2011 Latin America - Telecoms, Broadband and Mobile Forecasts

Mobile and broadband sector growth compensating for falling fixed-voice revenue

The telecoms sector across Latin America during the next few years will be characterised by strong growth in the broadband and mobile voice and data sectors, itself compensating for the continuing decline in the fixed-voice market.

Fixed-voice revenue will steadily fall in line with the loss of subscribers as these migrate to VoIP and mobile-only alternatives, while broadband growth will be stimulated by ongoing consumer demand for high-bandwidth applications made more readily available through operator investments in network upgrades. The mobile data sector will be a key focus for sector investment as operators seek to generate revenue from emerging data applications and as governments and regulators promote high-end mobile technologies such as HSPA and LTE to deliver effective broadband to rural areas and smaller towns.

In the fixed-line sector generally, investments among incumbents and alternative operators alike will be focussed on developing upgraded networks capable of supporting bundled services, offering combinations of cable TV, IPTV, broadband, VoIP, mobile services and fixed-voice telephony. A by-product of consumer demand for services is that the number of fixed lines is likely to increase in some markets where teledensity is particularly low, since new lines as much as upgraded ones will be required to deliver these services.

Although the market for bundled services remains nascent, growth is expected to follow rapidly once existing copper networks have been upgraded with ADSL2+ and VDSL or replaced with fibre: although FttH has had scarce uptake in Latin America, primarily due to high investment and engineering costs, a number of existing projects concentrated in Mexico, Brazil, Argentina and Chile are likely to be the precursor for stronger growth in coming years, initially in urban areas but inexorably including less densely populated areas.

This investment will be stimulated by operators exploiting the bundled services sector, which requires higher capacity networks, and be facilitated by the know-how of major players such as Portugal Telecom and Telefónica which have considerable experience in this field in their European markets.

Another nascent development is with Local Loop Unbundling (LLU), which has been the catalyst for phenomenal growth in the broadband sector across Europe and other regions, both in terms of consumer take-up and competition, but which thus far in Latin America has been poorly legislated for and inadequately regulated.

Nevertheless, given government awareness of the importance of broadband infrastructure to overall socio-economic development, if sympathetic regulatory measures are put in place and enforced in some key markets this should considerably stimulate the sector, allowing for the emergence of new market entrants and lower consumer prices. Thus during the next decade the fixed broadband market across the region is expected to develop substantially, albeit from a relatively low penetration base. An important proviso is that in rural regions growing broadband penetration is likely to be characterised by mobile networks rather than through DSL.

In the mobile phone market, dominated by the lower cost prepaid sector, most countries now have above 100% penetration. The market has benefitted from a number of stimuli, not least of which are inadequate fixed-telephone infrastructures and topographical issues which render the laying of such infrastructure to many non-urban areas uneconomical. As for traffic, mobile telephony reached a par with fixed-line services as early as 2001, and now commands about 85% of the market, far ahead of the dynamics of Europe and other regions.

The trend for the region in coming years will be the continuing roll out of 3G services: by mid-2011 at least 27 countries had 3G networks in place from a range of operators. Many have launched HSPA and HSPA+ technologies to provide services including mobile broadband, multimedia services, mobile games, video calling and mobile TV. Although mobile data use is forecast to grow at 50-60% annually on the back of this infrastructure, supported by the growth in the use of smartphones, it will not be matched by revenue which is unlikely to reach beyond 5-10% in most markets, given the pressure from competition and the emergence of flat rate tariffs.

The rapid increase in the number of 3G subscribers has also affected the 2G market: the number of 2G subscribers will diminish towards the end of the decade as they migrate to 3G plans and as new subscribers sign up for 3G in the first instance. In addition, by 2014, 4G (LTE) services, expected to be launched initially in Chile and Colombia, will be widespread following the ongoing auctions of suitable spectrum.

Market highlights:

• Broadband growth is expected to remain at about 16-18% across the region in both 2011 and 2012, stimulated by operator investments in networks in part aimed at satisfying consumer demand for bundled services.
• Broadband population penetration is expected to approach 9-12% by 2012/13. This remains far below Europe and some Asian markets, but strong growth from a relatively low base will see some parity with these more mature markets by the end of the decade.
• The first LTE services are expected to see commercial launches by the end of 2011, with a growing number of operators offering services by 2014.
• Telefónica’s rebranding as Movistar across its markets is part of a restructure aimed at unifying fixed, mobile, broadband, and pay TV services under a single brand, and so associating the company with a range of cross-platform bundled offers.
• Fixed-mobile substitution will exacerbate the decline in fixed-voice traffic in coming years, though since most incumbent operators offer both services revenue from subscribers will largely be retained.
• The growth in the 3G subscriber base may reach 140% in 2011, accounting for a quarter of all mobile telephony subscribers. While 2G is expected to show steady growth for the next few years, by the end of the decade the sector will be dominated by 3G and, increasingly, 4G as LTE networks are commercialised.
• Cable broadband, accounting for a third of all regional broadband subscribers, should show continued growth in coming years as cablecos invest in DOCSIS3.0 technology capable of providing download speeds of up to 120Mb/s. This capability is ahead of current hybrid VDSL/FttB networks, which have a limited footprint, and may encourage churn from DSL customers seeking higher bandwidth.

Data in this report is the latest available at the time of preparation and may not be for the current year.