Report Analysys Mason CALA by PromonLogicalis

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Contents 0

Executive summary

Recommendations

Forecast

2.1 2.2 2.3

Brazil Argentina Peru

15 17 18

Market share

3.1 3.2 3.3

América Móvil Telefónica Other leading operators in CALA

23 25 28

Market drivers and inhibitors

4.1

Mobile operators’ 3G upgrades and expansion enable them to satisfy demand for mobile data services 30 Low availability of fixed broadband leads to opportunities for mobile to extend the addressable market 31 Operators are bundling fixed broadband with other services in response to low adoption rates 32 Strong economic growth increases the addressable market for telecoms services 33 The presence of a few strong operators in many markets limits CALA’s growth potential 34

4.2

4.3 4.4 4.5

Business environment

5.1 5.2 5.3

Regulatory issues Geographical challenges Demographics

35 36 36

Market definition

Country summaries and supporting data

7.1 7.2 7.3 7.4 7.5 7.6

Argentina Brazil Chile Colombia Mexico Peru

43 44 44 44 45 45

Contents

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7.7 Venezuela 7.8 Selected data for other top operators in CALA 7.9 Countries included in Central and Latin America Key to acronyms Author Acknowledgements Research from Analysys Mason Consulting from Analysys Mason

45 46 47 48 49 49 51 52

List of Figures and Tables Figure 0.1: Total operator service revenue in CALA, 2009–2014 Figure 2.1: Total operator service revenue in CALA, by country, 2009 Figure 2.2: Total operator service revenue in CALA, 2009–2014 Figure 2.3: Revenue in CALA, by service type, 2009–2014 Figure 2.4: Connections in CALA, by service type, 2009–2014 Table 2.1: Mobile handset penetration rates in CALA, 2009–2014 Table 2.2: Mobile broadband penetration rates in CALA, 2009–2014 Table 2.3: Fixed broadband household penetration rates in CALA, 2009–2014 Table 2.4: Fixed voice penetration rates in CALA, 2009–2014 Figure 2.5: Total operator service revenue in Brazil, 2009–2014 Figure 2.6: Spend in Brazil, by service type, 2009–2014 Figure 2.7: Connections in Brazil, 2009–2014 Figure 2.8: Total operator service revenue in Argentina, 2009–2014 Figure 2.9: Spend in Argentina, 2009–2014 Figure 2.10: Connections in Argentina, 2009–2014 Figure 2.11: Total operator service revenue in Peru, 2009–2014 Figure 2.12: Spend in Peru, 2009–2014 Figure 2.13: Connections in Peru, 2009–2014 Figure 3.1: Share of service revenue in CALA, by operator, 2009 Figure 3.2: Share of mobile service revenue in CALA, by operator, 2009 Figure 3.3: Share of fixed service revenue in CALA, by operator, 2009 Figure 3.4: Top-ten mobile operators in CALA, by subscribers, 2009 Figure 3.5: Top-eight fixed broadband operators in CALA, by subscribers, 2009 Table 3.1: List of América Móvil’s subsidiaries Figure 3.6: América Móvil’s mobile subscriber share, by country/region, 2009 Figure 3.7: Fixed line share of América Móvil, TELMEX and TELMEX Internacional by country/region, 2009 Figure 3.8: Fixed broadband subscriber share of América Móvil, TELMEX and TELMEX Internacional by country/region, 2009 Figure 3.9: Mobile subscribers of Telefónica/Telecom Argentina, by region, 2009 Figure 3.10: Fixed broadband subscribers of Telefónica/Telecom Argentina, by region, 2009 Table 3.2: Telefónica’s operating companies in CALA Figure 3.11: Mobile subscribers of Telefónica/Telecom Argentina, by country/region, 2009 Figure 3.12: Fixed broadband subscriber share of Telefónica/Telecom Argentina, by country/region, 2009 Figure 3.13: Fixed line share of Telefónica/ Telecom Argentina, by country/region, 2009 Figure 4.1: Timescale of HSPA deployments in seven countries in CALA 3 © Analysys Mason Limited 2010

7 11 12 12 13 13 14 14 14 15 16 16 17 18 18 19 19 20 21 21 22 22 23 23 24 25 25 25 25 26 27 28 28 30

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Contents

Figure 4.2: Table 4.1: Table 4.2: Table 4.3: Table 4.4: Figure 5.1: Table 5.1: Figure 5.2: Figure 6.1: Figure 6.2: Table 6.1: Table 7.1: Table 7.2: Table 7.3: Table 7.4: Table 7.5: Table 7.6: Table 7.7: Table 7.8: Table 7.9:

