In Top Ten LatAm Telecom Ranking, Brazil Remains King

SOURCE: PYRAMID RESEARCH
Latin America, although home to the “B” in the BRIC (Brazil, Russia, India, and China) quartet of leading emerging economies, is still relatively small as a regional telecom service market, accounting for only about 10 percent of total global revenues. But a combination of large geographical size and population, economic resources and growth, and growing telecom liberalization and investment are moving the market forward.

Big international carriers certainly see the region’s potential and are building up their infrastructures and capabilities there. During 2008, Global Crossing (Nasdaq: GLBC), for example:

  • Added three high-capacity Supercore routers in Buenos Aires, Argentina; Santiago, Chile; and São Paulo, Brazil – thereby tripling POP-to-POP core capacity on its regional MPLS-network backbone and enabling OC192 Sonet connections on the company’s South American Crossing (SAC) undersea fiber optic cable system, which rings Latin America. This is to meet growing demand for bandwidth-intensive applications and converged Internet Protocol (IP) services in Latin America. (See Global Crossing Extends Net.)
  • Lit its new fiber-optic submarine cable in Esterillos, Parrita, Puntarenas, in Costa Rica, which will increase and improve that country’s international connectivity. (See Global Crossing Lights Underseas Cable.)
  • Expanded its enterprise managed network services from Columbia to Brazil; a further expansion to Argentina is planned. (See Global Xing Expands in LatAm.)
  • Became a SAP-certified hosting partner in Colombia and Brazil, as well as in Argentina and Chile, thereby allowing it to manage, host, and implement SAP applications for enterprises in “strategic markets” in Latin America. (See Global Crossing Certified.)

Meanwhile BT Group plc (NYSE: BT; London: BTA) reported in July 2008 that its Latin American organization had “successfully completed its first year after the completion of the acquisition of Comsat International and has achieved the goal of reinforcing BT’s global capabilities to better serve its customers in the region.” As a result of the June 2007 acquisition, BT has a 180-POP pan-regional network covering Latin America, supplemented by VSATs for resilience, backup, and serving remote areas, and has data centers in Argentina, Brazil, and Colombia.

And Spain’s Telefónica SA (NYSE: TEF), which claims the largest telecom network in Latin America, announced that it had been selected by Microsoft to provide VOIP services (as Voype) to Windows Live Messenger customers in Argentina, Brazil, Chile, Colombia, Peru, Venezuela, and the United States. Telefónica and the other big player, América Móvil S.A. de C.V. , between them control about 70 to 80 percent of the telecom market.


The Top 10
This report ranks the top 10 Latin American markets by service revenues and per-population service penetrations.

The Big Spenders
Table 1 ranks the Top 10 Latin American markets by spending on the following categories of telecom services:

  • Total Fixed = Total Fixed Voice + Total Fixed Internet + Total Fixed IPTV/Video
  • Total Mobile = Total Mobile Voice + Total Mobile Data
  • Total Fixed and Mobile

Table 1: Top 10 by Service Revenues, 2008

Market Total Fixed + Mobile Revenues, $M Market Total Fixed Revenues, $M Market Total Mobile Revenues, $M
Brazil 55,422 Brazil 29,877 Brazil 25,545
Mexico 27,708 Mexico 11,814 Mexico 15,894
Argentina 8,816 Colombia 3,112 Argentina 6,136
Venezuela 7,354 Argentina 2,680 Venezuela 5,080
Colombia 7,061 Venezuela 2,273 Colombia 3,950
Chile 4,875 Peru 1,637 Chile 3,244
Peru 3,427 Chile 1,630 Peru 1,790
Puerto Rico 2,588 Dominican Republic 997 Puerto Rico 1,748
Guatemala 2,263 Puerto Rico 840 Guatemala 1,543
Dominican Republic 1,987 Guatemala 720 Ecuador 1,229
Source: Pyramid Research / Light Reading, 2009

Generally, the rankings follow that of nominal GDP (see Table 2), which means that the highly skewed economic distribution of the region puts the two giants of Brazil and Mexico well to the fore.

Table 2 also shows these two markets as having much greater populations than the others, which will tend to inflate absolute numbers, especially for mobile revenues. However, in terns of per-population telecom revenues, it is the smaller markets of Puerto Rico, Uruguay, and Chile that rise to the top of the ranking, pushing Brazil and Mexico down into fourth and sixth places, respectively.

