Over the next five years, LatAm wireless network traffic is slated to rise at a CAGR of 86% – pretty significant compared to the 61% CAGR average for emerging markets as a whole. And yet Latin America is still a relatively small telecom services market. Despite advances in information and communication technologies (ICT), there are large discrepancies between countries – some with modernized and liberal telecom networks, and others with closed and politicized systems in place. If you’re a prospective sourcing client, those discrepancies can make or break your operation.
To clear the air, we decided to leverage some expert opinion and develop our 2010 Ranking of the Top Five Telecom-Ready Sourcing Destinations in Latin America.
As usual when we do rankings at Nearshore Americas, it’s important to note that the topic (in this case telecom) is the only factor we considered, and not other aspects of a great sourcing destination. The countries below are the ones we think are best able to support the requirements of sourcing companies, solely from a telecom standpoint. Some parameters we used to position our choices:
- Liberalization – How open is the telecom system for both international and domestic competition? How much control does the government have, and how politicized is the system?
- Modernization – The amount of investment in a country’s communications infrastructure, and the resulting maturity and next-generation features of the networks.
- Redundancy in the event of disasters – Senior Editor Dennis Barker recently reported on how critical it is for companies to maintain business continuity and data access.
- Level of broadband penetration – Can the country support the telecom needs of a scalable sourcing operation? Is the penetration only high in major cities, or is it more evenly spread?
We found that for the most part, countries with the highest economic growth and GDP per capita also have the strongest correlation with these parameters. We also found that mobile services in Latin America are generally very competitive, while fixed line markets are often closed with low penetration rates. That is improving however, and some of these rankings reflect the extent to which countries are developing their fixed line services.
Our 2010 Latin America ICT Ranking:
Chile is the country with the highest adoption of new technology in Latin America. One reason is the level of education of the public, and another is the lack of taxes for technology. The result is the most advanced telecom infrastructure in Latin America – one that ranked first in the region on the World Economic Forum’s 2010 Network Readiness Index. Chile offered 4G services like mobile WiMax before its competition, and congress recently passed a landmark Net Neutrality law that isn’t even on the table for other LatAm countries. In terms of broadband penetration, Chile again leads with 10.3%, although admittedly it is helped by its small population.
Even more telling than the modernized network is the level of open competition in Chilean telecom. The local population is served mainly by Telmex and Telefónica (or Movistar as it’s known in Chile), while international carriers like Orange, British Telecom and Verizon serve the foreign companies through their submarine networks. The liberal system is fostered by the national regulator Subtel. “Subtel ensures competitive prices, and also monitors the quality of services that each competitor offers”, says Jose Roberto Mavignier, ICT Industry Manager for Latin America at Frost and Sullivan. “It assesses factors like availability of connections to companies, time taken to solve connection issues, etc. It’s difficult to offer bad service since Subtel will hand out fines if those parameters are not obeyed”.
In the wake of the recent Chilean earthquake, everyone wants to know how resilient the country’s telecom system is. Consensus is that although very strained, Chile’s network stood up well in the aftermath. “Chilean company Entel was created in the 70’s as a redundant organization to prevent the failure of companies. There are many redundant networks, data centers are well protected, and installations are modern and prepared to resist natural disasters”, says Mavignier.
“In terms of open competition, Brazil is getting there”, according to Roz Roseboro, Principal Analyst at telecom consultancy Analysys Mason. In the mobile arena there are seven different players, international and domestic, which is something you won’t see anywhere else in Latin America. “We also just heard rumors that Vodafone is considering entering the Brazilian market, as well as NTT from Japan. Everyone’s looking at Brazil to see if it would be profitable”, says Mavignier. Partly because of the many 3G operators, and partly because of its size, Brazil dominates Latin America in numbers of HSPA subscriptions, with around 57% of the regional total. For fixed lines, Brazilian provider Oi is number one, followed by Telefónica.
