|Issue:||Latin America II 1996|
|Topic:||Wireless Takes off in Latin America|
|Author:||Vincent J. Ferrara|
|Title:||Industry Information Specialist|
|Organisation:||Personal Communications Industry Association|
The advancement of wireless telecommunications is the greatest development in modern society. It not only bridges the gap between people, but it also bridges the gap between nations. With the convergence of wireless telecommunications, computers, broadcasting, cable television and the information networks of the internet, the global village has become a neighbourhood where people can communicate as if they are right next door. Services from PCS to paging, specialized mobile radio (SMA) to cellular, and Satellite to mobile data are combining to create a seamless universe of personal communication linking businesses, families and people. The various regions that make up the Latin American community are exploding in this arena of technology and communication. This growth is a clear result of such factors as increased competition, the emergence of news systems, and privatization and liberalization of the telecommunications sectors.
Analysts at Malarkey Taylor Associates-Economic Management Consultants International (MTA-EMCI) expect the growth of the wireless market in Latin America to climb to an outstanding 20 million subscribers by the year 2000. REGULATION REIGNS As we pass the mid-1990s the regulatory trends of the open and pro-competitive markets of Latin America are being defined by a tendency to liberalize and privatize competition, thanks to the development of the wireless telecommunications sector. Chile and Mexico have increased their level of liberalization policies. Even within the traditionally public-service monopolies of Brazil steps are being taken to liberalize segments of the telecommunications sector. The combination of market liberalization, growing demand for services and increased infrastructure investment blend together to create a solid foundation for the strong surge in the Latin American wireless telecommunications market. Latin American governments have made exceptional progress in developing their public telecommunications networks. Although these regions continuously face many economic and political issues, the necessity and desire for expanded communications services are critical for continued development. Infrastructure investment and finance are issues central to both public network development and private venture creation, and several countries have created institutions to facilitate this matter. Financing for such projects as infrastructure development has been forthcoming from a variety of sources, both public and private. One key market that was born out of newly expanded liberalization policies is the local service market. Local telephone access is one of the most difficult problems facing Latin American communications. The absence of a seamless wireline system creates the high demand for a solution. Wireless is usually the alternative of choice. Today, wireless local loop systems are fast becoming an economically and technically viable alternative to wired local telephone infrastructures in rapidly liberalizing markets like Mexico, as well as in monopoly environments like Brazil. MEXICO HAS POTENTIAL Clearly Mexico has the ability to reach its potential in the wireless telecommunications market. As a result of the expansion of the national telecommunications infrastructure combined with the conclusion of the North American Free Trade Agreement (NAFTA) , the markets for service and equipment in the local, long distance, wireless markets are expected to continue to grow at a steady pace. In addition, major international players such as MCI, AT&T and GTE will continue to be attracted to local investors and the Latin American market. Mexico’s limited wireline infrastructure and untapped market are the perfect breeding ground for local wireless services. However, some analysts worry that the economic instability creates large opportunities in some areas while restricting growth in others. One example of this was the growth of cellular carriers during the country’s economic crisis of 1995. Mexico’s largest cellular carrier, Telcel, increased cellular subscribership by year end 1995 to 399,500 from 306,000 in 1994. This was a 30.6 percent increase despite the devaluation of the peso. In comparison Grupo lusacell S.A. de C.V., the second largest cellular carrier only had a 16.5 percent growth during the same time period. According to MTA-EMCI, Mexico’s cellular market on the whole dropped to an 18 percent growth in 1995 from a 48 percent growth in 1994. These types of slow growth periods are inevitable in an unstable economy. However, over the long term the Mexican telecommunications market will provide excellent opportunities and experience continued growth. BRAZIL COMPETES On November 28 President Cardoso and the Ministry of Communications presented a telecom reform strategy designed to introduce competition in selected sectors and to increase investment. The granting of the B-Band licenses this year will inject long-awaited competition into this Latin American giant. By early 1997 private cellular operators are expected to compete directly with Telebras (Empresa de Telecomunicacões de Brasilia), the state-run telecommunications monopoly. Brazil’s cellular subscriber base reached 1.2 million by year end 1995. It is expected to reach an impressive 9.5 million subscribers by 2000. This potential has not escaped the eyes of investors. BellSouth is partnering with local investors like Banco Safra & O Estado de Sao Paulo. US West is partnering with Andrade Guiterrez. These partnerships will certainly make the granting of the B-Band licenses a significant milestone for increasing competition. SMR SERVES Usage of trunked radio services or SMA is rapidly expanding. SMA systems are not only being used for dispatch services, but also as an inexpensive mobile communications device. Mexico is currently leading the pack in Latin America by maintaining approximately 50 percent of all SMA subscribers. While Brazil, the largest country in Latin America, demonstrates the growth potential by possessing only 15 percent of the region’s subscribers, much of Latin America is an untapped wealth of potential. According to the International Technology Consultants (ITC), the market for trunked radio service or SMA will more than double from 1998 to 2000. By 2000 there will be an estimated 10 million subscribers. In 1995 Brazil touted 60,000 subscribers better than expected. Brazil has a potential market of more than 400,000 users with an estimated value of $200 million. These figures indicate specialized mobile radio systems will continue to prosper in Latin America. PAGING