|Latin America I 2000
|Broadband Services in Latin America
|Diego Molano Vega
|Telecommunications Regulatory Commission
Latin America is, after the United States, Europe and Asia, the fourth most attractive market for capital investment in Broadband services. The telecommunications industry in Latin America is a market estimated at 16 billion dollar per year that is expected to grow 20% during next the 5 years.
The privatization of existing telecommunications operating companies in Latin America, a sign of the globalized economy, together with the deregulation of the sector in the last years, have created cultural broth favourable for providers of broadband. This is especially true in Mexico and South America, but also on a smaller scale in Central America in countries such as Guatemala, Costa Rica, Panama, Honduras, and Salvador. Countries in the region are concerned about the need to develop plans to privatise the state controlled telephone operating companies (i.e. Honduras) or to open the telecommunications market to competition (i.e. Panama). The growth of competition is becoming increasingly worrisome to the narrow band operators, of the new entrants in broadband, of the value added service providers – the growing service providers – and, especially the public telephony operators. All are concerned and trying to prepare themselves to face aggressive and imminent competition in the coming years. In Colombia, in spite of opening the market and the existence of many active competitors, strong competition for the final client is not yet much in evidence. The market is not yet conscious of the importance of quality service to maintain client fidelity. Creative services offerings to take advantage of market opportunities, the redesign of existing ones together with attractive, reasonable and sustainable prices for quality service to the final user are the hallmarks of totally open markets such as in Chile. To obtain these objectives, the established operators need to be restructured and a new operational model and structure devised for new, incoming, operators. This means, that the networks must be sufficiently flexible, in terms of their internal as well as external structures, to be readily adaptable in accordance with the dynamic and unpredictable tendencies of the telecommunications market. The convergence of the separate voice, data and video network, using technologies such as broadband and IP commutation to complement the existing networks are fundamental to obtain the wished for flexibility. Examples of these tendencies, and the expectations for broadband services, can be observed in countries like Mexico, Brazil, Argentina, Chile, Colombia, Venezuela and Peru. These countries, to a greater or lesser degree, have undergone problems in their economies setbacks resulting from the attacks a globalized economy can bring – i.e. the Mexican (tequila) crisis, the Asian, Russian and, to a lesser extent, the Brazilian crisis. Today, though, there is a significant strategic movement. Telecommunications companies are being acquired by large, foreign, multinationals. Others are being merged, restructured or modernised in the hope of taking advantage of the growing, local, telecommunications markets that are proving to be increasingly interesting to investors. Several cases of corporations positioning themselves strategically can be cited. Netstream de AT&T fused with Firstcom Latinoamérica to create Latin AT&T America. The new company will provide advanced data and voice services in Brazil, Chile, Colombia and Peru. The Genesis subsidiary of Bell Canada has initiated operations in Venezuela by aggressively offering wireless LMDS broadband. Global One is now designing, constructing and administering a private virtual network (VPN) for the German multinational Henkel. The VPN will cover 10 Latin America countries: Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Mexico, Peru and Venezuela. Telefonica de Espana, through its Telefonica Data subsidiary, plans based, on its global backbone (IP), to sell services directed to the small and medium companies in South America. They plan on competing directly with MCI WorldCom Inc. and Impsats Pan-American Network, among others. Broadband technologies will permit access to a world of services to which the average user has yet to have access. In the context of the development of the regional telecommunications market, though, there are certain key services – IP telephony, video transport, and tele-education, to name a few – which from the regulatory point of view whose legality is questionable. Also, the final user often does not take active part in the “culture of consumption”. Great investments in time, money and creativity, will be needed to turn this population into consumers and to create the massive markets needed to justify the investment in building the services. In the case of services such as tele-education, their development time will be slow due to the fact that they are, in one way or another, bound to institutions with the limited budgets typical of the Latin American countries. It is access to Internet at high speeds, and attractive flat user rates, that will be the front door, for business as well as residential clients, to come in contact and familiarise themselves with the ample range of services that are possible, through broadband. The economic situation of each of the Latin American countries is analysed, case by case, in extreme detail by investors participating in projects in the region. The economic, political and social differences are so marked that it is often difficult to find common elements. According to the Economist, the growth in Mexicos 1999 GIP was +4,6%, in Brazil the GIP for 1999 was -0,3%, while in Venezuela the GIP for 1999 of -9,6%. There are two common elements, however, that apply to them all: rapid growth in the number of Internet users (approximately 4,8 million users1998, but expected to reach 19 million users by 2003) and the successful start-up of Internet companies focused on electronic commerce in Latin America such as Starmedia, the El Portal or Zip.net. Zip.net, for example, with 2,6 million subscribers, managed in less than 2 