Table 2: Top 10 by GDP, Population & Total Fixed + Mobile Revenues as Percentage of GDP, 2008

Market Nominal GDP, $M Market Population, 000 Market Total Fixed + Mobile as % Nominal GDP Market Total Fixed + Mobile Revenues per-population, $
Brazil 1,518,218 Brazil 191,870 Nicaragua 7.7% Puerto Rico 653
Mexico 1,040,482 Mexico 106,919 Honduras 6.4% Uruguay 424
Venezuela 337,974 Colombia 44,713 El Salvador 5.8% Chile 291
Argentina 305,252 Argentina 39,750 Paraguay 5.0% Brazil 289
Colombia 241,649 Peru 29,247 Guatemala 4.9% Venezuela 265
Chile 190,425 Venezuela 27,720 Uruguay 4.7% Mexico 259
Peru 131,454 Chile 16,760 Dominican Republic 4.2% Argentina 222
Puerto Rico 92,529 Ecuador 13,810 Bolivia 3.9% Dominican Republic 210
Ecuador 52,725 Guatemala 13,546 Brazil 3.7% Panama 198
Dominican Republic 46,749 Bolivia 9,700 Ecuador 3.6% El Salvador 191
Source: Pyramid Research / Light Reading, 2009

And, in terms of telecom revenues as a percentage of GDP, the ranking is totally overturned, with the smallest economies dominating the ranking. For example, the Nicaragua figure of 7.7 percent is striking, and illustrates a general effect that poorer economies and, within them, lower income segments, tend to have a higher proportion of income going toward telecom, as telecom is considered a basic or productive good – people will give up other things before they give up telecommunication service. As the numbers of people in the lower income segments is large, the result is a high revenue/GDP ratio.

The Greatest Potentials
Per-population penetrations help to give a picture both of the state of telecom market development and of its future potential. Low figures suggest lots of scope for building up infrastructure and standard services, while high figures suggest scope for service innovation.

The relatively low telecom revenue per-population figures of much of the region, in principle, indicate considerable long-term growth potential, and this is emphasized by Table 3.

Table 3: Top 10 by Telecom Service Per-Population Penetrations, 2008

Market Per-population narrowband subscribers, % Market Per-population broadband subscribers, % Market Per-population mobile subscribers, %
Uruguay 27% Chile 11% Argentina 110%
Argentina 24% Puerto Rico 10% Uruguay 106%
Costa Rica 24% Argentina 8% El Salvador 102%
Puerto Rico 23% Uruguay 7% Venezuela 98%
Venezuela 22% Brazil 6% Panama 97%
Brazil 21% Mexico 6% Chile 94%
Colombia 19% Panama 5% Paraguay 93%
Chile 18% Venezuela 5% Guatemala 90%
Mexico 18% Colombia 5% Colombia 89%
El Salvador 14% Costa Rica 4% Honduras 87%
Source: Pyramid Research / Light Reading, 2009

Although per-population mobile subscriptions are high for most of the top 10 markets, Brazil and Mexico are both noticeable by their absence – at 79 percent and 74 percent, respectively. So the naturally largest markets, economically and in population terms, still have some way to go.

The success of mobile has evidently helped to lessen demand for fixed narrowband lines, as penetrations are low by developed-market standards. Even more striking is the very low penetration of fixed broadband.

Table 3 presents a static snapshot of these markets. As an indication of how things are moving, refer to Table 4, which (read carefully) shows the percentage change since 2007 in the various penetrations. So, if the 2007 penetration was, say, 50 percent, and the 2008 penetration is 60 percent, the percentage change is taken as 20 percent ([60 – 50]/50 as a percentage change, not 10 percentage points change from 50% to 60%). Got that? Hey, where you going?!

Table 4: Top 10 by Annual Percentage Change in Telecom Service Per-Population Penetrations, 2008

Market Annual change in per-population narrowband subscribers, % Market Annual change in per-population broadband subscribers, % Market Annual change in per-population mobile subscribers, %
Venezuela 18% Paraguay 102% Honduras 48%
Nicaragua 7% Honduras 88% Panama 35%
Honduras 6% Bolivia 74% Peru 34%
Peru 6% Colombia 70% Nicaragua 32%
Argentina 4% Venezuela 61% Paraguay 25%
Ecuador 4% El Salvador 58% Brazil 23%
Colombia 4% Ecuador 52% Dominican Republic 23%
Costa Rica 3% Costa Rica 48% Bolivia 22%
Brazil 2% Brazil 47% Ecuador 19%
Paraguay 2% Mexico 47% Guatemala 18%
Source: Pyramid Research / Light Reading, 2009

The penetration of fixed narrowband is still increasing, but generally only very slightly, in about half the region, and is static or declining slightly in the other half. The main exception is Venezuela, which has a high annual change in narrowband penetration because of the rapid deployment of fixed wireless systems.