DELIVERS Although the paging market in Latin American countries have existed for many years, paging represents one of the major areas of growth. The growth of the paging subscriber base has been strong since 1993, increasing 26 percent in 1994 and growing an estimated 34 percent in 1995. The Personal Communications Industry Association estimates there will be nearly 4.4 million paging subscribers by the year 2000 with revenues climbing to an astounding $851 million dollars. Contrary to these unprecedented growth numbers the penetration rates for the Latin American communities are extremely low, with penetration rates of less than one percent of the population, with the exception of Puerto Rico at 5.25 percent. The continued growth of paging in Latin America may be attributed to the introduction of alphanumeric paging. One of the difficulties of numeric paging is the need for touch-tone phones. Without this basic necessity, numeric paging is impossible. In addition, the poor quality of a wireline infrastructure makes the dependency of calling in to retrieve voice-mail messages extremely difficult. The introduction of alpha paging eliminated that dependency on wireline. The alphanumeric pager offers the receiver a text message sent by the operator. In the same regard the introduction and further development of narrowband PCS will encourage further growth of paging due to the two-way capability. This type of pager will allow users to send and receive short messages right from the pager, thus further reducing the need for wireline infrastructure. CELLULAR RETAINS THE TITLE Cellular service has clearly taken a strong foothold in the regions of Latin America. As an alternative to the traditional wireline service, cellular is meeting the needs of businesses and people. In the absence of a comprehensive wireline infrastructure, cellular tackles these demands by providing greater coverage while reducing the cost of infrastructure development. A milestone in the development of wireless technology in Latin American has been achieved. Such cellular carriers as Argentina’s Movicom, Mexico’s lusacell and Peru’s Tele 2000 are now reaching their sixth anniversary. Resulting from higher competition and a need for improved communications services, these and many other companies will continue to provide quality cellular service for years to come. According to MTA-EMCI, cellular subscriber growth in Latin America reached nearly 71 percent in 1995. By the end of 1995 Latin American cellular subscribers reached approximately 4 million, amounting to one percent penetration of the region’s population and these figures will continue to soar throughout the remainder of the decade. MTA-EMCI estimates that by the year 2000 there will be more than 20 million cellular subscribers, or nearly four percent penetration, in Latin America. As a less expensive alternative to the traditional wireline service, cellular is meeting the needs of businesses and people. In the absence of a comprehensive wireline infrastructure, cellular carriers can meet the demands of the Latin American market. PCS PROMISES The demand for wireless communication devices will be met by the rapid introduction of personal communications services (PCS). These new digital systems will alleviate the capacity constraints of traditional analog cellular systems. The characteristics of the Latin American wireless market have already made the region a perfect candidate for the introduction of a digital communications network. PCS will meet the challenges of rapid expansion, large markets with increasing mobile needs, dense urban areas, high traffic and an inclination to use portable phones as the primary communications tool. In addition PCS will allow for the introduction of many new value-added services currently not available through analog cellular networks. Shortly after the first PCS licenses were granted in the United States by the Federal Communications Commission, Centennial Cellular signed a $50 million contract with AT&T to build a PCS network in Puerto Rico and the Virgin Islands. In response to these new developments, Chile is working feverishly to become one of the first countries in Latin America to license a PCS operator. The Chilean wireless market includes almost 200,000 cellular subscribers and approximately half of these are high-volume users. Its paging market contains more than 25,000 subscribers and has some of the lowest cellular tariffs in the world. In Chile, PCS is expected to follow the same trend. However, this will not be an easy battle for PCS. The stronghold of the cellular carriers will be fierce competition. In the United States PCS touts lower prices and no service contract. The Latin American cellular carriers provide efficient service to many business and upper-class users as their primary method of communication. Some say that the absence of a middle class will make it difficult for PCS to compete. Others see no difference between cellular and PCS. All of these factors aside, analysts at Pyramid Research Inc. believe PCS will add close to 4 million subscribers to Latin America. In addition, MTA-EMCI is estimating that by the year 2000, nearly 47 percent of the region’s cellular subscribers will be using digital cellular networks. The value-added services and the need for high capacity will be the deciding factors. These predictions indicate that cellular carriers are facing serious competition with digital PCS in Latin America. LATIN AMERICA’S WIRELESS FUTURE In Latin America demand for personalized services is high and the potential market is higher. With all things considered the wireless industry will continue to expand the realm of communication within the regions of Latin America and throughout the world. Many services will continue to be developed – global satellite communications, wireless access to the internet and increased data-applications making the world, yet again, a smaller community made up not of foreign nations, but a network of businesses, ideas and people. The future of wireless is a bright one looking to grow beyond the boundaries of imagination. Wireless telecommunications in Latin America will achieve personal communication anytime, anyplace, and anywhere. Conclusion Vincent J. Ferrara is the industry information specialist at PCIA. PCIA is the leading international trade association representing the wireless industry. Established in 1949, it has been at the forefront in advancing regulatory policies, legislation, and technological standards that have helped launch the age of PCS. The association represents the full range of players in wireless communications, including PCS licensees and those in the paging, ESMR, SMR, mobile data, manufacturing, and local and interexchange sectors of the industry.