Bridging the gap

Most Latin American countries, having avoided the worst effects of the global economic downturn, are poised for a period of sustained growth, with likely consequences for demand for telecoms services.

Enterprises across the region are boosting service provider turnover through the outsourcing of their network needs, says Hector Alonso, MD for Latin America at Global Crossing. “Companies here are preferring to focus on their core business, relying on telecoms experts to make them more efficient by managing all their communications operations while, at the same time, cutting costs,” he says.

Alonso says Latin America has one of the highest IP market growth rates worldwide, driven by corporate hunger for a new generation of bandwidth-hungry applications: “The need for unified communications solutions, such as video, audio and teleconferencing for employees working remotely is on the rise. Cloud computing has become popular for achieving economies of scale and reducing network costs.” An emerging data centre sector, he says, is being boosted by enterprises concerned about business continuity and security, while virtualisation is now a recognised way to simplify corporate operational support systems.

“Greater bandwidth is required in the region, which has to be addressed through an increase in the capacity of existing subsea cable systems, and construction of new cables on less well served routes,” believes Alonso. “That’s why we recently expanded our south American, mid-Atlantic and pan-American subsea systems. As subsea systems expand and capacity broadens, carriers will be able to access new geographic locations and provide faster, more efficient services.”

Arguments in favour of new cable capacity have also been sharpened by the growth of mobile and fixed broadband traffic, says Wally Swain, Colombia-based senior VP for emerging markets at analyst firm Yankee Group. “When is capacity going to run out? Where is pricing going? All these questions are now at the centre of the agenda,” he says.

Another driver of bandwidth demand that Swain sees manifesting across Latin America is IPTV: “We’re seeing the law changing in various places to allow telcos to deliver IPTV services directly,” he observes. “Their not being allowed to has stifled the market so far. Another big change coming to Latin America is MVNOs. There have been almost none in the region to date, but now MNOs are talking about it and things are happening, maybe by this summer.”

With or without virtual operators, the Latin American mobile services market is in rude health. According to analyst firm Wireless Intelligence, it is set for 12% growth during 2010.

“Operators are looking for ways to increase ARPU, grow content streams and spur innovation,” says Pablo Mlikota, senior vice president for Caribbean and Latin America at Syniverse, a provider of products and services to mobile operators. “Prepaid continues to dominate the Latin American landscape, accounting for more than 83% of total subscriptions, unchanged for the past 24 months,” he says. “SMS is growing at an unprecedented rate in Latin America and has truly become mobile’s killer application. In Argentina, for example, the average SMS usage has grown from 94 messages per month per user to 370 in two years.”

The low ARPU generated by the less moneyed mobile telephony consumers of the region is an ongoing bugbear for mobile operators, even if subscriber numbers are rising fast, says Anandan Jayaraman, chief product and marketing officer at Connectiva Systems, a vendor of revenue and risk management software. “Operators want to measure usage, reduce dormancy and increase the adoption of value-added services that will increase revenue per user,” he says. “A lot of the Brazilian and Argentinian operators are focussing their attention on this. Bundling is very popular, so they are trying to come up with attractive packages that have content as well as connectivity. A lot of mobile operators include automatic subscription to mobile social networks.”

Among Latin America’s wealthier classes, 3G is becoming a hot item. Poor penetration of fixed-line broadband, common to almost every Latin American economy, is offering a major leg-up to unwired broadband.

“The majority of wireless operators are focussing their marketing strategy on mobile broadband access,” says Valter Wolf, head of market intelligence in Latin America for vendor Nokia Siemens Networks. “As a result, wireless carriers have sold more 3G USB modems than 3G phone handsets, as consumers mostly use wireless broadband to log on to their laptops. But 3G network capacity management is both a challenge and an opportunity for almost all operators in Latin America. Due to the rapid growth, many HSPA networks may soon face congestion issues.”

Latin American carriers are benefitting from the growth in demand for data centre connectivity, says Hugo Zanon, sales director at Terremark, an operator of data centre facilities across north and south America. “I’m seeing carrier demand for our facilities on the rise in Brazil and Mexico, Peru and Colombia too,” he says. “Data centres and telecoms always have a correlation with general economic trends. I see this year as a bridge between the end of the downturn and a big growth period for certain countries. Brazil, for example, has so many more people who are consumers of services now, and while Mexico has suffered because of its close ties with the US economy, it is recovering well. And there’s lots of international carriers looking for a presence in the region. Subsea cable businesses will be getting a lot more business coming their way.”

As regional manager for Latin America with IT and telecoms recruitment agency Networkers International, Mathias Mieville has a useful perspective on how the communications market is developing country by country.

“Things are starting to move again following a slow 2009, and there are some exciting projects to look forward to in Latam,” he says. “During the second half of 2010, these projects should come to fruition meaning we should see an increase in demand for human resources – both independent contractors and permanent employees.”

In Mexico, Mieville is expecting great things from the implementation of new wireless frequency, and the migration and upgrade of existing networks from 2G to 3G, and before long to LTE. “There will also be services opportunities in Mexico created through a new Federal Government Health Institute project valued at $400 million, and a nationwide FTTH project,” he says. “Costa Rica’s government is at last loosening up on private sector involvement in telecoms, with two new operators building mobile networks.” And Chile, says Mieville, will be investing heavily to rebuild after the recent earthquake catastrophe. “Some estimates say 2% of Chile’s GDP has been knocked off by the quake,” says Yankee Group’s Swain. “But its fundamentals as a telecoms market are still strong, and it’s still one of the most dynamic in the region. Entel will have LTE services soon. It already has 3G.”

Chile’s mobile broadband market took off in the first quarter of 2008 and by late 2009 it was accounting for approximately 23% of the total broadband sector, according to analyst firm Buddecomm. In December 2009, Chile became the first country in Latin America and the fifth in the world after Sweden, Norway, Japan, and the US to test LTE technology.

But Swain sees the most dramatic Latin American developments happening in Brazil and Mexico: “In Brazil, the story is all about growth – in traffic and in subscribers,” he says. “The issue with the biggest impact on wholesale is the growth in mobile broadband traffic. Mobile operators are not sure how to cope. In Mexico, it’s the same old players, but a change in the balance of power from Telmex to other telcos. There’s been a concerted effort by the government to get away from the dominant position that Telmex has in the market. They want to stimulate lower pricing and newer services as a way of boosting demand.”

Argentina, though blessed with relatively modern infrastructure, has a telecoms market that is being held back by the country’s political situation, says Swain: “The same family has been in power since 2002. “They seem to have other priorities than competition in telecoms and whether people are getting the services they should. A certain amount of change has been forced by competitive cable operator Clarin.” He says the region is playing a bigger role in the global economy: “Strong export growth means increasing traffic demand but also shifting traffic patterns,” he says. “Brazilian commodities are playing their role despite a strong Real relative to the US dollar. China’s ongoing thirst for raw materials is leading the charge and this means a shift in traffic flows to that country.”

But as its global importance grows, there’s no ignoring a continuing problem of how to deal with the need for universal communication services in a region that divides more sharply than almost anywhere in the world between well off and very poor. Telecoms infrastructure is becoming relatively well developed in the capitals and major business centres, but rural areas sometimes lack any form of telecoms access whatever. This is surely Latin America’s next big telecoms challenge.