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.

Prospects for MVNOs in Latin American markets

A Cellular News story this week focused on the prospect of more competitive market conditions in Peru. Proinversión, the country's agency for private investment promotion is apparently planning to auction spectrum for the cities of Lima and Callao and make further spectrum available nationwide. As far as I can make out, this will open the way for a third GSM mobile operator. Currently, Peruvians are offered a choice between Claro (backed by Mexico's America Movil) and Movistar Peru, part of Telefonica's extensive Latin America footprint. These two operators currently have 39.22% and 57.31% of the country's mobile subscriptions, according to the Informa Telecoms & Media WCIS database. The remaining 3.47% are owned by Nextel Peru, an iDEN operator owned by NII Holdings of the USA. Whenever I visit Argentina or Brazil, I can't help noticing that almost every taxi I take is driven by a subscriber of the local Nextel-branded operator. The drivers routinely use the Push-to-talk over Cellular functionality of their handsets to keep in touch with their colleagues. It is my understanding that the various Nextel iDEN operators around Latin America focus their efforts on this and other business applications rather than attempting to compete aggressively for consumer business. I daresay, therefore, that in the Peruvian market, the local Nextel operator would be least seriously affected by the entry of a new GSM player.

While calling contacts around Central Asia and the Caspian region this week (in preparation for our Eurasia Com conference), we have been asking for views on how much more the various markets are likely to become. We keep hearing opinions about the 'optimum' number of mobile operators for any given market. I wonder, therefore, if a third GSM operator in Peru would take the number of competitors up to or beyond the 'optimum' level. I suppose it depends on who you ask.

One opinion, reported in the Cellular News piece, comes from José F. Otero, President of Signals Telecom Consulting and the author of a report on the Peruvian market. Otero notes that "any new mobile operator making its entrance into the Peruvian market will be faced with a variety of difficulties. The most important among these are an estimated 70% mobile telephony penetration rate (by the end of 2008) and the low level of personal income of a large part of the local population. First of all, a potential new operator not only would have to compete against well known brand names like Claro, Movistar and Nextel. It would also have to deploy a network in a rural areas having irregular topography that would increase infrastructure costs in regions having very low levels of disposable income. This means it would take longer to achieve a positive return on the investments made.”

In the article, there is speculation about "a new competitor like the Brazilian operator Oi" potentally looking at entering the Peruvian mobile marketplace via "an MVNO type plan"

When studying the markets across Latin America and attempting to keep track of all the various service providers, the absence of MVNOs has stood out for me. At our recent Americas Com conference in Rio de Janeiro, I heard conflicting view about when/if MVNOs would enter the Brazilian market. Some delegates seemed to feel that the country's regulator, ANATEL, was some way from enabling prospective virtual service providers to compete for business with Brazil's MNOs. However, one high-level executive from one of the operators told me he felt that MVNOs would be making their market debut in Brazil "quite soon."

A spot of Googling this morning revealed that Sixbell Nekotec Solutions, a "a leading Latin American corporation developing value added software and service systems and system integration" has ambitions around entering the Brazilian market as an MVNO targetting low income subscribers.

In the context of this uncertainty in, I was interested to see someone from Claro Brasil (America Movil) asking about the impact of MVNOs on Latin American markets to members of the Americas Com LinkedIn group. The most interesting answer so far comes from a Regulatory Policy official at the Mexican regulator COFETEL, who writes: "There is no specific ruling and/or regulation in Mexico for MVNOs. As a matter of fact, if you are already a carrier that has a license to offer services, you only need a confirmation from the authority to resale unused capacity of other carriers, as reselling for licensees is permitted by the Law. In the case of Maxcom (which is a licensed carrier) they resale unused capacity of Telefonica Movistar. In the case of parties wanting to resale services and that do not have a license, they need to follow a procedure to obtain a permit for reselling. There is a specific ruling for ILD resellers issued in 2004, but the current policy in Cofetel is that permits for any service will be granted if the applicants comply with the law and specific regulations."

My sense is that at the next Americas Com conference (Rio de Janeiro, May 2009), more time will be spent discussing MVNOs - both on stage and offline in the networking sessions. We are feeling bullish here about the prospects for a strong event, having strengthened the team working on the research and speaker acquisition parts of the project. Much of that activity will now be run from our sister company in Sao Paolo. I will be welcoming their team leader here in London next week and ensuring that our Brazilian colleagues have everything they need to make Americas Com the must-attend discussion and networking forum for telco execs from all over Latin America in 2009 and beyond.

