|Latin America IV 1999
|Commercial Trunked Radio in Latin America: Lessons in Competition
|Alan R. Shark
|President & CEO
|International Wireless Telecommunications Association, IWTA, U.S.A.
Commercial Trunked Radio provides much-needed business communications in many Latin American countries. The less costly analog systems and the more sophisticated digital systems each have an important role to play in the market. Low cost, general dispatch and data transmission services are a boon to business users. Trunked systems have been growing significantly within the region despite widespread competition from cellular operators who, it seems, have done a somewhat better job of marketing and lobbying (to limit PSTN interconnect) to gain users. The IWTA is working with its members to improve the regulatory environment, promote cooperative, industry-wide, marketing efforts, encourage their use of advanced more effective technologies and, in general, help them compete more energetically.
While off to a relatively slow start, the Commercial Trunked Radio (CTR) industry is heating up as a result of the increased demand for wireless services. One of the more complex issues which faces the IWTA is to find a suitable, universal name as a label for our industry; SMR, PAMR, TRS, ESMR, all fall within what we refer to as CRT. Not too long ago, before cellular services took hold in the marketplace, CRT system providers offered the first real wireless solution. Today the regulatory climate has changed and has left two distinct trunked radio alternatives: the analog systems and the digital systems. Both have a place and a strong future in Latin America, as we shall see. Perhaps it is useful to establish two major characteristics that, so far, separate CRT from Cellular, PCS, and GSM C dispatch, and the type of customer primarily served. Today it is the business and professional community that is driving demand for CRT’s unique services. Basic services, such as general dispatch and data transmission, are still very much in demand from analog operators who continue to provide these valued services to their customers. Analog systems are very cost-effective in areas outside major population centres. It is the dispatch features and low-cost service which make analog systems particularly attractive today. One problem that looms down the road is spectrum capacity. Analog, with all its virtues, is not as efficient in its use of the spectrum as digital. However, with advances in technology, we expect to see new, affordable, systems with greater capacity very soon. These will allow analog operators to grow significantly in the future. Digital system operators have realized significant loading levels in the last few years. This is due to their superior capacity and their ability to offer a variety of sophisticated services to meet user needs. The Latin American market continues to offer numerous opportunities for the analog and digital manufacturers and operators who are prepared to listen to their customers needs and respond with valuable services. Industry Growth The CRT industry grew throughout Latin America when many governments decided to modernize their telecommunications industry by privatising many, if not all, telecommunications services. This opened the CRT industry to private investment and competition. Consolidation has decreased the total number of companies operating CRT systems. For example, more than 100 companies were originally issued a license to operate a CRT system in Argentina. Now, all these systems are operated by a relatively small number of companies. The number of operators has decreased, but the number of subscribers continues to increase as companies implement larger, more sophisticated, systems which can serve a greater number of customers. Today, approximately 200 companies have licenses to operate CRT systems in Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Nicaragua, Panama, Peru, Trinidad & Tobago, and Venezuela. Despite high demand, IWTA estimates that in 1995 there were only 200,000 units in service throughout the region; by the end of 1998, this number had increased to more than 500,000 and is still rising. The Latin American market is largely untapped; as more systems are fully implemented and others emerge over the next decade, we can expect to see significant continued growth. The largest markets in the region are Argentina, Brazil, Chile, Colombia and Venezuela. Each with more than 10,000 total subscribers. The remaining smaller markets have anywhere from a few hundred to a few thousand subscribers. Although there still is significant demand for analog services throughout the region, many digital systems have been implemented in countries such as Argentina, Colombia and Brazil with the expectation of further demand. These operators have realized significant loading levels from 10,000 to 25,000 customers per year. This has been done through a variety of marketing and promotional strategies, such as subsidized radio sales/rentals and discounted service trials for new customers. Despite the fact that CRT services are geared toward business customers, operators are increasingly finding that they must compete with cellular operators, who have attacked trunking markets on two fronts, through regulatory policy and marketing strategy. On the regulatory front, new cellular operators are complaining that trunked radio operators should not be allowed to provide unlimited interconnect service to public switched telephone network (PSTN) customers, because then they are competing with cellular operators who have paid significantly more for their spectrum. In Brazil, this argument caused significant regulatory changes. A 1997 statute stipulates that a trunking operator’s outgoing traffic to the public telecommunications network may be no more than one-third of the total intra-network and outgoing traffic. Placing limits on interconnection directly violates the principles of the free, competitive market. IWTA’s research indicates that, after 30 years of existence, the number of interconnected units is a small, insignificant, portion of the total number of units in operation. On the marketing front, cellular operators are aggressively marketing their services to the masses, while trunking operators tend to spend significantly less on marketing campaigns. The result has been confusion in the market and a lack of awareness of the difference between trunked radio and cellular services. In fact, the second most common reason trunking customers give for cancelling service in Latin America is to switch to a cellular carrier. This is most prevalent in Colombia, the Dominican Republic and Honduras. However, only 7 percent of customers cancelled service in Latin America because of dissatisfaction with the service. The most common reason for cancellation is non-payment of bills. Operators who lack sufficient funding for widespread marketing campaigns find that pooling resources with other operators to promote the industry, as a whole, can be a viable alternative. This has been most successful in Mexico, where the Asociacion Mexicana de Concesionarios de Trunking (AMCOT) has pooled resources to run advertisements about trunking in major publications. In Mexico, in 1998, only 4% of customers cancelled service due to competition from other wireless services. Overall, the industry sectors that use CRT the most in Latin America are construction (13%), sales force (18%), service technicians (14% and transportation (8%). However, this distribution of customer types can vary significantly from country to country. For example, according to IWTA’s Global Digest for CRT Systems, in 1998, the majority of Argentina’s users came from the construction industry (15.8%), while 10.5% came from the agriculture and utilities industries respectively. However, in Colombia, the majority of users came from the service technicians industry (20%) and the security and transportation industries. Regarding service pricing, operators in approximately half of the countries IWTA surveyed charge only a flat rate for service. The other half charge a flat rate plus a fee for dispatch and interconnect airtime. The highest flat fees are found in Argentina and Brazil, where the average was US$72.50 per month in 1998. Trinidad charged the lowest fee (US$10). Likewise, the average monthly revenue per user ranges from US$15 in Trinidad to US$82.50 in Argentina. IWTA research shows that some of the lowest priced dispatch and interconnect radios in the world are found in Latin America. For example, a typical dispatch mobile radio costs US$580 in Latin America and can cost up to US$981 in Asia. Mobile radios for interconnecting to the PSTN are the most expensive radios in the region, costing on average US$7.15. Cellular phones cost the user less since the carriers often subsidizes the handset. Similarly, the CRT operators have had to create subsidized radio sales programmes in order to be competitive. Conclusion Overall, the future remains very bright for the industry in Latin America. However, operators must continue to strive to be competitive by taking advantage of improved technologies and implementing better marketing strategies. CRT offers business users features not available from other wireless services; creating public awareness of the benefits of these services remains one of the biggest challenges. IWTA also will continue to work with its association members to improve the local regulatory environment so that CRT operators can grow and provide much needed services to their clients.