Excerpt from report by Alejandra Etcharran & Brian Washburn of Current Analysis.
There have been two certainties in wireline data networking: steady capacity increases coupled with price declines. While wireline networking continues to grow in Latin America, it has increasingly done so as an enabler of cloud/data center, hosted and mobile services.
Although global traffic demand continues to grow briskly, industry observers predict the rate of traffic growth to slow down in coming years. Latin America has had the same growth trajectory as the rest of the world; the growth curve for international data traffic has begun to soften, while remaining at a still-healthy 30% annual growth rate.
Cisco Systems’ Virtual Networking Index (VNI) reflects this trend: it noted 27% growth in 2012 for all IP traffic in Latin America, with IPTV and mobile data doing particularly well, but lower growth around web/e-mail services.
For global service provider Telefónica, the Americas now generate higher traffic levels than Europe. Brazil leads demand with the greatest traffic volume, while all countries in the region present similar growth levels as they continue toward IP traffic maturity.
Latin America has seen an explosion in mobile broadband, with data traffic increasing exponentially since 2010. Various sources agree that Latin America’s growing mobile penetration passed 100% around 2011; rising smartphone adoption is reaching an estimated 50% of new mobile phones in the region.
Device subsidies by the operators and greater affordability of data plans and services are fostering the adoption of mobile broadband. Mobile operators have shifted their focus from customer share to ARPU, with a focus on data and VAS. For instance, América Móvil recorded a mobile data revenue rise of 33.3% year-on-year, with data now accounting for one-third of total mobile revenue. Telecom Argentina witnessed a 29% YoY increase in domestic mobile data revenue, accounting for 43% of total mobile revenues.
Another source of data traffic is the growth of social networking among consumers. Latin America, and especially Brazil, are among the heaviest users of social networks including Facebook and LinkedIn. According to researchers at ComScore, nearly 100% of Internet users in Latin America use social media, and the average user spends many hours each month using these types of sites.
While most companies in Latin America now subscribe to some type of cloud service, concerns about service reliability and network security persist. To assuage this concern, operators are investing in infrastructure and services, to help ensure customers that cloud services – and the networks that connect them – are reliable and secure. Telefónica and América Móvil have the most aggressive strategies for fortifying their position among leading enterprise network service providers. In December 2012, Telefónica Global Solutions announced it had selected Cisco to optimize its global IP network, including its major regional presence in Latin America. The Cisco IP Next-generation Network (NGN) project involves deploying Cisco CRS-3 and ASR 9000 routers, designed to provide greater capacity and IPv6 protocol support; these join already deployed IP infrastructure from Cisco and Juniper Networks.
Data Center Activity
Data Center build-outs to support network usage and cloud services are very active:
- Telefónica has the largest wireline and wireless coverage in Latin America and recently opened its eighth data center in Latin America, with Tier III capabilities and 400 TB storage capacity after the investment of US$6 million in Colombia. The company also has extended submarine cables to cover Ecuador, Colombia and northern Peru.
- América Móvil promotes its enterprise services in Latin America through the company’s “Fiber Optic Corridor” which connects 18 of its data centers, including four major facilities in México, Colombia, Brazil and Argentina. América Móvil has engaged Alcatel-Lucent to construct AMX-1, a 17,500 route-km submarine cable connecting Mexico, two landing points in Colombia, three landing points in Brazil, Guatemala, Puerto Rico, and two landing points in the U.S. (Florida). The system is designed to support 100 Gbps wavelengths, and will be operational by the end of 2013.
- América Móvil’s Clthearo in Argentina spent US$12 million for the expansion of its data center in the city of Buenos Aires. The 7,000 square meter, Tier III data center is located in a non-seismic zone. The facility will help the company pursue corporate customers, and will specifically target banking and financial customers that need help complying with PCI DSS and with Central Bank of Argentina regulations.
