report analysys mason cala

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© Analysys Mason Limited 2010 Contents

Contents

0 Executive summary 7

1 Recommendations 8

2 Forecast 10 2.1 Brazil 15 2.2 Argentina 17 2.3 Peru 18

3 Market share 20 3.1 América Móvil 23 3.2 Telefónica 25 3.3 Other leading operators in CALA 28

4 Market drivers and inhibitors 30 4.1 Mobile operators’ 3G upgrades and expansion enable them to satisfy

demand

for mobile data services 30 4.2 Low availability of fixed broadband leads to opportunities for mobile to

extend

the addressable market 31 4.3 Operators are bundling fixed broadband with other services in response to

low adoption rates 32 4.4 Strong economic growth increases the addressable market for telecoms

services 33 4.5 The presence of a few strong operators in many markets limits CALA’s

growth potential 34

5 Business environment 35 5.1 Regulatory issues 35 5.2 Geographical challenges 36 5.3 Demographics 36

6 Market definition 40

7 Country summaries and supporting data 43 7.1 Argentina 43 7.2 Brazil 44 7.3 Chile 44 7.4 Colombia 44 7.5 Mexico 45 7.6 Peru 45




7.7 Venezuela 45 7.8 Selected data for other top operators in CALA 46 7.9 Countries included in Central and Latin America 47 Key to acronyms 48

Author 49

Acknowledgements 49 Research from Analysys Mason 51

Consulting from Analysys Mason 52

List of Figures and Tables

Figure 0.1: Total operator service revenue in CALA, 2009–2014 7

Figure 2.1: Total operator service revenue in CALA, by country, 2009 11

Figure 2.2: Total operator service revenue in CALA, 2009–2014 12

Figure 2.3: Revenue in CALA, by service type, 2009–2014 12

Figure 2.4: Connections in CALA, by service type, 2009–2014 13

Table 2.1: Mobile handset penetration rates in CALA, 2009–2014 13

Table 2.2: Mobile broadband penetration rates in CALA, 2009–2014 14

Table 2.3: Fixed broadband household penetration rates in CALA, 2009–2014 14

Table 2.4: Fixed voice penetration rates in CALA, 2009–2014 14

Figure 2.5: Total operator service revenue in Brazil, 2009–2014 15

Figure 2.6: Spend in Brazil, by service type, 2009–2014 16

Figure 2.7: Connections in Brazil, 2009–2014 16

Figure 2.8: Total operator service revenue in Argentina, 2009–2014 17

Figure 2.9: Spend in Argentina, 2009–2014 18

Figure 2.10: Connections in Argentina, 2009–2014 18

Figure 2.11: Total operator service revenue in Peru, 2009–2014 19

Figure 2.12: Spend in Peru, 2009–2014 19

Figure 2.13: Connections in Peru, 2009–2014 20

Figure 3.1: Share of service revenue in CALA, by operator, 2009 21

Figure 3.2: Share of mobile service revenue in CALA, by operator, 2009 21

Figure 3.3: Share of fixed service revenue in CALA, by operator, 2009 22

Figure 3.4: Top-ten mobile operators in CALA, by subscribers, 2009 22

Figure 3.5: Top-eight fixed broadband operators in CALA, by subscribers, 2009 23

Table 3.1: List of América Móvil’s subsidiaries 23

Figure 3.6: América Móvil’s mobile subscriber share, by country/region, 2009 24

Figure 3.7: Fixed line share of América Móvil, TELMEX and TELMEX

Internacional by country/region, 2009 25

Figure 3.8: Fixed broadband subscriber share of América Móvil, TELMEX and

TELMEX Internacional by country/region, 2009 25

Figure 3.9: Mobile subscribers of Telefónica/Telecom Argentina, by region, 2009 25

Figure 3.10: Fixed broadband subscribers of Telefónica/Telecom Argentina, by region,

2009 25

Table 3.2: Telefónica’s operating companies in CALA 26

Figure 3.11: Mobile subscribers of Telefónica/Telecom Argentina, by country/region,