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Mobile data as a proportion of revenue in selected countries in CALA, 1Q 2008–4Q 2009 Spectrum auctions in CALA that are currently underway or are expected within two years Mobile broadband connections and penetration for selected countries in CALA Fixed broadband connections and penetration rates for selected countries in CALA Forecasts of regional GDP and of CAGR, 2009–2014 Population versus GDP per capita for selected countries Gini coefficients for selected countries Monthly mobile ARPU versus GDP per capita for selected CALA countries, 2009 Regions and indicators, 2008 Geographical coverage of Analysys Mason’s CALA forecast Definitions of data points in this report Key indicators for Argentina, 2009 Key indicators for Brazil, 2009 Key indicators for Chile, 2009 Key indicators for Colombia, 2009 Key indicators for Mexico, 2009 Key indicators for Peru, 2009 Key indicators for Venezuela, 2009 Selected data for other top operators in CALA, 2009 List of countries in CALA

4 © Analysys Mason Limited 2010

31 31 32 33 34 37 37 40 41 42 42 43 43 44 44 44 45 45 46 47

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Contents

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0 Executive summary The region of Central and Latin America (CALA) benefits from strong economic growth in many countries, making it one of the fastest growing telecoms markets in the world. Analysys Mason forecasts a CAGR of 8% in CALA from 2009–2014. Economic growth is leading to rising disposable incomes and greater spend on telecoms services.

Figure 0.1: Total operator service revenue in CALA, 2009–2014 [Source: Analysys Mason, 2010]

200 180

Revenue (USD billion)

160 140 120 100 80 60 40 20 0 2009

2010

2011

2012

2013

2014

Over the past 10 to 20 years, CALA has benefitted from investment from European and North American operators. This means that telecoms services have been available to most of the population for many years. This makes it different from other growth markets, such

Executive summary

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as India and Sub-Saharan Africa, where large segments of the population are getting telecoms services for the first time. The population of CALA is relatively small compared with other growth markets. Much of it is concentrated in urban centres, making it easier for operators to provide coverage. CALA also has a higher GDP per capita than other growth markets. CALA is therefore a more mature market. Wireline availability is widespread, and 3G is becoming increasingly available, as regulators continue to award new licences. CALA also has an uneven income distribution. This leads to lower fixed broadband penetration rates than in regions with less income inequality. Some countries in CALA, such as Argentina and Chile, are relatively wealthy, and are already at or are near to mobile saturation, making them look and behave more like mature markets. Operators in these markets will be transitioning from subscriber acquisition to subscriber retention and revenue generation. Improving the customer experience will be critical to achieving these goals. Operators will also need to employ more-sophisticated segmentation strategies in order to develop offers tailored to specific user groups, which they did not need to do previously. Other markets, such as Colombia and Peru, are generally lower income, and still have low penetration rates. Because ARPUs here are lower, operators in these markets face extreme cost pressures. In all markets, operators must improve efficiency in order to achieve profitability. There is a disconnect between what users can spend, and their expectations for service quality. Operators in CALA face challenges similar to those faced by operators in more mature markets: to capture a greater share of mobile data revenue in order to provide the capital needed to increase capacity and coverage. Rather than compete on price, they must compete on customer experience. They need to avoid the pitfalls encountered by mobile operators in mature markets by launching usage-based pricing for mobile broadband services from the outset. Most countries in CALA have strong incumbent operators. Two operators, América Móvil and Telefónica, have enormous presence across CALA and have recently become more formidable competitors as a result of acquisitions. This makes it difficult for new entrants to establish themselves. In the absence of competition, especially for fixed services, prices are higher than they should be, which limits growth and penetration. Regulators concerned to increase telecoms service penetration can – and should – enact rules that level the playing the field. Despite widespread wireline availability, mobile services will dominate the telecoms market in CALA. Fixed broadband penetration rates are extremely low today, and mobile broadband services are competitively priced. Fixed operators will need to bundle fixed broadband services with value-added services, such as pay TV, or with bundles of voice minutes in order to differentiate it from mobile broadband.

Executive summary

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1 Recommendations Mobile operators must develop appropriate business models to ensure that they generate enough revenue to fund capacity expansion. To ensure quality of experience, operators must make sure to have adequate network capacity to handle surge of mobile data traffic, especially in the backhaul network. They should offer usage-based pricing schemes from the onset for mobile broadband services to avoid the revenue and traffic dilemma many operators in mature markets find themselves in. Their business models need to give them a way to capture the value of content services, rather than over-the-top providers. Another aspect of this model should include segmentation strategies that tailor offers to different groups of users to increase usage and ARPU.