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Fixed broadband is growing rapidly across nearly all markets, and the ranking is naturally led by the markets with the smaller penetrations – Ecuador, Honduras, Paraguay, Bolivia, Guatemala, and Nicaragua are each less than 1 percent. Obviously, in a region with many developing markets, there is the issue of the extent to which fixed-line broadband may ultimately be avoided in favor of future mobile-based broadband, 3G or 4G.


Operators, Infrastructure & Services
Generally, mobile telecom services in Latin America are widespread and highly competitive, whereas fixed services have suffered from a history of limited penetration and monopoly provision. However, that has been changing, and fixed-line markets are becoming competitive to varying degrees.

Latin America is no exception to the ongoing telecom transition to next-generation fixed IP infrastructures. A typical example is provided by Diveo Broadband Networks Inc. , a provider of high-speed data services sold on a wholesale basis and with operations in Brazil, Colombia, and Mexico. Increasing traffic volumes and the demand for new capabilities led to the operator, starting in 2008, to replace its ATM core with an IP/MPLS network based on Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) 8800 Multiservice Routers.

In Central America, an earlier migration is underway at Navega.com , which operates a 7,000km fiber backbone network covering its home market of Guatemala, El Salvador, Nicaragua, Honduras, Panama, and (to a limited extent) Costa Rica, including fiber access to customer premises in major cities. The company provides enterprise and carrier’s carrier services, as well as transport services (such as cable TV) and international termination services. Implementation of IP/MPLS (with Tellabs 8600 Managed Edge Systems) began in 2004 in Guatemala, and is being progressively rolled out in all the markets served. One motive is to provide a platform for the transport needs of the future burgeoning 3G mobile operators.

Competition is beginning to have a considerable effect on many aspects of the region’s telecom industry. A simple example is provided by number portability, introduced by Mexico in July 2008 and by Brazil in September 2008.

“Number portability is a very important issue in Latin America right now,” says Alexandre Troise, Latin America VP for OSS/BSS vendor Comptel Corp. (Helsinki: CLT1V). “Many other countries in the region are considering it to increase the level of competition, and this means that many operators will have to make changes in their current OSS/BSS systems to support it.”

He points out that deploying number portability brings with it classic issues of managing the process and also controlling churn.

And TM Forum points out that the evolution of the Latin American telecom market is making its best practices and standardized interfaces important elements of service providers’ transformation strategies. As carriers move from a traditional telco model, focused on technology and quality of service (QoS), to an organizational focus and an emphasis on the customer’s quality of experience, operators in the region such as Telefónica, Telecom Argentina, and Antel-Uruguay are already making use of TM Forum Solution Frameworks (NGOSS) to de-risk and accelerate their transformation programs.

“Smaller carriers in this region are starting to recognize that our standards are equally as relevant to them as they are to larger players, as integration challenges and costs are the same whatever their size,” says TM Forum president and CTO Martin Creaner. “The Latin American market is really starting to recognize the need for standards and best-practice frameworks, with governance cited as a key factor for success in transformation. We plan to further expand our presence in Latin America over the next 24 months.”

3G comes to Latin America
3G mobile is a big regional growth story of 2008.

According to 3G Americas LLC , a group of mobile operators and equipment manufacturers in the Americas using the GSM family of wireless technologies, there were 41 UMTS/HSDPA networks in service in 20 countries in Latin America and the Caribbean at the end of 2008 (see Figure 1), with more than 3 million subscribers. In contrast, there were only two HSPA networks at mid-2007.

Figure 1: HSDPA Deployments in Latin America & the Caribbean at End 2008 Source: 3G Americas, 2009, from public announcements, regulatory bodies, and Informa Telecoms & Media,
December 2008

Unsurprisingly, given its size and number of 3G operators, Brazil currently dominates in numbers of HSPA subscriptions, at 57 percent of the regional total (see Figure 2).