US cellular pioneer urges US carriers to go (back) to emerging markets

There seem to be some interesting messages in John Stanton's speech at last week's CTIA Wireless IT and Entertainment show in San Francisco. Stanton's profile is such that his comments are bound to hit the headlines, as with this write-up from the Register. Stanton was co-founder of pioneering US wireless carrier McCaw Cellular. Cade Metz, the Register's man at the event in San Francisco, says that Stanton "questioned the sanity" of the T-Mobile US, Verizon Wireless and Sprint Nextel CEOs who had "spent the morning discussing their gradual transition to... networks that accept any device and any application".

Stanton articulated the view that this approach is tantamount to making the mobile operator an access provider, stating that access is (or is fast becoming) a commodity business. He argues that "if you become a pure access technology, in a saturated environment, you’re ceding yourself to growing at the rate of the economy." Stanton feels that big European and Asian carriers are "already limited by economic growth.... and US carriers are well on their way to the same fate."

Metz reports Stanton's two suggested remedies for this. Firstly, US carriers need to "own significant content", something they have "essentially ceded... to the Googles". Secondly, Stanton invited US telcos to follow his lead by investing abroad.

The first point prompted a number of incredulous responses on the Register's comments page, mostly focused on how carriers worldwide have not fared well with a walled garden approach to mobile content. I can only add that in 6+ years of attending telecoms sector conferences and talking to telco execs, I've sensed more and more people coming around to the view MNOs are best advised to be good citizens in a multimedia ecosystem which involves content owners, aggregators, distributors etc. all getting their slice of the cake in exchange for bearing some of the risk around developing new products.

Stanton now oversees the Trinity Partnership, which invests in wireless-related companies and runs various international mobile networks, including Neuvatel PCS (Bolivia), Comcel Haiti. These two companies operate in markets where mobile penetration stood at, respectively, 45.11% and 37.29% by June 2008, according to Informa Telecoms & Media's WCIS. Clearly, there is a lot more room to grow here than in saturated Europe and near-saturated North America, hence Stanton's advice to his compatriots.

It's heartening to see someone so prominent talking up emerging telecoms markets as a smart bet. Here at Com World Series HQ, we also believe that developing markets worldwide are where the action is for telcos and their suppliers. We enjoy navigating the challenges of connecting these two groups in locations as diverse as Istanbul, Rio de Janeiro and Abuja, Nigeria.

While doing so, I've certainly observed that European and Middle Eastern telcos have a collectively much bigger presence in emerging markets than US companies. The latter seem to have been in retreat for some time. For example, in the few years I've covered telecoms markets in Eastern Europe, I've seen Metromedia International Group dwindle from a collection of cellular and broadcast radio assets around Russia, Kazakhstan and elsewhere. I believe the company's only holding in that region now is Georgian cellco Magticom. In South America, US household names such as Verizon and BellSouth have been divesting assets since earlier this decade.

Having not long returned from our Americas Com conference in Rio de Janeiro, and having toured a few South American countries earlier this year, I am struck by the strong position of Spain's Telefonica, Mexico's America Movil and, to a lesser extent, European players such as Telecom Italia, Portugal Telecom and Millicom International Cellular in the region.

John Stanton said last week "the major American companies have essentially retrenched, which means scale is going to be ceded to foreign companies." In the regions I cover, it feel like that has already happened.

Millicom CEO: scale is not the key in Latin America, Africa

During the long run-in to next week's Americas Com conference in Rio de Janeiro, I naturally look fairly closely at the competitive landscape in most the countries of Latin America. In the mobile space, this can be summarised in many markets as a battle between varying combinations of three companies. Two of these are telecoms giants - America Movil and Telefonica. The third is a smaller business headquartered in Luxembourg, Millicom International Cellular.

Millicom, whose services across Latin America are branded Tigo, is present in El Salvador and Guatemala and Honduras, where its local operations are market leaders. In South America, the company is present in Bolivia, Colombia. and Paraguay. Millicom has the largest market share only in the last of these three South American markets.

Earlier this week, in an interview with Investor's Business Daily, Millicom CEO Marc Beuls denied that larger competitors enjoy overwhelming competitive advantages: "Size isn't a reason for any of our competitors to be more successful in these markets than us. In Latin America, we compete against two giants, America Movil and Telefonica. This industry has more to do with innovation and launching new products and services, not so much technology, because much of that is the same among operators."

Having visited two Tigo-branded cellcos' HQs back in April (in Paraguay and Bolivia), I was disappointed not to have secured the participation of either for next week's conference. Frankly, across the group (in Latin America, Africa and SE Asia) we find Millicom subsidiaries to be a little wary of speaking or otherwise having a very visible presence at our conferences. We hope to resolve that in 2009.

