Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
While many developed mobile markets are struggling to continue growing because of deteriorating economic conditions, Latin America will still benefit from a prosperous telecom environment in 2013. Informa Telecoms & Media estimates that Latin America will grow 7.1% year-on-year, ending 2013 with 742 million mobile subscriptions.
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There is a big appetite for mobile data services in the region, which will be the growth engine for the sector. Although voice will remain the main revenue stream for mobile operators in 2013, accounting for 76% of service revenues, data revenues will increase 18% compared to the previous year, topping U.S.$27.7 billion, Informa predicts. The low PC and fixed broadband penetrations in Latin America combined with smartphone price reductions and affordable mobile data plans contribute to increasing mobile broadband adoption.
Lately, the popularity of smartphones has increased significantly in Latin America, and it will consolidate its presence in 2013, accounting for 46% of total handset sales. Meanwhile, Informa estimates that Latin America smartphone connections will increase 35% compared to 2012, ending the period with 140.7 million users.
Mobile broadband adoption has driven the region’s strong momentum for LTE technology, with the majority of operators planning to launch 4G services shortly, according to an Informa industry survey. In contrast to 3G, which took off in developed markets much earlier and faster than in Latin America, now more than 60% of operators polled said they would launch 4G services by 2013. LTE spectrum auctions are also planned in Argentina, Colombia, Jamaica, Peru and Uruguay during the year while the service is expected to go live in Chile and be fully commercially launched in Brazil.
A key challenge for Latin American operators, however, is that LTE is still a relatively new technology, and one that has yet to generate the economies of scale required to bring prices down. Other major challenges are the limited number of 4G handset models available in the market and their high cost. Although more than 40 LTE mobile phones have been launched globally, this is still a fraction of the nearly 2,500 available 3G handset models. But the number of LTE handsets is expanding rapidly, which will drive down costs.
As a consequence, in 2013 LTE will represent only 0.3% of total mobile subscriptions in Latin America. But given the speed at which LTE has been launched worldwide compared with previous technologies, it is likely to be more widely adopted in the medium term.
There are also several government initiatives aimed at increasing the M2M (machine-to machine technology) market in the region. In many cases in Latin America, the development of the M2M market has been hindered by the lack of regulation encouraging the use of the service. Local governments are currently engaged in promoting the use of smart-grid for residential electricity and water systems as well as requesting car manufacturers to install M2M SIM cards in vehicles to prevent car theft.
Specifically in the Brazilian market, taxation for telecom services was price prohibitive for many M2M business models. However, in September, the government approved a reduction of the installation inspection fee TFI—paid by operators to the government’s Fistel fund for each active terminal, from R$38.7 to R$5.68 (U.S.$18.94-$2.78). The cuts, specifically aimed at terminals that integrate communications systems between machines, seek to increase M2M business in the country.
However, although the measures taken by the local governments will contribute for M2M growth, they will not have a big impact in 2013. Despite all the hype around M2M, the costs involved to widely implement M2M in the residential segment will slow the market take off. Informa estimates that M2M connections in Latin America will grow 27.6% in 2013 compared to the previous year, while Brazil will represent 54% of total M2M connections in the region.
During 2013, the region will also see strong pressure from regulators against monopolistic practices in the telecoms sector. Local governments want to strengthen antitrust regulation in the market by restricting the participation of dominant players. Specifically, in Colombia and Mexico, where América Móvil dominates the mobile market with more than a 60% share, discussions will be very hot in 2013. Informa expects restrictions for América Móvil not only in spectrum auctions but also in new rules limiting tariffs.
In addition, local regulators are more engaged to monitor quality of services by drafting regulations to ensure high quality for the services provided. In Brazil, telecom regulator Anatel has already intensified regulation and fines against bad telecom service quality. Informa expects that other Latin American countries will go in the same direction in 2013, implementing more severe rules for operators that fail to maintain some standards of quality, while consumers will be the big winners.
Marceli Passoni is research analyst at Informa Telecoms & Media.
