changes in regulation, telcos are now able to roll out IPTV services, a technology they can combine with their existing DTH offerings – a hybrid pay-TV proposition would allow them reach greater audiences in the country.
Net Servicos 36%
Telefonica 6% Sky / DirecTV 31%
Sources: Pyramid Research.
Oi 1%
Sources: Pyramid Research, Media Forecast, Q1 2012.
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Agenda ∂ Executive summary
∂ Latin American Context
∂ Regulatory scenario: Argentina, Mexico and Brazil
∂ Telco strategies to overcome regulatory hurdles
∂ Pyramid perspective
Sources: Pyramid Research.
17
Restrictions force telcos to partner with potential future competitors ∂ Regulatory restrictions on IPTV have forced telecom operators to rely on third parties to provide video services. ∂Commercial alliances allow telcos to positions themselves in the Pay-TV and triple-pay markets and to compete with pure triple-play providers in a quicker and less expensive manner, without having to roll out their own IPTV services. ∂Most incumbent operators in Argentina, Mexico and Brazil have opted for this strategy while they await a more favorable regulatory environment. ∂These alliances do not bring long-term benefits to customers.
Sources: Operators, Pyramid Research.
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Argentine incumbents see VoD as a proxy to IPTV but they now have to compete with a new set of players Main OTT service providers in Argentina Product Service provider Date of commercial release
Netflix
Cablevisión, DIRECTV -LAPTV
Cuevana
América Móvil
September 2011
April 2011
TBC
November 2011
Telefónica's Speedy clients
Open to all clients (Arnet customers have priority)
Open to all customers
Only available to pay-TV clients with Moviecity premium
Open to all customers
Open to all customers
PC and TV via set-top box
PC and TV via set-top box
PC, game consoles, tablets, smartphones
PC
PC
PC
Free
Basic (P19) and premium (39)
Illegal Yes No
Legal no Yes
Telefónica
Telecom Argentina
April 2011
October 2011
Access
Platform
Price
P39.9 (US$ 8.6)
P39 (US$ 8.4)
P39
Legal status Downloads HD
Legal No Yes
Legal No Yes
Legal No Yes
Free to clients with Moviecity premium channels Legal No No
Source: Pyramid Research, service providers
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Standalone OTT providers will need to adapt their business model to succeed in the region “in Latin America, we will get there eventually, but it's going to be longer and harder than [the two years] we initially thought. So we will tend to be more towards developed markets that are more like Canada, UK, and Ireland than strong emerging markets like Latin America.” - Reed Hastings, Netflix CEO, Q1 2012 Investor presentation “..we are obviously open to other people billing on our behalf, but also in Latin America, we're looking to improve the payment options that we offer to the consumer to solve the problem ourselves.” - Ellie Mertz, Netflix VP Finance, Q1 2012 Investor presentation
Sources: Netflix, Pyramid Research.
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Agenda ∂ Executive summary
∂ Latin American Context
∂ Regulatory scenario: Argentina, Mexico and Brazil
∂ Telco strategies to overcome regulatory hurdles
∂ Pyramid perspective
Sources: Pyramid Research.
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Pyramid Perspective ∂Limiting telcos access into the pay-TV segment in some of the largest economies in the region, has not met the regulator’s stated objective to increase competition, lower prices and thus increase penetration for services. ∂Banning incumbent operators from entering into the media segment has not curbed their dominance into other segments of the market (voice and fixed data), where they always had an historical advantage. Other set of reforms are required to foster competition in the fixed communications segments (e.g. local loop unbundling) and content markets. ∂Brazil: Anatel recently changed regulation to allow incumbents to offer IPTV and to allow foreign capital companies to have control of Pay-TV operators in the country. Limitations remain for content distribution, with paid channels required to broadcast a minimum amount of nationally produced content ∂Mexico: After two years of legal battles between Cofetel and Telmex, the incumbent was once again denied the right to add Pay TV to its portfolio. The government continues to be concerned about the significant unbalances that remain in Mexico’s telecoms market. Triple play is allowed to be offered by other non-incumbent operators.
Sources: Pyramid Research.
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Contact Details: Eulalia Marin-Sorribes, Research Analyst, Latin America emsorribes@pyr.com www.pyramidresearch.com PYRAMID RESEARCH UK Tel: +44-20-7560 4471 Fax: +44-20-7560 4485 PYRAMID RESEARCH US Tel.: + 1 617 871 1900 Fax: + 1 617 871 1933