7 Jan 2009

How (hard) will financial turmoil hit Latin American telecoms markets?

I am currently advising Sao Paolo-based colleagues about the topics which should form the basis of the conference agenda at this year's Americas Com event in Rio de Janeiro, which will take place 30 June & 1 July. It was therefore timely for me that two of the blogs linked from this one have (quite) recently taken up the theme of how far Latin America's telecoms markets will be affected by the economic crisis currently gripping us all.

The first of these commentators is Australia-based Paul Budde, who helped me with a project last year and whom I finally had the great pleasure of meeting here in London after much correspondence and many friendly phone conferences at some very unusual times of night. It became clear during our conversations, and from what I was told by contacts at telcos in Australia, New Zealand and the Pacific islands, that Paul is well-known figure on the telecoms scene in that part of the world. Paul moved mountains to arrange the presence of key people from several countries' telecoms/IT ministries at an industry gathering he chaired for me in Sydney. The feedback about his role in making this a really productive meeting was incredibly positive and Paul knows I remain in his debt. My only regret was that other priorities made it impossible for me to attend the event myself.

Closer to home, our very own Tammy Parker has thoughts on the same questions. Tammy is a Principal Analyst within Informa Telecoms & Media, where she manages the Mobile Americas Intelligence Centre, which provides thought leadership, news analysis, key metrics, forecasts and more regarding operators, service providers, vendors and trends involved in shaping the mobile communications industry across North America, Central and South America, and the Caribbean.

Better late than never, this week I stumbled upon Paul's blog entry of October 13th 2008, in which he discusses how the region's telcos are expected to fare in the near future.

Paul notes that in mid-September 2008, several Latin American governments were claiming that the US financial predicament would have no impact on Latin America, because after its recession of 2001-2003, the region had taken sufficiently strong economic and fiscal measures to avert the reoccurrence of such a crisis. He goes on to observe that this confidence quickly proved to be misplaced, given that in the first week of October, stock markets from Sao Paulo to Mexico City took a hit and national currencies slumped against the US dollar. According to Paul, following the stock exchange panic, the region’s heads of government drastically revised their position, expressing alarm at a situation that could devastate the economies of Latin America, which have been reaping for the past few years the rewards of high global demand for commodities. Paul does not believe the picture is entirely black, noting that the major Latin American economies have built up solid national reserves and that in its World Economic Outlook published in early October 2008, the IMF revised downward its previous forecasts for global economic growth. The revision, says Paul, is not too dire for Latin America, although the IMF warns that all forecasts are subject to change and that the outlook is highly uncertain.

Turning his attention to our sector, Paul believes that "to date, telecom companies appear to have dodged the worst of the crisis. For example, on 6 October, only two out of the 35 stocks listed on Mexico’s IPC managed to close higher, and they were both telecom stocks: Telmex rose 1.5%, while Carso Global Telecom gained 3.1%."

These companies are both controlled by Mexican billionaire Carlos Slim. In the mobile segment, Paul observes, "his other major investment, pan-regional mobile giant América Móvil, pared its losses to finish 1% down, a far smaller loss than that experienced by most other companies.

Paul goes on to look back at the region's recession for 2001-2003, wondering how far the the lessons of that period might be applied to the current crisis. Paul notes that "at that time, the sector that suffered the most was cable television, while mobile telephony only slumped slightly. The fixed line market came to a halt and never recovered, as countries joined the global mobile substitution trend. The broadband market, still in its infancy, experienced a delay in growth that is still evident today, in that Latin American broadband penetration is lower than would be expected given the region’s other economic indicators."

Paul's view is that if the present financial crisis deepens, the telecom services worst affected are likely to be those that provide entertainment, such as pay TV, digital media, and non-corporate mobile data services. Paul is quite bullish about mobile telephony, stating that it has become such an essential facility that it is likely to continue growing, though at a reduced rate.

Tammy's view, as expressed in a November blog entry, is that "slowing growth... will logically affect mobile operators in the region", and she notes that "Merrill Lynch recently predicted that mobile subscription growth in Latin America would remain steady in coming months but said mobile ARPUs could fall on average 6% in local currency in 2009." According to Tammy, the firm said it does not see Latin American operators cutting OPEX or CAPEX because of funding needs. I draw encouragement from this last point. A big feature of our events is the business of matchmaking between operators and vendors. I will naturally be encouraging our sales guys to flag up this relatively positive sentiment about operators' technology spending.

Paul Budde feels that broadband development will be more than ever dependant on government and regulatory efforts, and hopes that "the lessons learned from the disaster of unfettered speculation may lead to a more methodical and far-sighted approach to telecom investment, with a view to public wellbeing such as E-health, E-education, E-government, and other social services."

With this in mind, we will be working harder than ever to encourage the region's regulators and relevant government departments to weigh into the discussions at Americas Com in 2009.