Americas Market Perspective

Transcription

1 Americas Market Perspective V O L. 8 I S S U E 45 D E C E M B E R 2008 For Paraguay, Liberalization Is Critical to Connectivity Prospects Analyst: JOSE ROBERTO MAGANA jmagana@pyr.com Tel: Because broadband penetration in Paraguay is lower than that of other markets with similar GDP per capita and PC penetration, there is reason to believe that regulations have held back the market. We therefore believe that the telecom market in Paraguay has ample room for growth in the near term. Latin America offers several examples where competition has boosted connectivity and helped bring down prices, and Pyramid Research expects the same to happen in Paraguay Pyramid Research The increased competition resulting from liberalizing the Internet market will bring about new investments in infrastructure and services, resulting in a higher Internet penetration and a move toward new services, such as VoIP and IPTV. While every effort has been taken to verify the accuracy of this information, Pyramid Research cannot accept any responsibility or liability for reliance by any person on this information. ID# 475 Pyramid Research Locations Worldwide World Headquarters 10 Canal Park Cambridge, MA USA Tel: Fax: Latin America Waterford Business Park 5201 Blue Lagoon Drive Suite 971 Miami, FL USA Tel: Fax: Asia-Pacific 18/F Caroline Center Lee Gardens Two 28 Yun Ping Road Causeway Bay, Hong Kong Tel: Fax: Europe UBM, Ludgate House 245 Blackfriars Road London, SE1 9UY United Kingdom Tel: Tel:

2 VOLUME 8 ISSUE 45 2 EVENT SPOTLIGHT The government in Paraguay announced that it will start preparing a draft of new regulations seeking to liberalize the Internet market. The move aims to improve Internet penetration in the country, which currently sits among the lowest in Latin America, at 2.90% of total population at the close of The core changes in regulation will allow private competition, which may trigger the much needed infrastructure investments and tariff reductions. Currently, the state-owned company Compañía Paraguaya de Telecomunicaciones (Copaco) has made public its opposition to fully opening the market, claiming that the company has already invested in the deployment of fiber-optic networks and suggesting that the liberalization should be gradual and that the company should be granted a monopoly in the VoIP market and secure, stable revenue. We believe that liberalization of the market is a critical step toward improving the connectivity prospects in Paraguay. Pyramid Research indicators show that in the current state-owned environment, Internet penetration is low given Paraguay s GDP per capita and PC penetration and that the figures are also unimpressive when compared with those of liberalized markets in the region. Similarly, DSL tariffs in Paraguay are abnormally high compared with those of other markets in Latin America, making the service unaffordable for most of the population. We believe that a move to liberalize the telecom market in Paraguay will bolster adoption of both wired and wireless broadband Internet as well as services such as VoIP and IPTV. BEHIND THE HEADLINE Paraguay s low competitive environment creates high tariffs and limited adoption. Because broadband penetration in Paraguay is lower than that of other markets with similar GDP per capita and PC penetration, there is reason to believe that regulations have held back the market. We therefore believe that the telecom market has ample room for growth in the near term. Internet penetration in Paraguay is crimped by its low broadband penetration. Compared with other regional markets, Paraguay s broadband penetration of total population is just above Nicaragua s and below other countries, such as Honduras and Guatemala, that have half its PC penetration. For the total Latin American market, Paraguay ranks ninth in terms of PC penetration of the population, suggesting that the issue of low connectivity relative to the region is explained by its low competitive environment, resulting in high tariffs for customers: In 2007, the residential ARPS of a DSL connection in Paraguay was US$59.37, just below Puerto Rico and Uruguay (which have a GDP per capita at least three times that of Paraguay) while the Latin American average was $ In addition, the residential ARPS of a DSL connection in Paraguay has been increasing over the past two years, contrary to the regional trend that showed its ARPS moving downward. Tariffs in Paraguay are more than 40% higher than in Honduras and Nicaragua, making Internet service a luxury for only the upper end of the market. In order to promote uptake among other socioeconomic segments, prices must come down sharply. Comparing broadband penetration with GDP per capita for a sample of countries in Latin America, we observe that broadband penetration in the country is about half what it should be in a more competitive environment (see Exhibit 1). Income seems to have an exponential relationship with broadband penetration, meaning that as income advances, broadband penetration expands at a faster rate as a result of more households being able to afford personal computers, higher education levels among citizens and positive network effects.

3 Broadband penetration VOLUME 8 ISSUE 45 3 Exhibit 1: GDP per capita versus broadband penetration of total population in Latin America, % 10% R² = Chile 8% Argentina Uruguay 6% Colombia Panama Costa Rica Brazil Mexico 4% 2% 0% Honduras Nicaragua El Salvador Peru Ecuador Guatemala Paraguay $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 GDP per capita Source: Pyramid Research Competition to boost connectivity and reduce prices As a country with limited resources, Paraguay should create conditions for the private sector to build adequate infrastructure. Latin America offers several examples where competition has boosted connectivity and helped bring down prices. Pyramid Research expects the same to happen in Paraguay. Copaco claims that the market should be opened gradually to help the operator recover its huge investments, although this may not be the right approach for a country that seeks to increase uptake and decrease tariffs. If providing DSL makes economic sense, new competitors will initiate additional deployments and push prices down. Paraguay should investigate the prospects of wireless broadband technologies, such as WiMAX, with technological advantages that have proven that coverage can be improved more cost-effectively compared with traditional wire line networks; in Peru and Chile, Telmex used WiMAX to offer broadband and telephony in direct competition with the respective fixed-line incumbents, Telefónica and Entel. In Colombia and Peru, it was Telefónica who deployed a CDMA 450 mobile network to lower its investment load yet add broadband/internet coverage. Honduras, a country with a lower GDP per capita than Paraguay, is improving its telecommunication prospects by bringing more competition to the marketplace. Digicel, a Caribbean-based operator, will soon launch its mobile services in the country. Since Digicel s mobile license was awarded in early 2008, mobile penetration has soared from 59% at year-end 2007 to 87% in Digicel is also deploying a WiMAX network that may target the low penetrated voice and broadband markets, challenging the current state-owned incumbent Hondutel. Costa Rica, which had a state-owned incumbent, is opening its doors to new competition, as well.

