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Latin American mobile markets have experienced incredible growth in the past 10 years. The majority of countries went through privatization processes during the 1990s, and in the first decade of the 21st century, the market expanded across the region. Informa has been tracking the Latin American market for many years, and an analysis of data from December 2002 to September 2012 showed that the mobile penetration rate in the region grew from 19% to 110%.
However, this growth was not uniform across all the countries in the region. The transformation took different forms and had different outcomes in each country. To understand what is behind these different growth patterns, Informa analyzed mobile penetration and market concentration data per market for the past 10 years.
Informa analyzed data in 40 countries and territories in Latin America from December 2002 to September 2012 to test the correlation between the level of competition in the market and the mobile penetration rate. For this, Informa calculated the Herfindahl-Hirschman Index (HHI) for all 40 markets and calculated the correlation with the penetration rate. All in all, 27 markets showed a strong negative correlation, i.e., the lower the HHI, the higher the mobile penetration rate. The HHI is one of the most widely used methods to estimate market concentration. The table below shows the HHI for all 40 markets selected for this analysis. By this measure, Brazil is the least concentrated market, while Cuba, the Bahamas and Montserrat are the most concentrated.
Market dynamics
One of the first findings of the study is that there is a strong negative correlation between HHI and penetration rate in the majority of Latin American markets. Out of the 40 markets covered, 27 have a negative correlation, ranging from -0.42 to -0.99. Some of the biggest markets are among those with a negative correlation, including Brazil (-0.78), Mexico (-0.90) and Chile (-0.97). On the other side of the spectrum, there were 11 markets with a positive correlation. The majority are in Central America or the Caribbean with the exception of Argentina (+0.79), Ecuador (+0.89) and Paraguay (+0.58). Colombia is a special case with a correlation near zero.
What this analysis suggests is that the increase in competition in most Latin American markets was followed by a corresponding increase in penetration rate. The effects of competition in any market are well known: it drives prices down, forces the incumbents to be more efficient and therefore, expands market boundaries.
In 2002, Latin America was just beginning its spectacular growth. As mentioned before, the average penetration rate was 19%, only five markets had penetration rates higher than 50%, and the average HHI was 68%. (A monopoly has a HHI of 100%). The Caribbean sub-region was characterized by monopolies. All 14 markets with a 100% HHI were in this region.
Over the next 10 years, the penetration rate increased by 479%, reaching 110% while the HHI decreased from 68% to 51%. By this time only Cuba had a penetration rate below 50%, and only three markets had monopolies or near monopolies in place.
Over the course of nearly 10 years, Central American and Caribbean countries recovered the time lost by opening up their markets. On average, these countries saw their HHI halved. Honduras reduced its HHI by 63%, and it saw the highest reduction in market concentration in Latin America. Honduras’ HHI went from 100% in 2002, when Celtel was the sole operator, to 37% in 2012 with four competing operators. See the highlights below for details on other countries.
Mexico
One of the biggest markets in Latin America, Mexico had one of the slowest improvements in penetration rate. In fact, it deteriorated from its relatively high position among the 40 markets tracked by Informa. Mexico had the No. 12 highest penetration rate in 2002 but dropped to No. 35 in 2012, ahead of only Guyana, Montserrat, Nicaragua, Haiti and Cuba. Mexico’s penetration rate in 2012 was just 82%; only 11 other markets have yet to reach 100% penetration.
Another measure of Mexico’s slow progress is the fact that the penetration rate grew just 220% since 2002, which placed it as the No. 9 slowest market in terms of penetration growth rate in Latin America, just ahead of small Caribbean markets.
Mexico’s HHI did decrease in the last 10 years, at a slow pace though, from 59% to 54%. Mexico is among the lowest in terms of penetration rate and one of the most concentrated markets. In 2012, it was the No. 11 most concentrated market.
Since 2002, Telcel’s market share dropped just six percentage points. This slowly changing landscape is behind initiatives from the Mexican government to improve competitiveness in the telecommunications sector. Among the expected measures include actions to strengthen the anti-trust agency COFECO and telecom regulator COFETEL.
Brazil
Brazil not only is the biggest market in Latin America but also has the lowest HHI among all 40 markets tracked by Informa. Its HHI went from 36% in 2002 to 25% in 2012. During the last several years, the Brazilian mobile market went through a mix of consolidation with regional operators turning into national players and the arrival of new players, such as Oi. As a consequence, Brazil also enjoys a high penetration rate. At 132%, Brazil’s penetration rate is No. 16 in the region.
A characteristic of this market is a long standing price war in the pre-paid market. Operators have been competing aggressively for several years, and coupled with high mobile termination rates, this has led to sharp price drops for on-net calls. The cost can be as much as 33-times cheaper than an off-net call. As a consequence, it is now commonplace for prepaid users to carry SIM cards from more than one operator.
Conclusions
- Out of the 40 markets covered by Informa in Latin America, 27 showed a strong negative correlation between market penetration and the Herfindahl-Hirschman Index (HHI), i.e., the lower the HHI, the higher the mobile penetration rate. Moreover, the majority of the markets with a positive correlation are small markets with several variations in HHI and penetration rates over the years.
- The average mobile penetration in Latin America showed an impressive growth over the past 10 years from 19% to 110%; however, this growth was not uniform, and some important markets still face relatively high concentrated markets and low penetration rates. Mexico, for instance, is the No. 11 most concentrated market and has the No. 6 lowest penetration rate. It is one of the few markets with less than a 100% penetration rate. On the other hand, Brazil is the most competitive market and No. 16 in terms of penetration rate.
