 | Issue: | Latin America III 2001 |
| Article no.: | 2 | |
| Topic: | The new Face of Wireless Data in Latin America | |
| Author: | Dick Blom | |
| Title: | President | |
| Organisation: | CMG Americas | |
| PDF size: | 20KB |
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Article abstract
The growth of wireless in Latin America has been explosive. Brazil, for example, has 26 million mobile phones, double the fixed phones of a few years ago. Mobiles are still mainly used for voice, although many operators now offer WAP and SMS services. In Europe 200 billion SMS messages are forecast for 2001. Latin American operators expect SMS and other data-based services will become a significant source of revenue and serve as a tool to stem subscriber churn problems.
Full Article
Latin America is a region of great economic differences, good weather, friendly people and two main languages-Portuguese and Spanish. Despite the many social problems and cultural differences in the region, the wireless industry is playing an important role delivering services that were not available a few years ago to all levels of society. The wireless penetration rate in Latin America, with its 500 million inhabitants, is 13 per cent, a good indication of the region’s potential. In this huge area Argentina, Brazil, Chile, Mexico and Venezuela represent 85 per cent of the market. In analysing the region, we can see different degrees of maturity in relation to other regions such as Europe in regard to the wireless arena. Only a few years ago, due to the high level of govern-mental control, telecommunications in the region were limited to those few citizens who could afford the high costs of a fixed telephone line, and then, only if it was available. After the privatisation process, there was an explosion in the growth of fixed and mobile telephone lines sold due to the suppressed demand that existed in most countries. We have seen big growth of wireless lines in Brazil; 26 million mobile phones are available today, when only four years ago this number was very limited. From an economic perspective, this is a region that, historically, has lived with high inflation and regular crises. The region is highly sensitive to movements in foreign investment and local political problems; it is highly unstable compared to Europe or the USA. Military and paternalist governments have left a legacy of huge differences in economic development within the population and caused delays in technological investment and development. When we gather these different perspectives, and try to understand users’ behaviour, we can see that the need for mobile data services is not very high at the moment. A few years ago, most of the customers bought mobile phones either for status or because they had no access to a fixed line. Of course, other services were not available to the first generation of networks that were available at that time. As a result, voice is the predominant service at this stage, and very few people (early adopters) are interested in wireless data services even though many operators are now offering WAP and SMS services. Moreover, many of today’s subscribers are pre-paid. Only 40 per cent, or so, are post-paid and it is forecast that 80 per cent will be pre-paid in 5 years. This is the main difference in comparison with more mature markets where voice is such a normal service that people are looking for something new. This is certainly valid for the younger generation, the group that uses most of the data services in Europe. The big challenge is to bridge the chasm, to teach potential users about the use and importance of mobile data services. A good part of the challenge is to deliver cost-effective services and value-added content while increasing the bottom line of the operators, infrastructure and handsets developers and of the content and application providers. To do this it is necessary to have a sound business model and, as well, the latest mobile data infrastructure and applications available. Trends and Behaviour change Despite the fact that the adoption rate of mobile services in the region is not high, the prospects for the coming years are very interesting. According to the Yankee Group, Latin America is expected to have 162 million mobile subscribers by 2006, an indication of the high growth rates expected for this market. Higher penetration rates means more people will look for other applications in addition to voice. An entire generation is being raised that is accustomed to electronic games and the Internet. They will expect the same level of functionality on their phones- messaging, images, sound and the like. In response to increased competition and advances in technology, companies will need to closely examine behaviour change to discover how to boost wireless data use. Another important factor in the increase of wireless data services is that the major international carriers like Telefonica, TIM, BellSouth, Portugal Telecom, Telecom Americas are players in today’s new market. Competition will force the increase of service-offerings and bring brand new applications, often developed in other regions, to be deployed rapidly in comparison to other markets. Today, there is much discussions about migration paths for the new generation networks-2.5G, 3G and GSM-that are entering the arena and expanding the options on the local scene. Currently, Time Division Multiple Access (TDMA) and Code Division Multiple Access (CDMA) are the major technologies in the region, but GSM overlays have been announced, changing the balance between the various technological offerings. As can be seen in the graph, each of these technologies will drive significant investment in the region. Due to the differences in technology, questions arise about how inter-connection among the technologies can take place and about how to encourage users to change handsets in order to take advantage of the newer technologies and service offerings. New customer care and billing systems