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.
In the world of telecommunications analysis, there is one unavoidable recurring event at the end of each year: numerous articles and columns highlighting the most important news of the preceding months or predicting what will be the main trends for the new year. I will abide to this custom and devote this column to assess the outlook for two of the most popular telecom trends and their possibilities to materialize on a large scale in Latin America.
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As if it were a holiday tradition, since 2001 there hasn’t been a list of major trends that will transform the market over the next 12 months that does not predict the explosion of mobile virtual network operators in the region. Partly, this is from a business perspective that MVNOs allow the entrance of low-cost mobile players in a market, which makes them an extremely attractive alternative. However, business logic is one thing, common sense is another industry.
MVNOs face several problems, among which are not being able to secure a mobile network operator willing to host the virtual player, draconian contracts and high subscriber acquisition costs. Since the MVNO model is one with small profit margins, the wait for the huge explosion and subsequent arrival of hundreds of virtual operators in Latin America seems to be longer than the one for Godot. The problem is that most discussions about virtual operators start by pointing out their incredible success in Europe and their increasing relevance in the United States. Nevertheless, few analyses care to highlight the mobile penetration rates that both of the aforementioned market had when the first MVNO arrived or how the mobile environment has evolved from being telephony-centric to being data-centric, and fairly soon to be application-centric.
One of the explanations for the long list of defunct MVNOs in Latin America (e.g. Cotas Movil, Movida, Azteca Movil, Diemo, etc.) centers on the fact that the region is still waiting for the first virtual mobile operator with a business model not focused on telecom access, but mostly as a unit created to boost core business revenues. I know that some would correctly mention that retail chains in Brazil, Colombia and Chile have recently expressed their interest to enter the mobile business in the short term. My response would be to simply remove the dust from old computer archives and read how back in 2001 and 2002 some of these same companies (at the time the hype was more intense) stated this same interest. But, there’s one key difference between the claims made in 2012 and those from a decade ago: now there are numerous examples of non-access centered MVNOs in the world that Latin American non-telecom companies can study prior to diving into the mobile business.
I cannot conclude writing about Latin America’s MVNO market without highlighting that even in the markets with the largest number of virtual operators – Chile, Colombia, Costa Rica and Mexico – they only represent a tiny share of the country’s mobile market.
Mobile broadband services are also part of the major trends that will characterize the telecommunications market during 2013. However, while growth will continue in the number of active mobile broadband lines, this segment will continue to generate controversy in the region. An important question that must be answered by regulators is: when a mobile Internet connection can be considered broadband?
There’s a less pleasant topic related to mobile broadband services in Latin America: getting all the different actors of the telecom sector to agree on how to promote its widespread adoption in the region. On one hand, technology providers are blaming operators for still buying 2G phones, slowing the growth levels of devices that can support mobile broadband services. On the other hand, we have mobile operators blaming their local regulators for not being able to speed up the process to make more spectrum available, facilitate the build out of their 3G-plus networks, or at least provide them with a clear timeline of when new spectrum concessions would be granted. Last but not least, regulators identify as the main obstacle for massive mobile broadband adoption the limited coverage of 3G-plus networks throughout the region.
Signals Telecom Consulting considers that all the above comments have some truth. What is surprising is that none of these three parties were willing to openly discuss other problems (not necessarily related to telecommunications) that hinder the growth of mobile broadband in Latin America. For example, imagine that for an unexplainable reason each of more than 600 million inhabitants of Latin America and the Caribbean receive as a gift during the holidays of the smartphone of their choice and that coverage, lack of spectrum or technology incompatibility were not a problem.
If we go back to most of these markets (many Caribbean island face different challenges) after a few months, the most probable result would be that a large part of the population will be using their new smartphones for traditional services such as text messaging and telephony. In addition, there might be an increase in the use of free Wi-Fi networks. But, the most important finding would be that addressing the aforementioned concerns from regulators, operators and technology providers didn’t result in an incredible jump (e.g. over 50% of the population) in the number of paid mobile broadband lines.
This situation forces us to immediately investigate what are the reasons behind the unimpressive growth of mobile broadband lines, especially customers in households that lack a wired broadband connection. Common sense would tell us that one of the subscription barriers for mobile broadband services is price. In other words, until governments don’t adopt measures directed at increasing the acquisition power of their constituents many of them would be priced-out of contracting advanced telecom services such as mobile broadband and enjoy the many advantages that being connected to the Internet provides its users.
There’s no doubt that during 2013 many challenges will be surpassed and that 3G-plus coverage will continue to expand in Latin America. But, when identifying future telecom trends for the region lets be cautious as in many instances some of the barriers that impede the rapid adoption of new technologies or services are not related to the telecom industry, but other socio-economic characteristics of the market.
By these two examples I have also tried to show that, sometimes, it’s easy to blame the regulator or the operators for the slow growth of high-speed broadband connections in Latin America or the lack of interest by potential new entrants. Few would argue that a transparent and stable regulatory framework is essential for a market’s development and price will always act as a filter for demand of telecom services. Under this scenario, Signals Telecom Consulting would like to ask: when would we start hearing official declarations that blame the slow uptake and lack of demand of telecom services on development levels that are far behind those showed by Finland, Japan or Germany?
It’s great that Latin American countries establish development targets and subscriber additions for the telecom sector, but hoping to emulate South Korea’s broadband penetration or reach the maturity of the Dutch MVNO market must be accompanied by investment in other areas of the economy. The investment must come from both private and public funds.
Otherwise, in twelve months we will see articles about the key telecom trends for 2014 mentioning the same items that similar articles are now listing for 2013. Happy holidays!