4 Penetration of total population VOLUME 8 ISSUE 45 4 Opportunity for the development of new services The increased competition resulting from liberalizing the Internet market will bring about new investments in infrastructure and services, resulting in a higher Internet penetration and a move toward new services, such as VoIP and IPTV. The regulatory openness to new services will accelerate the pace of investments, smooth the adoption of new technologies and provide more choices to customers at better prices. New regulation has to be market friendly and should encourage new competitors to enter the market, promote fair interconnection agreements and guarantee fair access to the networks. This process will result in new investments that will help to raise connectivity and more importantly reduce prices for customers and improve quality as choices arise. For the broadband market, more connectivity options will boost the prospect for new services such as VoIP and IPTV, which are likely to be offered at lower prices than their traditional alternatives. Pyramid Research estimates that if the market opens to liberalization, broadband penetration in Paraguay will advance to 2.61% by 2013 from 0.81% at the end of 2008 (see Exhibit 2), a CAGR of 26% for the five-year period. Revenue from broadband will jump from $22m in 2008 to $45m in Exhibit 2: Projected broadband penetration of the population in Paraguay 3% 3% 2% 2% 1% 1% 0% Source: Pyramid Research Fixed Communications Forecast, Q3 2008

5 VOLUME 8 ISSUE 45 5 CLIENT RECOMMENDATIONS Conatel Push for a technologically neutral open regulation. Use the experiences of Peru and Chile as examples of how to encourage competition and, as a result, improve coverage. Copaco View competition as a positive catalyst for growth. Your unique knowledge of the local market, infrastructure advantage and position as a national asset are key elements that can be leveraged in a competitive environment. New operators may bring investments in infrastructure, marketing and network traffic that will generate more interest in telecom services, a definite benefit.

6 VOLUME 8 ISSUE 45 6 Recent reports and other products from Pyramid Research To Compete with Mobile and Cable Players, Telcos in Brazil Invest in Bundles for SMBs Latin American Regional Perspective published November 2008 As the Brazilian residential broadband market grows more and more competitive, cable companies and mobile operators have been expanding their offerings by including broadband. Looking for different sources of growth, fixed operators are looking to small and medium businesses. This Perspective looks at the products operators will push on this segment and whether or not business broadband will offset decreases in revenue. Tigo Bolivia Gains an Edge in the Mobile Market by Deploying 3G Latin American Regional Perspective published November 2008 In Q3 2008, Millicom launched 3G services in Bolivia under the Tigo brand. With a strong regional presence and financial strength, an underpenetrated market and the government-owned market leader remaining idle, Tigo should be able to successfully implement and commercialize its 3G offering in Bolivia. This Perspective examines the deployment and how it will affect data services in Bolivia. Latin America Mobile Handset Forecasts, Q Forecasts published October 2008 Updated on a quarterly basis, our Mobile Handset Forecast products provide a complete picture of handset sellthrough in each of 18 Latin American markets. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales, handset sales by network technology, new handset sales (by technology, by technology generation, by feature set), smartphone handset sales, vendor market share and handset ASP. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. Moreover, they are based on extensive field research, and a consistent methodology that is applied to all markets. Mobile Advertising in Latin America: Looking for the Right Business Model Regional Perspective published October 2008 This Perspective looks at Telefónica s deal with Amobee Media for an ad server providing mobile access for advertisers, and at mobile networks prospects for achieving a significant media role in Latin American markets. Will mobile operators be able to position themselves as attractive advertising outlets? Pyramid Research believes that to sell advertising, regional operators will have to collaborate with a wide array of players. Handsets Get a Latin Beat: Mobile Users in Latin America Turn to Music, Cameras and 3G Research Report published June 2008 Latin America s mobile handset market has grown remarkably in recent years, and device sales will increase further through This Report examines that transformation and what it means to vendors and operators, providing extensive forecasts. It looks at underlying trends in the mobile market, including technology developments, mobile services demand, the competitive landscape, ARPS, the battle between the two main regional mobile operators, handset revenues, unit sales, ASP trends, marketing campaigns, demographic factors and market shares. The focus is on the seven largest markets in Latin America: Brazil, Mexico, Venezuela, Argentina, Colombia, Peru and Chile. Additional products Forecasts Updated on a quarterly basis, our Forecast products provide a complete picture of demand trends affecting each geographical market covered. The Excel output includes five years of historical data and five years of market projections, providing complete macroeconomic and market-sizing information. Available for: Mobile Communications, Fixed Communications, Mobile Data, Mobile Enterprise, Mobile Handsets, Mobile CAPEX, Internet and Media, Network OPEX. Country Intelligence Reports Country Intelligence Reports offer insightful analysis of a country's communications, media, and technology industries, including regulatory pressures and overall competitive landscapes. These data-intensive reports are published annually for 64 countries worldwide, and illustrate key trends within given markets, making them an excellent complement to our Forecast products. For more information or to purchase, contact Pyramid Research at: or sales@pyr.com or