Figure 2: Market Breakdown of Latin America HSPA Subscriptions at End 2008 Source: 3G Americas, 2009

Erasmo Rojas, Director of Latin America and the Caribbean at 3G Americas, characterizes the area as “a unique wireless region” that presents new opportunities for mobile operators. He points to the combination of a currently low mobile ARPU (averaging $15) dominated by voice (the average data contribution to ARPU is about 9 percent), low PC and Internet penetration, limited broadband access, and regulatory reform. These have created a powerful incentive for regional operators to now embrace 3G.

“The operators felt that the time was right in 2006 to begin deploying 3G services to deliver greater network capacity and to boost the value-added data contribution to ARPU that 3G services enable,” he says. “Once 3G HSPA was technically and economically proven in the U.S., it was time for Latin America to consider adopting the technology in existing spectrum, as there were more 3G devices of all types available at affordable prices for end users.”

Almost all of the networks were launched using existing in-band spectrum at 850 and 1900 MHz, but, during the second half of 2008 and into 2009, 3G HSDPA networks began to be deployed in the new 1900/2100 MHz spectrum in Brazil. Generally, the advent of these 3G networks has helped to swing the regional market even further towards the GSM standards

Broadband and triple-play also growing
Despite the region’s enthusiasm for 3G mobile, fixed broadband (especially cable) is also seeing a lot of activity, and user demand is growing.

“The triple-play bundled offer was generally late to arrive to many Latin America countries for reasons ranging from local regulation to the quality of the existing cable networks,” says Chris Zanyk, VP of sales for North America, Latin America, and the Caribbean for VOIP switch vendor Cedar Point Communications Inc. “But, in most countries now, these barriers have been addressed and we see the triple-play offerings exploding throughout the region, with noteworthy examples in Mexico, Brazil, Argentina, and Central America.”

He cites examples such as Cablemas, S.A. de C.V. in Mexico, Videomar in Brazil, Amnet in Central America, and Telecentro in Argentina, where in the past 18 to 24 months cable networks have grown telephony subscribers from essentially zero to tens of thousands or more, and with most of those subscribers also taking Internet or cable TV, or both, from the same provider.

Zanyk argues that, beginning in 2009, business services will become a major market trend for cable operators. If the global recession continues through 2009, operators will look to mitigate any loss of consumer spending by pursuing higher-margin and higher-revenue prospects such as small businesses.

“Most small and medium-size businesses reside within an operator’s existing footprint. And, for those who don’t, WiMax can play an important role in reaching them,” he says. “Small business will want to reduce their own expenses, and this will open an opportunity for the operators to come in with a cost-effective ‘business triple-play bundle.’ ”

WiMax looks set to play an increasingly important role in the region, with many small deployments moving into their commercial phase and several national deployments going ahead. (See WiMax: What’s Working Now, Table 1). One regional WiMax application of interest is by cable operators seeking to offer telephony (and Internet access), but whose existing cable networks would be expensive to upgrade. TV Cable Ecuador is a recent example of a cable operator with both a cable network and a WiMax network.

And it looks as if Latin America’a first deployment of Docsis 3.0 was underway in Brazil in January 2009, following Motorola Inc. (NYSE: MOT)’s announcement that cable operator NET Serviços was using its BSR6400 / CMTS-Edge broadband router and SURFBoard 6120 cable modem equipment in its new NET Vírtua 5G service in São Paulo. The new service will be available in two versions, 20 and 60 Mbit/s, on a trial basis free of charge for all subscribers to the company’s NET Combo HD Max package.

Demand is growing for high-end video services. In 2008, Motorola also provided (HD) MPEG-4 AVC encoding channels to the Home Box Office Inc. Latin America Group (LAG) digital transmission facility located in Ft. Lauderdale, Fla. HBO said that there had been a marked acceleration in demand for high definition programming in the Latin America region – with an increase of over 1.4 million HDTV sets in June and July alone. Meanwhile, Cablevision Mexico, for example, has reported that on-demand TV has proved a strong driver of digital uptake.

IPTV, however, is still very much in its infancy in the region. One early example is that of UNE-EPM, a division of Empressa Publica de Medellín SA, which has begun deploying an IPTV service in Medellín and Bogotá, Colombia. When fully deployed, it will offer broadcast TV, VOD and PVR capabilities to 1.6 million subscribers to the company’s telephone and cable services.