 | Issue: | Latin America II 2001 |
| Article no.: | 6 | |
| Topic: | A Wireless Brave New World:Challenges and opportunities for Latin America | |
| Author: | Roberto Blois | |
| Title: | Deputy Secretary-General | |
| Organisation: | International Telecommunication Union | |
| PDF size: | 24KB |
About author
Not available
Article abstract
Private ownership and competition have made Latin America’s mobile market the fastest growing in the world. Competition, insignificant in 1990, is now present in 60 per cent of the markets that count upon widespread foreign investment. Calling Party Pays (CPP) and pre-paid schemes are major drivers of cellular growth there. Currently, the focus is upon advanced services for which regional spectrum harmonisation for global roaming, technology-neutral licensing, in-band evolution, and progress on roaming between the different technologies will be needed.
Full Article
The combination of private ownership and increasing competition in the mobile market of most Latin American countries has turned this segment of the telecommunications market into the fastest growing in the world. As of 1999 Paraguay and Venezuela have become the first countries in the region-and among the first in the world-where mobile phone users outnumbered those on a fixed-line connection. Drivers of growth Private ownership and new investments have played an important role in the growth of the cellular market in the region. Over US$10 billion has been raised in Latin America from new mobile cellular licences since 1990. In addition, mobile cellular operators make on-going payments for spectrum usage, taxes and other fees that help shore up government coffers and finance regulatory authorities. These payments come from more than 60 new mobile cellular companies that have sprung up in the region since 1990. Aside from new private investment an increasingly competitive market structure in most countries has been the basis of the rapid growth of the mobile market in the region. By 2000, 80 per cent of the countries in Latin America had a competitive mobile market (Figure 1, below). The introduction of competition in the region was relatively low in the early 1990s but experienced a sharp increase in the mid-1990s and had been embraced in more than 60 per cent of the markets by the end of decade. One exception has been the Caribbean where exclusive concessions have often been granted to a lone cellular operator, generally to the fixed-line incumbent. Other factors that have been crucial to the growth of mobile markets in Latin America is the introduction of Calling Party Pays (CPP) and Pre-Paid plans. Calling Party Pays (CPP) is a practice whereby the caller is charged for the total cost of making the call. The use of CPP in the region has been mired in controversy, sometimes delaying implementation. For example, in Chile, the cellular subsidiary of CTC introduced it before it was officially allowed. It garnered 6,000 clients in just 10 days before being ordered to stop. Nevertheless, more and more countries are adopting it. By early 2000 some of the large economies of the region-such as Colombia (1994), Peru (1996), Argentina (1997), Paraguay (1997), Ecuador (1997), Chile (1999) and Mexico (1999)-had introduced CPP to the regulatory framework of their local markets. In some countries, fixed telephone operators have complained that with CPP they have to cover the losses resulting from subscribers who do not pay their bills. Nevertheless, the increase in subscribers as a result of implementation of CPP is striking. Peru set up CPP in May 1996 and by the end of the year the number of cellular subscribers increased over 150 per cent compared to the previous year. In Argentina, the introduction of CPP resulted in an explosive growth of 179 per cent in 1998, even if those receiving calls must still pay for calls between mobiles. In Mexico CPP was introduced in April 1999 and, subsequently, the number of subscribers went up during the next three months by 1.1 million. By August 1999, Telmex had problems in meeting the demand for increased traffic created by CPP. A similar experience can be seen in Argentina where the number of cellular subscribers sky-rocketed after the introduction of CPP (See Figure 2, left chart) The proponents of CPP for mobile telephone calls argue that it increases mobile usage, reduces the overall cost of mobile ownership and encourages mobile users to accept incoming calls. However, controversy is growing over the prices charged for fixed-line users to call mobile subscribers. It is argued that pricing of fixed-to-mobile calls in countries that have implemented CPP remains too high, due to high mobile termination charges. . This has been fairly evident mainly in the early periods of adoption of this rather innovative pricing approach. In Venezuela, for example, pre-paid subscribers increased over three-fold during 1999, accounting for 73 per cent of the subscriber base, while the contract subscriber base dropped by some 15 per cent during the same period. In Mexico, the exponential growth of mobile telephony can be at least partly attributed to the introduction of pre-paid services in 1993. By 1998, the country had the largest number of cellular pre-paid subscribers in the region, some 60 per cent of all mobile users. Even in the recently launched PCS services, prepaid subscribers account for some 16 per cent of the 1998 subscriber base. By the end of 1999, almost 85 per cent of Telmex cellular subscribers were on the pre-paid plan ‘Amigo’. One of the main attractions of pre-paid plans is that they do not require credit checks and the costs of entering into such plans are relatively low (though prices are generally higher than for subscription plans). Users also benefit from controlled costs, anonymity and access to service that may not be easy or even impossible due to the criteria required for credit-worthiness. For many operators, pre-paid now accounts for the majority of subscriptions and is an attractive source of revenue as operators face little or no bad credit risks, and avoid the high costs of contracting, billing and collection. Confident on the potential of Latin American markets Although developing countries have sometimes lacked investment in their fixed telecommunication networks, this