Open season on spectrum in Latin America

April 20, 2009

Last week in Chile, the bid rules for three 30MHz blocks in the 1700/2100MHz band were presented. This happens just two weeks after René Cortázar,   Chile’s minister of transportation and telecommunications, officially opened the government’s auction of 3G spectrum, a process that will be completed by mid-July. Cortázar highlighted that more than 228,000 subscribers have signed up since mobile Internet service was launched in Chile in 2008. The announcement means that there is now open season on spectrum and licenses in Latin America again, as five other countries — Argentina, Brazil, Colombia, Mexico and Peru — are about to begin their tender processes to auction off spectrum for wireless broadband, namely 3G and WiMAX. (For more on these auctions and how these two technologies offer a promising way of providing broadband access in developing economies, see our latest Telecom Insider).

This is not the first time that Chile auctions frequencies for wireless broadband, but it is the first time that rules have been set with the explicit aim of promoting competition, capping the amount of spectrum that can be held by a single mobile operator to 60Mhz and thus keeping existing players from participating in the auctions. In fact, what makes spectrum auctions in Latin America more interesting and complicated is that the broadband market is concentrated in the hands of just a few players, penetration levels are low, and prices are high. These three unfavorable market conditions can be addressed with an appropriate regulatory framework that promotes competition, with investments in access networks to expand service coverage and, of course, with more spectrum for wireless broadband services.

Recent announcements of LTE launches by Telefónica and others, combined with the high penetration of mobile voice services in Chile (95% at the end of 2008), suggest that the new networks could be built using LTE. And why build 3G when there are already LTE deployments underway? The new competitors will therefore no  doubt focus on mobile broadband Internet access for both handsets and computing devices, a strategy that will give them a competitive advantage as long as they offer higher access speeds at competitive prices. In preparation for stiffer competition, the existing mobile operators in Chile — the main ones being Movistar, Entel PCS and Claro — have already reduced their mobile broadband prices to less than US$5.00 per month.

The new participants will be confronted with certain limitations, including constrained access to financial resources, having to offer service in just some urban areas while they’re building their networks, and most likely a smaller selection of handset models for LTE than for 3G. These limitations will have to be faced with marketing and communications campaigns that carefully adjust market expectations.

In terms of market shares in the countries where auctions will take place, the new players that may arrive are not expected to turn the competitive landscape upside down.

For instance, we expect that in Chile the combined market shares of Movistar, Entel and Claro will decline only from 99.2% to 95.8% through 2014 — less than four percentage points. We do, however, expect the new entrants to act as catalysts for further market growth, expanding the number of fixed broadband and 3G subscriptions from a total of 2.9m at year-end 2008 to 16.0m at year-end 2014.

— Jose Mario Lopez, Manager, Americas Research

Related content:

Upcoming 3G/WiMAX Auctions to Trigger a Broadband Access Revolution in Latin America
Telecom Insider published April 2009
In 2009, 3G or WiMAX auctions will take place in Argentina, Brazil Chile, Mexico, Peru and Venezuela. We believe these spectrum auctions are essential stepping stones for the further development of broadband in the region and will contribute to overall growth in broadband subscription penetration. This Telecom Insider analyzes the impact of the upcoming auctions on the competitive environments and the expansion of broadband services in Latin America. The report includes case studies examining three markets in more detail: Chile, Brazil and Mexico.

Mobile Broadband Computing Services: Complement or Substitute for Fixed Broadband?
Research Report published March 2009
This report examines mobile broadband services enabled by 3G and WiMAX networks on a global, regional and market-by-market basis, focusing on service plans offered for computing devices (mainly netbooks, laptops and MIDs). It assesses the positioning of mobile broadband relative to fixed alternatives, helping to identify the best strategies for both developed and emerging markets. Built on extensive case studies, the report provides a five-year outlook on mobile broadband computing trends, including subscriber numbers, penetration levels and revenue expectations.

Latin America Mobile Data Forecasts, Q1 2009
Forecasts published March 2009
Updated on a quarterly basis, our Mobile Data Forecast products provide complete pictures of demand trends for 19 geographical markets in Latin America. The Excel output includes five years of historical data and five years of market projections for metrics such as penetration, mobile subscriptions (by type of package, by operator or MVNO and by network technology), users of specific data services (SMS, music, etc.), MOU, ARPS (by operator, by subscription type, by service, by application) and revenue (by messaging and non-messaging applications). The Forecasts are based on extensive field research and use a consistent methodology, aiming to capture the total spending on mobile data services in each market.