will be needed to handle the shift to a data package-based set of services and decisions will have to be made about how users are going to be treated in the highly segmented market created by the large number of available applications. In order to handle all of this, we first need to identify the key drivers of the wireless data takeoff. Key Success Factors for Mobile Data Looking at all of the above-mentioned trends, some issues of great importance to the operators can be identified. First, there is a need to create services that keep the subscriber loyal to the operator and reduce churn. Additionally, there is a great concern about ways to keep the Average Revenues Per User (ARPU) from decreasing. There is great interest in learning how to use protocols like WAP, i-Mode to develop more complex applications. These protocols will be used for ‘always on’ mobile applications and are expected to facilitate use by the subscriber. These new applications will, of course, require substantial investments, and operators, for the most part, are working on their strategies in preparation for the changeover. Full-scale next generation services are complex and expensive to implement, but there are simple and effective services that can be extremely useful in the interim. Short Message Service (SMS), for example, is relatively simple, but it provides a needed service and serves quite usefully as a relatively inexpensive evolutionary step towards more advanced services. SMS has been successful in Europe; the statistics are impressive. According to the GSM Association forecast, 200 billion SMS messages will be sent in 2001. This sort of volume proves SMS’s success, from the subscriber’s point of view, as a value-added service and serves as a key revenue generator for the operator. In Europe SMS has had a great impact on sales and profit. SMS revenues generate between 4 and 28 per cent of total operator sales, depending on the type of SMS services offered and the carrier’s penetration in the market. As a result, SMS is thought of as a tool in the fight to stem the churn nightmare. SMS has been a helpful part of marketing strategies that target specific groups and individuals by defining new service offerings according to carefully planned market segmentation schemes. The strategic drivers in successful markets can be copied and applied to the Latin American region whenever the markets are reasonably similar. The strategy used by the operators, intelligent and focused advertising campaigns aimed at younger audiences, chat services and media interaction helped change user behaviour and made SMS traffic in Europe increase ten-fold in the last 5 years. This example can also be followed in Latin America, introducing the concepts of interactivity and user-specific content, to make the service grow. The maturity of the European SMS market has encouraged Latin America’s operators to invest in these new services which should, in the near future, become a significant factor in the local market. The existence of an infrastructure that provides features such as interconnection, real-time pre-paid, high-performance billing and market intelligence tools contributes tremendously towards the ability to offer new services and diversified wireless data applications in the Latin American market. Of course, the low penetration rate, the low MO (mobile origination) rate, in Latin America will have a significant impact in the short term. This number, though, can be expected to increase, as the carriers make progress in the market; the youth market will help-young people generate enormous amounts of traffic and revenue. Future We believe, as stated above, Latin America will soon have wireless data services of some sort-WAP, SMS or some other type-and that 2.5G or 3G networks will gradually become part of the local scene. The estimates of the Yankee Group, that there will be 96 million mobile data users in 2006, in the Latin American region, support our view. The SMS roadmap is fairly well defined. The service should evolve as it migrates to the new generation networks which will permit new and more complex applications. The higher capacity and connection speed of the next generation services will make developments such as multimedia messaging a reality. The European operator Telenor, for example, will implement a Multimedia Messaging Centre, that can transmit sound, images and text. The handsets will have enhanced graphic displays to support these features. SMS, initially, is expected to be popular mainly with younger users. In the near future, though, when interconnection with devices other than phones is enabled, corporate services should grow. In Europe, where MSN has an interface to send e-mails through SMS, this service already has millions of GSM subscribers connected. Conclusion The future for mobile services in Latin America is promising, despite the many market and technological challenges to be overcome; the growth in market penetration and subscribers is expected to be enormous. In order to boost data services, with SMS leading the way, models from mature markets such as Europe should and will be used. This will allow Latin American carriers to deploy proven services and business models, which should bring them enormous revenues and profits. The focus will be on the younger generation and on pre-paid handsets that are able to originate text messages. Simple text-messaging and, later, more sophisticated messaging mechanisms with sound and images will lead the way to strong data traffic growth. Many obstacles have to be overcome-such as interconnection between standards, marketing the solutions to the target-audience and the like-but by following the example of the strong players from Europe, this is definitely achievable. Without any doubt the Latin American data-services market has tremendous potential, even in these times of global economical slow-down. It will allow the cellular operators to build substantial revenue-streams with high-demand services.