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Recommendations

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2 Forecast CALA is the most mature growth market. It consists of a mix of relatively wealthy countries with mature telecoms markets and lower-income economies with less-developed telecoms markets. Subscriber growth has slowed down in recent years, and some markets have achieved mobile penetration rates of over 100%. Nonetheless, there has also been new licence activity here: Chile and Mexico announced auctions for 3G spectrum. As we find in all growth markets, there is a wide disparity in income. The higher-income subscribers have already been captured, so the next wave of growth will come from lower-income subscribers. Operators are looking to improve the ARPU of existing subscribers by offering more value-added services. This, in many cases, can be less expensive than trying to attract new subscribers in inaccessible areas. Penetration rates for fixed broadband are extremely low, especially given the amount of wireline infrastructure, so there is plenty of room for these to rise. The region is dominated by a handful of large operators, such as Am茅rica M贸vil and Telef贸nica, with strong incumbents in many countries. Markets with a few very strong operators tend to have lower rates of growth in telecoms revenue and subscribers, as pricing remains higher than in more-competitive markets.

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Forecast

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Figure 2.1: Total operator service revenue in CALA, by country, 2009 [Source: Analysys Mason, 2010]

11%

8% 6%

3% 7%

19%

5% 41% Venezuela

Colombia

Mexico

Chile

Brazil

Argentina

Peru

Rest of CALA

The mobile base in CALA is very heavily skewed towards prepaid. This situation is unlikely to change much over the forecast period because of the low income levels of a large proportion of the population. Instead, hybrid plans involving a low fixed monthly charge, plus the opportunity to make more calls by buying prepaid cards (in some cases, cards specifically for SMS, or for data) will continue to become more popular because of the increasing importance of mobile data. Operators trying to defend themselves against competition, particularly in the context of number portability, push clients to move to contract or hybrid offers by offering family-and-friend plans that include big discounts for calls within such groups. However, this course of action is not something that implies radical changes, but instead a slow migration to postpaid. Also, although the postpaid client base grows as a result, discounts may offset some of the impact on revenue. Income distribution is another relevant factor: for many people on low incomes (the bulk of the population in CALA), prepaid is the only way to have access to mobile services and this will continue for some time.

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Forecast

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3 Market share The CALA market is dominated by América Móvil and Telefónica. These companies have operations in multiple countries, and are usually among the leaders in each market. América Móvil acquired TELMEX and TELMEX Internacional, which will make it an even stronger competitor. Telefónica may acquire Telecom Italia and recently tried to acquire Portugal Telecom’s 50% share of Vivo, the leading mobile operator in Brazil, although it is unlikely that the government will allow Telefónica to take control of both Telecom Italia and Vivo.

Figure 3.1: Share of service revenue in CALA, by operator, 2009 [Source: Analysys Mason, 2010]

25% 32%

19% 5% 6%

Telefónica

América Móvil

10% Oi

Telmex

Telecom Italia

Vivo

Other

Market share

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Figure 3.2: Top-ten mobile operators in CALA, by subscribers, 20091 [Source: Analysys Mason, 2010] América Móvil Telefónica Vivo Telecom Italia Millicom International Cellular Oi CANTV NII Holdings Empresa Nacional de Telecomunicaciones (ENTEL) Cable&Wireless 0

100

120

140

160

180

200

Mobile subscribers (million)

Figure 3.3: Top-eight fixed broadband operators in CALA, by subscribers, 20092 [Source: Analysys Mason, 2010]

Telefónica Telmex NET Serviços Oi CANTV Cable&Wireless ENTEL Hughes 0

1000

2000

3000

4000

5000

6000

7000

8000

Fixed broadband subscribers

Vivo is a 50:50 joint venture between Telefónica and Portugal Telecom.

TELMEX is now owned by América Móvil.

Market share

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4 Market drivers and inhibitors 4.1 Mobile operatorsâ&#x20AC;&#x2122; 3G upgrades and expansion enable them to satisfy demand for mobile data services Operators continue to upgrade 3G networks, which will have an immediate impact on mobile operatorsâ&#x20AC;&#x2122; revenue, as they are able to deliver more mobile data services. (LTE will not be a major factor until the very end of the forecast period, and only in the most mature markets.) Currently, 3G networks are available in the majority of countries in CALA, although some, like Mexico, have limited spectrum, which is hampering broader adoption of mobile data services.

