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.
At the end of August, I had the pleasure to take part in a keynote panel on 4G evolution at Andicom, the largest event for the telecom industry in Colombia. Following the 4G auction in June, the country is set to have six operators offering LTE services in 2014. That is a remarkable achievement. Besides UNE, the only operator with a live LTE network, Claro, Movistar, Tigo/ETB and two new entrants, Direc TV and Avantel, will be competing for a slice of the 4G pie.
The 4G contributions to the goals of the national digital plan, Vive Digital, were also central ICT minister Diego Molano Vega’s keynote speech. The whole discussion on the mobile industry’s future was, however, overshadowed by the Constitutional Court’s decision to oblige Claro and Movistar to return not only their spectrum but also their network infrastructure to the state should their license not be renewed in March 2014 . The court decided to uphold the so called “reversal clause,” which was included in the licenses when they were awarded back in 1994.
Although Claro and Movistar, which at the end of 2012 controlled nearly 86% of all mobile subscriptions, were obviously aware of the potential risk, the Constitutional Court’s decision has been a cause for concern not only for the interested parties but also for the other operators that will not be affected by it. The decision to fully enforce the clause generates uncertainty for the whole industry. It sets a precedent that is hard to encounter in any other country and sends a negative signal to the companies that have just invested significant funds in 4G licenses—amounting to $400 million, almost 70% more than the reserve price of $233 million. In light of this, it is not surprising that the CEOs of Claro, Movistar, UNE, Direc TV and Avantel decided to cancel their participation in the Andicom event, where they were expected to present their vision for 4G as their companies prepare to launch commercial services.
It is unlikely that Claro and Movistar would be put in a position to return their infrastructure to the state in March next year. Should that be the case, it would produce a negative effect in the midst of the 4G roll out, since the likes of ETB/Tigo, for example, are already planning to share their network with Movistar. The two leading operators could, however, face tough conditions for the renewal, boosting the competitive environment even further or causing more uncertainty in the overall market, should the conditions be too restrictive.
Before the developments of the past few weeks around the reversal clause, the discussion on 4G in Colombia has centered on four main themes that have long been debated in the context of 2G and 3G. These were the recurring themes on the Andicom agenda: poor quality of service, a problem that has primarily afflicted market leader Claro; the need to enhance the competitive environment; the challenges of extending coverage and providing services to underserved areas as well as to all segments of the population (the main objective in the Vive Digital agenda); and the challenges operators face in obtaining permission from municipalities to deploy base station sites.
The new 4G licenses and their associated obligations will go a long way toward addressing some of these issues. By awarding five 4G licenses, the government has taken an important step toward strengthening the overall competitive environment. The availability of new 4G spectrum will also improve quality of service by releasing pressure on saturated 3G networks that are barely coping with the growth in traffic.
The establishment of coverage obligations that are inversely proportional to operators’ market share will also help to strengthen competition and bring services to more segments of the population. The tablet quotas for schools that have been imposed on each license (a total of 556,000 tablets will be provided by 4G operators), and are also inversely proportional to market share, will be especially important to provide services to people in the lower economic classes. In deprived areas, a tablet owned by a student is likely to become the first connected device in the student’s entire household. Finally, the measures to encourage infrastructure sharing will contribute to deploying networks more efficiently, although more work needs to be done to make it less time consuming and easier for operators to obtain permission from municipalities for cell sites.
As things stand, in spite of the reversal clause, and Claro’s and Movistar’s license renewal, by mid-2014 Colombia is set to become the second market in the region by number of deployments, preceded only by Brazil, a significantly larger market and one in which the evolution to 4G has been sped up due to the two global events taking place in Brazil over the next three years, the FIFA World Cup in 2014 and the Rio Olympics in 2016. Pyramid Research remains confident in the growth of 4G in Colombia, forecasting that the country will reach 2.5 million LTE subscriptions in 2018, representing a 62% five-year CAGR over 2013.
Daniele Tricarico is an analyst for Latin America at Pyramid Research. He conducts research for Pyramid on operator strategies and business models for online content, over-the-top (OTT) video and communication services. He also covers the Latin American region as part of Pyramid’s emerging market team.
