 | Issue: | Latin America 2007 |
| Article no.: | 11 | |
| Topic: | Mobile in Latin America – what the future holds | |
| Author: | Rainer Neumann | |
| Title: | CEO | |
| Organisation: | Orga Systems | |
| PDF size: | 260KB |
About author
Rainer Neumann has been the CEO of Orga Systems GmbH since its founding and was responsible for the development of the first GSM prepaid billing system and the worldís largest GSM real-time billing system. Mr Neumann has held leading positions within the worldwide Orga Group for over 20 years. After working as a freelance software developer, Mr Neumann assumed a management position in the software development department of Secad Computertechnik GmbH, a predecessor to Orga Kartensysteme GmbH. Mr Neumann also served as the CEO of Orga Consult GmbH and as the CEO of Orga Kartensysteme. Rainer Neumann is a trained radio and television engineer and majored in computer sciences.
Article abstract
In 1998 there were two million GSM subscribers in Latin America but by early 2007 there were 230 million. The astounding growth of mobile telephony in Latin America has had a dramatic impact upon the regionís economies and social development. Although operators have grown due to the increasing number of subscribers, ARPU has dropped since most new subscribers are lower income pre-paid users. Operators look to data-based services to build revenues but face resistance from their largely pre-paid subscriber base.
Full Article
Mobile telephony has, of course, existed for decades prior to the invention of the cellular phone but could use only a very specific frequency and was thereby limited to a small number of users. In 1947, AT&T and Bell Laboratories invented the cellular phone, so 2007 marks its 60th anniversary. Cellular phones use networks that allow for an uninterrupted frequency range, which means the technology will serve a much greater number of users. Today, it is estimated that more than 80 per cent of the worldís 6.6 billion people (source: Informa) use GSM technology. According to Informa Technologies, in 2007 GSM accounted for the largest market share, 71 per cent, in the Latin American mobile wireless industry. Indeed, the Latin American market has been a key factor in the technologyís success and has experienced levels of growth recently that surpass even the global figures. Despite only being launched in the region in 1998, there were two million Latin American GSM subscribers by year 2000, and 230 million by the end of the first quarter of 2007 (source: Informa Telecoms and Media). Although starting from scratch within the Latin American region, mobile telephony is used today by the vast majority of its population. It has grown so quickly in the region that it has already surpassed fixed-line telephony. Today the penetration of mobile telephony is more than twice that of fixed telephony and in most Latin American countries the gap is growing even further. One reason is that mobile has faced less regulatory restraints than fixed-line telephony. Another is that, in many cases, mobile telephony is the only access to communications the poorest segments of the population have. As a consequence, in the Latin American market mobile is a substitute for other communications technologies instead of compliementing them, as in many other parts of the world. As Latin Americaís population is largely low-income, mobile services are now bringing communications to previously un-serviced market segments. In some instances, the mobile operatorsí drive to attract new customers and capture local market share has caused a reduction in ARPU, average revenue per user, as the new users are usually prepaid, typically less profitable, customers. The rise in subscribers has largely managed to offset the decline in ARPU and the big mobile operators have managed to raise both total revenues and EBITDA, Earnings Before Interest, Taxes, Depreciation and Amortization, thanks to the increasing number of customers. The introduction of the worldís first GSM prepaid solution in 1994 was a catalyst for this strong growth. For operators, the ability to launch prepaid services meant that they could dramatically reduce fraud risk by eliminating the risk of customersí unpaid bills, cut the cost of monthly statements and reduce collection costs. New solutions such as virtual voucher systems are driving down costs even lower by replacing the need for expensive point-of-sale, POS, equipment or scratch cards. Meanwhile, prepaid solutions enable subscribers to control their finances and avoid accumulating debts from unpaid bills. The prepaid subscribers have no monthly charges but can determine their own expenses and usage – using a virtual voucher-type solution the amount of top-ups can actually be freely configured and customised. In addition, prepaid users can continue to receive calls and remain accessible even when out of credit. Alongside prepaid, favourable market conditions have also contributed to mobileís strong growth by lowering prices for the end-consumer. The regionís mobile industry is highly competitive – lower investment and less sunk costs makes it easy for new market entrants, which has meant flexible pricing and low costs as operators seek to remain competitive. Therefore, the growth in mobile subscriber numbers and the use of the prepaid method has led to a significant reduction in the unit costs for services. This cost reduction has been the key factor in attracting more low-income users, especially since fixed-line remains expensive by comparison. In 2005, one person in 11 within the low-income group had a mobile; the segment is growing strongly and should continue to do so for years to come. As well as costs, mobile offers a raft of advantages for poor, rural communities, which in some instances account for the majority of a countryís population. For example, for people from rural Latin American areas who move to the big cities to search for better employment or educational facilities, it is crucial that they can communicate with their family; mobile is usually the cheapest, most convenient and, often, only way to do this. As well as empowering the poorer segments of the community, the growth in mobile has also had a dramatic effect on the regionís economies – contributing to capital investment, employment and government revenues more than most other industries – and social development, including helping bridge the gap between the regionís rich and poor. A study conducted back in 2005 on behalf of the GSM Association that focussed on five countries in the region (Brazil, Chile, Columbia, Mexico and Venezuela) found that the mobile industry generated almost US$20 billion in economic activity, raising US$10 billion in tax for local governments and creating around 2.3 million jobs. Foreign companies such as TIM and Telefonica, two of the biggest players in the region, are responsible for much of this investment. The study added that every ten per cent of growth in the industry will increase economic growth by 0.3 percentage points per year. Unsurprisingly, therefore, governments and regulators in the region have worked to create a fertile environment that allows the mobile industry to flourish. Despite the strong regional growth, Latin American operators still face many of the same challenges faced by operators elsewhere in the world. The overriding goal of all the worldís operators is to deliver innovative and intelligent new solutions to subscribers beyond voice. Voice still accounts for the vast majority of operator revenues in most cases and especially in Latin America, which is dominated by prepaid. As many areas – especially urban areas – begin to approach saturation, operators in the region will soon be able no longer to rely on simply adding more customers to sustain revenue growth. So what are these innovative new solutions and how quickly and easily can they be rolled out? Data-based services are the ones that hold the most promise but, today, revenue from data services is still largely attributed to basic messaging services such as SMS and MMS. In Latin America about 80 per cent of all users are lower income prepaid subscribers and, generally speaking, unwilling to spend money on more advanced data services. Operators, accordingly, hesitate to launch new data services for which they cannot guarantee a return on investment, ROI, almost from the outset. In the meantime, operators continue to benefit from expanding their customer bases into untapped market segments but it is imperative that operators transform their prepaid voice customers into customers that use their mobile phones for a whole host of revenue-generating services. The operators that are launching innovative services today will have a useful head start as the market moves toward maturity.