is not the case for mobile cellular networks. The largest foreign investor, in terms of subscribers, is BellSouth of the United States, whose Latin investments have been made in both existing operators as well as in new licence awards-it is involved in more than a dozen countries in the region. Other major investors include Telefónica (which acquired most of its cellular companies/investments from privatisation processes), and Luxembourg-based international cellular company Millicom. These three alone can account for around 40 per cent of all cellular subscribers in Latin America and this figure rises to above 50 per cent when the Mexican market, where these three investors have no interests, is excluded in the analysis. The US telecommunication equipment vendor Motorola has been involved in a number of mobile cellular operators. More recently a few Canadian and Asian companies-such as TIW of Canada and DDI of Japan-have also entered the Latin mobile market. In Paraguay the first foreign investor was Millicom, which launched analogue-based AMPS service in August 1992 through majority-owned Telecel. Subsequently, the network more than doubled each year. Six years later, in June 1998, Núcleo-an operator majority-owned by neighbour Telecom Argentina-launched its digital AMPS (D-AMPS) network. At least three types of foreign investors set up mobile networks in Latin America: (1) overseas operators, such as Millicom, that concentrate on cellular operations in relatively small, low and middle income markets; (2) operators from developing countries, such as Telecom de Argentina, which are typically part-owned by developed country telecom companies; (3) multinational carriers based in developing countries, such as the Japanese company DDI, a strategic partner in a consortium which has been recently awarded a mobile licence. The standards dilemma In terms of technology, developing countries in the Western Hemisphere for the most part have adopted the North American analogue AMPS standard. Like North America, many countries are converting to the digital AMPS (Time Division Multiple Access or TDMA) standard. A number of new mobile cellular operators are choosing Code Division Multiple Access (CDMA), again a digital standard favoured by North American operators. A few operators have chosen Global System for Mobile Communications (GSM) which is favoured strongly in Europe and Asia. The TDMA pre-eminence in North America is having significant spillover effects to the south of the hemisphere. Of the 64 million TDMA users existing around the world at the end of 2000, 45 per cent were found in Latin America (with 51 per cent located in North America). CDMA did not exist in Latin America until 1998. Since then some companies introduced the technology and by the end of 2000 it represented 14.2 per cent of the world’s 82 million CDMA subscribers. With 9.4 per cent of the 440 million GSM users existing in the world at the end of 2000 Latin America accounts for the smallest share of the global GSM market. Universal service The cases of Paraguay and Venezuela show that mobile communications have the potential to enhance universal access. Universal service and access policies for mobile cellular have, thus far, evolved around three areas: achieving widespread coverage; having mobile operators contribute to universal service/access funds; and mandating the installation of a certain number of fixed telephone lines or public payphones. A typical indicator for quantifying coverage is the share of the region and population covered by mobile cellular. For example in Brazil, coverage in states with high population density is almost double that of regions with sparser population. Minimum coverage require-ments should be stipulated in mobile licences, and in addition, regulators could encourage operators to improve coverage by offering them incentives in exchange for increasing coverage. Some countries require mobile cellular operators to contribute to universal service/access funds, for instance, via access charges paid to fixed-line operators. In some cases, parts of licence fees or annual spectrum payments are distributed to universal service funds. Yet another way for mobile operators to participate in achieving universal access goals is to require them to set up public payphones. Recent and forthcoming developments Many of the countries in the region introduced, in 2000, second generation services in the 800MHz and 1.9GHz bands. Brazil has just allocated the 1.8GHz band for 2G services and has decided to reserve spectrum in the 1.9GHz range for IMT-2000. Similarly, Venezuela (which is not planning to introduce PCS) has announced plans to immediately introduce IMT-2000 in the bands identified at WARC’92 (1885-2025, 2110-2200). The remaining main economies of the region (Argentina, Chile, Colombia and Mexico) would be available for an IMT-2000 placement in the 1710-1770 MHz and the 2110-2170MHz band. Chile has three PCS licences in the 1900 band already (GSM and CDMA); Mexico has four PCS in the 1900 band; and Argentina also holds four PCS operators in the 1900 band (TDMA and CDMA). While recent attention has focused on the PCS auctions in many Latin American countries, a quiet competitor is gaining ground in the wireless markets of the region: mobile trunked radio, or trunking. After some legal and lobby-driven struggles in Brazil, for example, trunking operators are now permitted to offer subscribers unlimited minutes of inter-connect traffic, in essence allowing them to offer the same services as cellular and PCS operators. According to the Brazilian regulator, Anatel, the trunking market in Brazil will reach 1.9 million in 2005. Conclusion The question now is, how systems operating in the 800 MHz and 1900 MHz bands in the Americas can evolve to provide 3G services, while continuing to support 2G terminals that are currently in use. Some wireless service providers in the Americas are making plans for providing IMT-2000 on their existing spectrum. Having made significant investments in their existing networks, they are strongly committed to evolving these networks. Given the high TDMA penetration in Latin America, it could also be possible that they decide just to evolve their existing networks to EDGE instead of migrating to W-CDMA.