2009 27

Figure 3.12: Fixed broadband subscriber share of Telefónica/Telecom Argentina, by

country/region, 2009 28

Figure 3.13: Fixed line share of Telefónica/ Telecom Argentina, by country/region,

2009 28

Figure 4.1: Timescale of HSPA deployments in seven countries in CALA 30




Figure 4.2: Mobile data as a proportion of revenue in selected countries in CALA,

1Q 2008–4Q 2009 31

Table 4.1: Spectrum auctions in CALA that are currently underway or are expected

within two years 31

Table 4.2: Mobile broadband connections and penetration for selected countries in

CALA 32

Table 4.3: Fixed broadband connections and penetration rates for selected countries

in CALA 33

Table 4.4: Forecasts of regional GDP and of CAGR, 2009–2014 34

Figure 5.1: Population versus GDP per capita for selected countries 37

Table 5.1: Gini coefficients for selected countries 37

Figure 5.2: Monthly mobile ARPU versus GDP per capita for selected CALA

countries, 2009 40

Figure 6.1: Regions and indicators, 2008 41

Figure 6.2: Geographical coverage of Analysys Mason’s CALA forecast 42

Table 6.1: Definitions of data points in this report 42

Table 7.1: Key indicators for Argentina, 2009 43

Table 7.2: Key indicators for Brazil, 2009 43

Table 7.3: Key indicators for Chile, 2009 44

Table 7.4: Key indicators for Colombia, 2009 44

Table 7.5: Key indicators for Mexico, 2009 44

Table 7.6: Key indicators for Peru, 2009 45

Table 7.7: Key indicators for Venezuela, 2009 45

Table 7.8: Selected data for other top operators in CALA, 2009 46

Table 7.9: List of countries in CALA 47


© Analysys Mason Limited 2010 Executive summary

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]

0

20

40

60

80

100

120

140

160

180

200

2009 2010 2011 2012 2013 2014

Revenue

(US

D b

illio

n)

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


© Analysys Mason Limited 2010 Executive summary

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.


© Analysys Mason Limited 2010 Recommendations

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.


© Analysys Mason Limited 2010 Forecast

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 América

Móvil and Telefónica, 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.


© Analysys Mason Limited 2010 Forecast

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

Mason, 2010]

8%

6%

19%

5%

41%

7%

3%

11%

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.


© Analysys Mason Limited 2010 Market share

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%

19%

10%6%

5%

3%

32%

Telefónica América Móvil Oi Telmex Telecom Italia Vivo Other


© Analysys Mason Limited 2010 Market share

Figure 3.2: Top-ten mobile operators in CALA, by subscribers, 20091 [Source: Analysys

Mason, 2010]

0 20 40 60 80 100 120 140 160 180 200

Cable&Wireless

Empresa Nacional de

Telecomunicaciones (ENTEL)

NII Holdings

CANTV

Oi

Millicom International

Cellular

Telecom Italia

Vivo

Telefónica

América Móvil

Mobile subscribers (million)

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

Analysys Mason, 2010]

0 1000 2000 3000 4000 5000 6000 7000 8000

Hughes

ENTEL

Cable&Wireless

CANTV

Oi

NET Serviços

Telmex

Telefónica

Fixed broadband subscribers

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

2 TELMEX is now owned by América Móvil.


© Analysys Mason Limited 2010 Market drivers and inhibitors

4 Market drivers and inhibitors

4.1 Mobile operators’ 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 operators’ 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]

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Venezuela

2007 2008 2009

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Venezuela

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Venezuela

2007 2008 2009

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Venezuela


© Analysys Mason Limited 2010 Market drivers and inhibitors

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.


© Analysys Mason Limited 2010 Business environment

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 state-

owned 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.


© Analysys Mason Limited 2010 Business environment

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.


© Analysys Mason Limited 2010 Author

Author

Roz Roseboro (Principal Analyst) is the lead analyst for Analysys

Mason’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 years’ 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.


© Analysys Mason Limited 2010

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in

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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.

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ISBN 978 1 906881 20 7


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report analysys mason cala

Documents

share of service revenue

share of fixed service

total operator service

mobile operators

service type

fixed broadband operators

market share

mobile data services