years to obtain operational results of 20 million dollars. They offered 10% of their shares for a quoted 10 million dollars. These two aspects, in particular, offer investors a panorama in which, everything that has to do with Internet or e-commerce, by offering faster, more economical, access to users, is attractive. Recent history shows that investments made in these fields are independent of the economic and political conditions of each country. In addition, the same tendency is found world-wide. The value of each type of company engaged in e-commerce rapidly grows in function of their perceived possibility to provide exorbitant levels of gains that, in my opinion, are not sustainable in the long term because of the great multinationals, groups of investment, operators from other regions. Global One, for example, has deployed high-speed switches in Brazil, Argentina, Chile, Colombia, Mexico and Venezuela. It provides voice, data and IP traffic services using its 155MB/s ATM backbone in conjunction with its satellite stations in Chile, Colombia and Venezuela. In addition, Global One has acquired capacity in the regional Americas II and Mayan I optical fibre cables. Telecommunications investors find that countries like Colombia, in spite of the uncertainty that their political and economic situations create, are considered the most attractive market after Brazil and Argentina. Colombia has been characterised by great development in the telecommunications area in the last few years. According to Telecommuni-cations Magazine – Americas Version, March 2000, Columbia had approximately 300 thousand Internet users in 1999 – a number very close to Argentinas 400 thousand users in the same period. This situation is consistent with the fact that nowadays it is much easier for operators to obtain commercial financing, partners (Joint ventures) for all projects related to the Internet and e-commerce than to find investment resources to update or expand conventional networks. A common tendency of the region is to provide universal service access using the Internet as the base. Nevertheless, although telecommuni-cations in Latin America is at a high point, its market of broadband is still quite small compared to the boom in broadband services in other parts of the world. As such, the potential for these services is doubly attractive. We found that when evaluating the possibility of implementing these services, that the technological options most available in the region are: cable modem, ADSL, satellite broadband, third generation cellular services and Wireless Broad-band. In Argentina, the levels of cable television penetration are the highest in Latin America. In Colombia several licenses have been allocated for these services in order to increase the level of penetration, based on the favourable results obtained by some of the existing networks. The cable television networks are useful not only to transmit television channels, but also for other services such as telephony, access to the Internet using cable modems, WebTV Internet access, packet switching data transmission and others. Using existing cable networks relatively low or flat prices can be charged for high quality, high-speed, access. For cable TV operators the deployment of coaxial fibre hybrid networks to reach the user is costly and time consuming. On the other hand, the benefits of providing Internet services and broadband services like videoconferencing by means of technologies like ADSL are more attractive for the conventional telephone operators. These already have extensive networks based on copper wiring that, with the use of ADSL equipment, can provide high-speed service. By using the existing network, the costs of installing and operating high-speed service are reduced substantially and service provided to the user at very low cost. Nevertheless, in Latin America unlike the United States, the penetration of ADSL is but a drop in the ocean compared to cable modem service. This is based mainly on the fact, common in the Latin American countries, that the operators existing copper pair infrastructure, on average, is not of sufficient quality for ADSL broadband service. At this moment, the American and European equipment suppliers consider wireless broadband solutions to be supremely attractive in Latin America. More and more wireless broadband operators are directly or indirectly maintaining a constant presence in countries like Mexico (WaveSpan), Brazil (Diginet Americas), Argentina (Infotel, Movilpage Communications), Colombia (Formus), Venezuela (Spike Technologies, Genesis) and Peru (Comsat). Equipment manufacturers such as Alcatel, Ericsson, Lucent and Nortel, among others also maintain a constant presence in these markets. Technologies like the LMDS and the MMDS provide lower cost solutions than optical fibre systems. These technologies, with their portable, rapidly installable equipment have great advantages for new operators entering the market. Operators that already have a network in place can use these technologies to rapidly expand their networks. In Latin American cities characterised – unlike the United States – by great, unserved, population concentrations the use of wireless technologies facilitates the installation of new services. In spite of possibilities that technologies such as LMDS offer markets like those of this region, there is an enormous stumbling block to be surpassed if it is to be used to provide services with a regional, multi-country, reach. Since regulations vary from country to country, the bands authorised for a given type of operation can change at the borders forcing the operators to use complicated schemes and multiple suppliers adjusted to each specific situation. Conclusion Other forms of less common, or soon to be implemented, broadband services in Latin America are: satellite based broadband which, as it is well known, have high implementation costs compared to the other technologies mentioned, and cellular telephony based services. In Venezuela, Movilnet operators have already signed a contract with Ericsson for a medium term update of their network to provide IMT-2000, third generation, cellular broadband services.