Beuls says that "it was only three years ago that we started focusing on Africa and began investing substantial amounts of money. We've been able to improve our market position in most markets, the only exception being Sierra Leone. In Ghana, our largest market in revenue, we're No. 2 out of four operators. We're No. 3 in Tanzania, with 22% share, and gaining ground on the two largest operators."

Noting Vodafone's move on the Ghanaian market, the interviewer asked Beuls whether bigger operators have an edge because they can purchase mobile phones in large volumes and sell them in retail stores priced as low as $20. Beuls responds: "We don't play the handset game. We don't sell any handsets in Africa. The handset supply is there. A lot of the phones you find at (retail) dealers are second-hand, used phones. You can get a mobile phone at any price, a used one for $10 or a new one for $200. There is no need to get involved in that part of the market, whereas in Latin America operators are involved in the phone business."

Buels was asked whether bigger groups enjoyed advantages around roaming. Zain's promotion of services across national boundaries was mentioned, something which is now more relevant for Millicom given the Kuwaiti-headquartered cellco's presence in some 15 African countries.

Beuls argues that in the prepaid segment in Africa there is not much value in roaming: "Those customers are not mobile, they're not traveling. Maybe they're going from town to town, but not out of the country."

I am not closely involved in our Africa-specific events. These are managed by my colleague Julie Rey. However, I am close enough to the action to say confidently that October's Africa Com conference in Cape Town looks set to be bigger, busier and more exciting than ever. I daresay some of the questions mulled over this week by Millicom's Beuls will be discussed on stage and offline at the event.

Looking ahead to insights from Ecuador at this year's Americas Com

Yesterday's Cellular News arrived in my inbox, bringing to my attention another WiMAX deployment in Latin America, this time by Ecuadorian state-owned carrier, Pacifictel. Airspan are supplying the base stations and CPE. I would be interested to know if there are plans for Pacifictel's sister company Andinatel to select the same kind of equipment and offer similar services, mainly because of a few snippets my team picked up while trying to secure the participation of Ecuadorean telcos at our imminent Americas Com conference and exhibition (September 9-10, Rio de Janeiro). We try to avoid asking telco executives to talk on very generic subjects, preferring to link each prospective speaker with something genuinely novel and value adding for the hundreds of telecoms sector delegates we gather from across South and Central America.

In the case of these two state-owned telcos from one of only two countries in South America not to share a border with the host country of the conference (ten points for telling me the other one without using Wikipedia!), we learned that plans are afoot at least to investigate the logic and processes around merging what are currently quite separate businesses. In case it's not obvious from the companies' names, Andinatel serves the Ecuadorean interior region while Pacifictel offers services in the ten coastal provinces. The companies are also aligned with Alegro PCS, a CDMA mobile operator (also state-owned), which lags far behind its two GSM rivals in terms of market share. According to Informa Telecoms & Media's invaluable World Cellular Information Service, Alegro's share of subscriptions shrank from 4.03% down to 3.00% in the period March 2008 to June 2008, losing further ground to Telefonica-backed Movistar Ecuador and América Móvil-owned Porta, whose website seems to be announcing the availability of 3G services.

When talking to industry-watchers about what Andinatel and/or Pacifictel might add to an already compelling conference agenda, we picked up on merger talk. Confirmed by a Telegeography story, we learned about about reports in the country's La Hora newspaper detailing a strategic planning consortium/council which plans to design a unified corporate policy and manage the operators' infrastructure. These plans apparently include integrating the mobile business into a future merger.

Back in April, I had the considerable pleasure of visiting telcos in Argentina, Venezuela, Bolivia and Paraguay. In the latter two countries, we visited a number of cooperative-owned LECs and the state-owned incumbent fixed-line operator respectively. I was struck by the relatively modest scale of these organisations and wondered privately whether the Bolivian telecoms sector especially might not benefit from some level of consolidation. Currently, the competitive landscape in wireline looks like this: Entel is the incumbent long-distance carrier (and is associated with Entel Movil, an MNO), but the co-ops do better in terms of the local exchange market. Each major city/region is home to its own telecoms co-op. We visited two of the more significant ones away from the country's capital. Given that we've enjoyed some success in attracting the Bolivian co-ops to this year's Americas Com, I thought it might be instructive for them (and other relatively smaller telcos from similarly fragmented markets) to learn more about the proposed Andinatel-Pacifictel-Alergo merger.

While we remain unsure of whether any of this trio will be sending representatives, we did manage to secure the participation of ETAPA, a telco based in the country's third largest city, Cuenca. ETAPA General Director Boris Piedra will join the panel of speakers, speaking about the company's efforts to bridge the digital divide between the information society haves and have-nots. I really look forward to learning about this in more detail at the event - and I must admit, I'm also looking forward to another benefit of attending Americas Com in Rio - getting away from this thoroughly miserable on-off English summer...