Despite strong initial efforts on the part of Chilean, Argentine and Mexican regulators, implementing personal communications services in Latin America will fall a little short of earlier bullish expectations. At the same time, PCS already has taken off in a sense, with cellular increasingly displaying PCS-like characteristics.
Chile took the lead out of the starting gate in developing a framework for PCS. In May 1995, Chilean telecom regulator Subtel announced the PCS regulatory framework, but in October the agency postponed issuing three national PCS licenses after the Contraloria General de la Republica, which approves all concessions, determined the spectrum use plan must be modified.
Subtel plans to have the required changes completed by the beginning of March, at which point the normal concession process will continue. Subtel originally had planned to award concessions in December.
The Argentine Comision Nacional de Telecomunicaciones also has pushed back the competition for PCS licenses until the first quarter of this year. The CNT had planned to issue the first PCS tenders during the second half of 1995. Up to six licenses are expected in the 1850 MHz-1975 MHz bands.
Mexican regulators have faced continuing difficulties in meeting their perhaps overly aggressive schedule for spectrum auctions, originally slated for late 1995. Regulators are simultaneously dealing with the upcoming long-distance competition, local access regulations and privatization of satellite operator Telecomm. Mexican regulators have not offered guidelines for PCS licensing or definitively rescheduled the spectrum auctions.
Similarly, while Venezuelan authorities have expressed interest in issuing PCS licenses, they have not issued a clear schedule. Venezuela plans to issue a third nationwide cellular license, probably at 900 MHz, as well as several PCS licenses. It is not clear whether the third cellular license still will be offered if PCS licenses are issued. PCS licensing could occur within the next 12 to 18 months.
Plans for PCS in Brazil are still hazy. Problems defining a workable national spectrum management scheme, as well as the country’s current focus on B-band cellular licensing, could delay plans to issue PCS licenses. It likely will not occur in Brazil until some time after B-band cellular operations are established.
While no PCS spectrum has yet been awarded in the region, a de facto hemispheric frequency allocation for PCS may be taking shape, generally following the lead of the U.S. PCS scheme. Both Mexico and Chile intend to use the 1.8 GHz-1.9 GHz frequency for PCS. Argentina, Brazil and Venezuela also are interested in authorizing this frequency but, as yet, have not reached final decisions.
Blurring definitions
Though there aren’t any official PCS carriers in Latin America, personal communications has effectively made its debut through existing cellular services-making it increasingly difficult to clearly differentiate “new PCS” from what cellular already offers.
First, portable phones are the dominant choice for cellular phones among cellular users, marking PCS as a natural, digital outgrowth from today’s cellular market.
In addition, advanced service choices accessible by cellular customers are expanding rapidly. The increasingly competitive nature of mobile communications in Latin America is forcing operators to develop customized services for both professional and mass-market users. Customers are demanding wide-area mobility and enhanced service quality, including in-building coverage.
The new PCS business itself has undefined parameters as well. PCS carriers could emerge in Latin America with strategies to compete with mobile cellular carriers in the short term, and eventually access the local loop market in the longer term. Thus, the PCS user base could include segments of both the mobile-user and fixed-user communities.
Many of the future PCS providers may be existing cellular companies themselves. Some cellular operators view the upcoming PCS licensing as an opportunity to acquire additional spectrum to offer cellular-style services. One executive from a Chilean cellular company noted his company will pursue a PCS license so it can offer wireless services in geographic areas where it does not have a cellular license.
PCS challenges
Competition from existing cellular operators may be the primary challenge Latin American PCS operators will encounter when entering the market. Cellular operators already provide quality service at competitive prices in many markets and appear to have a lock on some key segments, such as business users.
In densely populated areas, cellular operators have developed a network of microcells that provide exceptional in-building coverage. The cellular market in Latin America also is characterized by a high level of interior competition. New PCS operators will have to compete directly with veteran cellular providers and could find it difficult to establish a strong presence in smaller markets.
In markets with a higher degree of competition between the 800 MHz cellular service providers, more incentives will be required to attract and retain both high-use corporate users and more moderate-use individual subscribers.
Potential operators recognize PCS will face stiff competition from similar services and that pricing will be crucial for product differentiation. One appeal of PCS is its potential to combine cellular-style mobility with local access at near-wireline prices. However, PCS providers likely will find competing with local service operators a major challenge.
Cross-subsidies allow many regional local service carriers to offer service at prices significantly below cost.
Service revenues for cellular providers likely will be significantly impacted by future PCS operations, as airtime charges drop with the introduction of additional competition. For PCS, average airtime usage could be higher than for cellular as subscribers use the service as a local loop substitute. However, these usage gains could be mitigated by lower-than cellular per-minute charges.
Price competition will be a major factor in the future wireless landscape. Limited price competition already has emerged in Colombia between the two cellular providers in each region. Emerging price competition in Mexico essentially was eliminated in 1995 due to the peso devaluation and the inability of cellular providers to increase peso prices relative to the U.S. dollar because of regulatory limitations.
The extreme case may be Chile, where the introduction of three cellular-like PCS systems in a market with modest cellular subscriber growth could pose significant troubles for service providers. Many analysts express concern over the Chilean market’s ability to support two cellular operators plus three PCS operators in each of the country’s 12 regions.
In the future, average airtime usage could drop as new subscriber additions join the cellular system. These new mobile subscribers-as in North America and Europe-will use cellular less avidly than the present generation of users. Executives at a Venezuelan operator have confirmed this trend already is beginning to emerge in Venezuela.
Distribution channels will prove a major factor in PCS operations. In many Latin American markets, direct operator sales are the most common distribution channel for cellular. For PCS, the greater the number of distribution channels the better-especially as competition increases. The ability for these channels to provide value-added services to the customer, such as service, installation, handset programming and options packages, will be important as well.
Finally, negotiating interconnection agreements will be a concern because interconnect charges will represent a significant portion of a new PCS carrier’s costs. If Latin American PCS operators adopt a strategy of pursuing both the mobile and fixed markets, the higher costs and pricing of mobile usage over fixed usage may
have important ramifications for negotiating interconnect agreements.
Edward Czarnecki is managing director of International Technology Consultants, Inc., a Bethesda, Md.-based market research, business development and strategic planning firm focusing on telecommunications in emerging markets.