All this helps bring down prices and increase access to telecom, but Brazilian regulator Antel does need to be more proactive in increasing broadband competition. According to Cisco Brazil, there is strong demand in the country for broadband services, and Brazil must invest more in tech infrastructure. The country currently has fully digital fiber optic networks connecting all the major cities internally, and broadband penetration is at 5.8% with the state of São Paulo having the most number of connections. For its part, the Brazilian government is trying to take broadband access to the whole country and especially the smaller cities in the next three years, under the new National Broadband Plan.
In terms of quality of services offered, Antel is usually an efficient monitor – last year after four blackouts on Telefónica’s broadband, it ordered the company to stop sales completely until improvements were made to the service.
Colombia’s telecom infrastructure has gone through a considerable amount of modernizing in recent years. What we see now are extremely well connected business centers, but poor service availability in smaller urban areas. “As long as you’re setting up a big plant in one of the centers, connectivity is not a problem”, says Wally Swain, Senior VP of Emerging Markets at Yankee Group. “Colombia also has very liberal Free Trade Zone rules that allow you to bring in telecom options quite cheaply”. The country is now investing more in fiber optics, and has good satellite coverage as well as 3G and GSM coverage.
There are at least three important mobile operators in Colombia: Movistar, América Móvil and Tigo. The mobile market is modernized and is one of the fastest growing in Latin America. Even better, the government is being proactive with a strong regulatory framework that encourages competition. Unfortunately for outsourcing however, Colombia’s fixed line sector seems to be stagnating according to ICT statistics company Point Topic. Broadband penetration is on par with other LatAm countries (currently at 4%), but there are only two strong local fixed line providers – ETB and UNE – and the state has substantial control over them. Earlier this year Cisco analysts stated that because of slow growth in 2009, Colombia’s broadband market is reaching saturation point due to lack of exploration of new market niches. The country’s regulator CRT Colombia must work to open up the market to smaller businesses, as well as encourage more private competition in broadband services.
Broadband is one of the highest growth sectors in Mexico’s telecom market, but we give low points here for the lack of competition. América Móvil (after taking over parent company Telmex) is dominant in the country. “Mexico is surprisingly stagnant given its size and economy”, says Roseboro. “They say they want to increase competition, and to some extent they’re opening up the mobile market. But there’s no opening up the fixed line side. New companies consider Mexico only for the mobile market, and I don’t see anybody reducing the dominance of Telmex”. However the government is now trying to regulate unbundled access for competitors – three companies including Telefónica recently won the rights to use the government’s fiber-optic lines to offer communications and internet services across the country independently, instead of going through Telmex.
According to Wally Swain, Mexico’s regulation body Cofetel is ineffective. “There’s a war going on between the communications ministry and the regulator, and the regulator is losing out. The rules say you can do certain things, but in practice there’s no control. The regulator has been unable to enforce what it wants to have happen”. Once again, things could improve with the new chairman of Cofetel who took office last month.
The lack of competition also contributes to a lack of modernization of Mexico’s telecom system. “Since the vast majority of networks belong to Telmex, they didn’t have to invest much to compete and be profitable. As a result, a very small percentage of networks in Mexico are supplied with new technologies”, says Mavignier. Overall however, Mexico is one of the best connected countries in Latin America, and home to a substantial number of large scale IT operations. Its biggest advantage is being right on the US border.
Argentina makes the list because of the size of its telecom market. With the third largest mobile market in Latin America after Brazil and Mexico, and a very high broadband penetration of 10%, Argentina has a well developed telecom infrastructure. Three main operators are Claro, Telecom Personal and Movistar. “The market is split up between the north and the south regions, and fixed line penetration is quite unevenly spread”, says Roseboro. “They tend to focus mainly on the urban centers with the result that cities like Buenos Aires are completely tapped out”.
In terms of competition in telecom, the system is completely politicized. “The regulator has no independence from the Argentine government”, says Swain. “The Kirchners manage the economy by who is for them and who is against them. Fibertel, the most powerful media group fell out with them two years ago, and the government is still making problems for them”.
The main obstacle to telecom modernization in Argentina is really economic development. It’s why the country hasn’t invested much in its networks, and why there’s not much competition. But as international investors become more interested in Argentina, we’re hoping for a telecom revival.
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