WASHINGTON-The heat is up again in Latin America, and it has nothing to do with El Nino.
The region’s unmet demand for services and high potential for growth have called the attention of Americans, Europeans and Asians vying for a piece of the action. Until now, this action meant securing a cellular license. Just recently, though, the path for PCS (Personal Communications Services) has opened, giving players a second chance at that promising region.
“The new PCS licenses provide those companies that aren’t in certain markets with a new entry opportunity,” said Bruce Edgerton, senior consultant at Washington, D.C.-based The Strategis Group.
Despite the inherent risk of doing business in the volatile region, there is plenty of interest.
“Although in Latin America the country-risk is fairly high, the telecom-sector risk is relatively low,” said Dion Joannou, director of mobility marketing for Northern Telecom CALA (Caribbean and Latin America). The financial backing secured by recent licensees for their ventures is a good measure of low risk, he explained. “Nortel has a long-term strategy for Latin America, which translates into a commitment to every country, every technology and every market. And PCS is the next growth sector in the region.”
Nortel recently was awarded a US$72 million contract to install a CDMA (Code Division Multiple Access) digital PCS network to expand Telecomunicaciones de Guatemala’s (Telgua’s) current fixed network of 430,000. The new network will add capacity for an additional 150,000 subscribers, which will ease the congestion in high usage areas, such as Guatemala City.
Guatemala thus has become the second country in the region, after Chile, to break into PCS. The service is scheduled to be launched in the second quarter.
Among its neighbors, Chile from the beginning has been in the forefront of liberalizing and modernizing its telecommunications sector. Of the three national PCS licenses awarded in 1997, Entel Personal Communications snatched two, and ChileSat the third one.
ChileSat, a subsidiary of Telex Chile, expects to offer CDMA service by June in Santiago and then nationally. Entel combined both its licenses and in March started to offer GSM (Global System for Mobile communications) service in Santiago. The company signed up 40,000 subscribers during the first five weeks.
Other countries in the region also are moving ahead, albeit slower, in regulating and licensing PCS operations.
It has been a start-and-stop situation in Argentina. The government resumed the bidding process earlier this year after allegations of scandal and legal issues tainted last year’s attempt, cooling interest from major players such as AirTouch International and AT&T Corp.
The two 30 MHz licenses are coveted because they include the Buenos Aires area, with its 12 million inhabitants. The two incumbents, Miniphone and Movicom, will be awarded 10 MHz each. To ensure fairness, they also will pay for the frequency allocations. PCS will not be offered nationally until the second quarter of 1999.
At Global Wireless press time, the Argentine auction once again had been suspended.
Mexico currently is carrying out its multiple-round auction, simultaneously auctioning WLL (Wireless Local Loop) and PCS frequency spectrum. The main contenders for the PCS licenses have been Midicell, Grupo Iusacell and Radio Mobil Dipsa (Telcel), the wireless arm of Telefonos de Mexico. The auction is expected to wrap up by June.
Colombia has resumed the preparation of a decree regulating all aspects of PCS after a disagreement with the cellular operators slowed down the process; the debate centered around whether the government was allowed to license competitors before September 1999, the date until which Colombia has guaranteed cellular operators market exclusivity.
Although details have not been finalized, the government is expected to license two operators for each one of the three regions (East, West and North Coast). It expects to award the licenses by this year, and service should start by the end of 1999.
Venezuela’s first attempt at granting two PCS licenses last November didn’t find any takers. Edgerton believes that “everyone’s attention [and money] were focused on Brazil, which hurt smaller markets, such as Venezuela and Colombia.” Because of tension between the Venezuelan government and the cellular operators, Edgerton expects most interested parties to wait for the new telecom law, currently being drafted, before committing to the country.
Brazil is not expected to license PCS before 31 December, 1999, according to the rules of the B-band auction.
Other, smaller markets such as Paraguay are taking concrete steps. The country recently licensed U.S.-based MasTec Technologies to build and operate a PCS network. Also in Paraguay, Argentina’s Telecom Personal will be entering the market through its 75-percent share in PCS license-holder Cable Insignia. Telecom Personal is a joint venture of Telecom Argentina, STET International and France Telecom.
Despite all this interest, the main question in everyone’s mind is whether the Latin American markets actually can support so many operators.
Edgerton is quick to point out that “PCS is viable in some market regions,” but not all, for financial reasons. “PCS is better for densely populated areas, such as Buenos Aires and Mexico City. Otherwise, it’s not cost-effective.” Before licensing PCS carriers, “most countries will have to decide if their marketplace can support three or four carriers,” he concluded.
Simon Flannery, telecommunications analyst at New York-based JP Morgan Securities Inc., believes that “more competitors will change the dynamics of the marketplace. Although the major metropolitan areas can support three or more [cellular and PCS] carriers, I expect the introduction of PCS competition to slow down cellular subscriber growth and decrease revenue per customer, just as it happened in the U.S.”
Ed Czarnecki, director for international consulting at U.S.-based BIA Consulting, also expects PCS deployment in Latin America to mimic the U.S. experience: “Although the prime market is smaller in Latin America, because of income distribution, competition will be fierce. Companies will have to fight to gain and retain market share.”
The adoption of advanced customer service practice will be crucial, he said. “It will be a new business paradigm in Latin America, but the same level of customer service we have now in the Unites States will exist in Latin America in just a few years.”
PCS in Latin America also is expected to diversify technology choice among the many operators. So far, TDMA (Time Division Multiple Access) is the most widespread technology among cellular operators. But Nortel’s Joannou believes the PCS landscape will be more varied in terms of technology selection.
“When selecting between TDMA, CDMA and GSM for their PCS networks, operators will look at differentiation, roaming and maturity of technology,” he concluded.