Figure 4.1: Timescale of HSPA deployments in seven countries in CALA [Source: Analysys Mason, 2010]

2007 Argentina

Colombia Mexico Peru Venezuela

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2009

Argentina

Brazil Chile

2008

Brazil Chile Colombia Mexico Peru Venezuela

Market drivers and inhibitors

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As a result of the increased capability of 3G networks, operators have accrued increasing proportions of their revenue from mobile data services. Regulators are awarding additional spectrum in many countries, which will also allow for greater mobile data usage.

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Market drivers and inhibitors

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5 Business environment 5.1 Regulatory issues Regulatory bodies responsible for awarding spectrum and licences play a crucial role in the development of telecoms markets. These bodies also govern the nature of the services that operators can offer. Incumbents, especially, can face an uphill battle to offer bundled services when regulators try to level the playing field. For example, cable operators in Argentina are keeping MNOs out of the TV market with legal challenges that have, so far, been upheld. This has forced MNOs to form partnerships with cable operators, instead of taking over the market. Telcos, on the other hand, have managed to stop cable operators being able to offer voice services. This creates a situation in which partnership is the best route for both parties. In Brazil, regulators are keen that broadband is made available throughout the country. They have delayed issuing the details of a national broadband plan, but these are expected soon. They have announced that the vehicle for delivering broadband service will be stateowned TELEBRÁS. Although there are as yet no details of how TELEBRÁS will act, it goes against the existing operators’ desires to have a state-owned operator. The regulators intend that the project will be complete by 2014. The Mexican regulator is now opening up the mobile market with spectrum auctions and will possibly create a new 3G-only challenger, such as a cable operator. One matter to be settled is that of TELMEX’s entry into the pay-TV market, from which it is currently banned. TELMEX seems to have satisfied conditions that were imposed upon it and may well be allowed to enter the pay-TV market soon. This development will allow significant growth in IPTV, as TELMEX accounts for a large slice of the fixed broadband market.

Business environment

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TELMEX and Telcel have both been found dominant in their markets. Remedies are likely to follow, and these may make it easier for other operators to gain market share. In Chile, the regulator no longer regulates Telefónica’s fixed line pricing as a result of competition from mobile. Mobile number portability is expected in the second half of 2010. Now that the Venezuelan government has taken over CANTV, there is no separation between the operator and the telecoms ministry. This will make it difficult for other operators to compete, particularly since the government sees its mission as providing telecoms services for the social benefits, rather than for economic benefit.

Business environment

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Author Roz Roseboro (Principal Analyst) is the lead analyst for Analysys Masonâ&#x20AC;&#x2122;s Global Growth Markets research programme. Her primary areas of specialisation are market drivers in growth markets and understanding the opportunities for operators and vendors in these markets. She also specialises in professional services needed to deliver infrastructure services and in network equipment manufacturers. Roz has nearly 20 yearsâ&#x20AC;&#x2122; experience in market research, marketing and product management. She spent five years at RHK Inc., where she ran the Switching and Routing programme, and later the Business Communication Services programme. She spent nine years at Motorola, Inc., working in IT product development and radio and mobile phone product management. Roz holds a BA in English from the University of Massachusetts, Amherst and an MBA in Marketing, Management and International Business from the J.L. Kellogg Graduate School of Management at Northwestern University.

Acknowledgements The author would like to thank all those who assisted in the preparation of this report, especially Luis Minoru, Thiago Lanconi and Ignacio Perrone, of PromonLogicalis, for their insight into the CALA region and their review of the report.

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Author

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Published by Analysys Mason Limited • Bush House • North West Wing • Aldwych • London • WC2B 4PJ • UK Tel: +44 (0)20 7395 9000 • Fax: +44 (0)20 7395 9001 • Email: research@analysysmason.com www.analysysmason.com/research Registered in England No. 5177472 © Analysys Mason Limited 2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior written permission of the publisher. Figures and projections contained in this report are based on publicly available information only and are produced by the Research Division of Analysys Mason Limited independently of any client-specific work within Analysys Mason Limited. The opinions expressed are those of the stated authors only. Analysys Mason Limited recognises that many terms appearing in this report are proprietary; all such trademarks are acknowledged and every effort has been made to indicate them by the normal UK publishing practice of capitalisation. However, the presence of a term, in whatever form, does not affect its legal status as a trademark. Analysys Mason Limited maintains that all reasonable care and skill have been used in the compilation of this publication. However, Analysys Mason Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of this publication by the customer, his servants, agents or any third party. ISBN 978 1 906881 20 7

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