- In 2013, Entel in Chile inaugurated the second stage of its sixth data center in western Santiago (Los Valles city) with an investment of US$35 million; this follows project’s first-stage investment of US$37 million. This 4,000 square meter, Tier III data center offers a range of on-demand cloud and IT services including Software as a Service, dedicated virtual servers, hosting and storage. Entel also supplies network, access and managed security services. Entel claims not only to have the largest data center footprint in Chile, but also its most secure, advanced and reliable cloud computing services.
- Also in Chile, in 2012 local IT vendor Sonda opened its sixth data center in northern Santiago (Quilicura city), where Google also started construction of its first data center in Latin America. While Brazil is Latin America’s single largest market, Chile has been winning a share of the data center business because it offers a combination of a reliable regulatory, legal and financial environment, a steady stream of investment, growing infrastructure and a skilled workforce.
According to the Business Software Alliance (BSA) 2013 Cloud Readiness report, three Latin American countries are among the 24 leading countries worldwide for cloud computing. But when ranking these countries in terms of government policies favoring the growth of cloud computing, Mexico ranked 14th, Argentina 16th and Brazil 19th. However, of the 24, Brazil showed the greatest improvement in its infrastructure score for 2013. The 24 countries covered by the BSA do not include Colombia or Chile. Chile, for example, may not have one of the world’s largest economies, but it does claim one of the most promising regulatory environments for cloud services deployment.
Latin American governments and service providers have started to realize that the resources of “connection” are as important a resource as “computing” or “storage”. In response, the governments of Mexico, Colombia and Brazil openly promote joint network deployments and infrastructure sharing agreements, to accelerate development and delivery of improved services. Still, legislation of several states within these countries is restrictive, limiting the expansion of infrastructure such as collocation of antennas or access to electrical power.
Some operators are engaging in joint projects, signing strategic network deployment and sharing agreements. One example is Movistar Mexico (Telefónica), which in June 2012 signed an infrastructure sharing agreement with Mexico’s Iusacell to improve their competitive position against América Móvil. The deal also expands enterprise solutions, leveraging both companies’ investments and reducing operational costs.
In Brazil, network deployments and infrastructure sharing agreements are signed by TIM (Telecom Italia) with its leading rival Vivo (Telefónica), and also with Oi. Vivo also signed an infrastructure agreement with its counterpart Claro (América Móvil). Through these deals, the operators expect to improve data transmission and 4G services on all the regions in time for the 2014 World Cup, especially in host cities like Manaus, capital of the state of Amazonas.
The Brazilian Telecommunications Agency (Anatel) expects investments of at least US$2 billion in 2013 and 2014 for implementation of 4G mobile infrastructure, as signed by the four leading operators Claro, Oi, TIM and Vivo at the end of 2012. These operators expect that comprehensive 4G expansion they will need to triple the number of current antennas. However, differences in local barriers in some of Brazil’s markets have make it more difficult for mobile operators to install the antennas and infrastructure they need for their planned service expansion.
In Mexico, with the goal of attracting higher investments and offering greater communications services, new “asymmetric” regulations reform expects to provide greater transparency and competitiveness, encouraging competitors to invest to build widely available, high-end communications networks. As the dominant operator of fixed services in Mexico, Telmex might be facing “asymmetry” sanctions in the short to medium term. Regulatory reform may push competitive operators in Mexico to turn their focus and investments towards high-margin services where Telmex is less dominant, such as enterprise services.
There is still plenty of room for operators, traditional IT services providers and integrators to generate greater awareness and gain ground in Latin America. Private and public agreements, as well as an adequate legal framework, remain important pieces of the puzzle. Cloud providers will aim to improve their performance and security to win more customers.
Alejandra Etcharran covers Business Network and IT Services in Latin America for Current Analysis. She is based in Buenos Aires, and has more than 10 years’ experience as a Strategic Market Research Specialist and Business Consultant for retail and ICT market segments.
Brian Washburn is Current Analysis’ Service Director of Global Business Network and IT Services. His technology areas of coverage include network infrastructure and IP services; managed services; and U.S. services targeting mid-market businesses.