Peru: A mobile market set for growth. By Roberta Prescott. Sponsored by: ATC LATIN AMERICA FEBRUARY 2013

Transcription

1 Peru: A mobile market set for growth By Roberta Prescott FEBRUARY 2013 Sponsored by: ATC LATIN AMERICA

2 Peru s wireless market dominated by Movistar and Claro may not be the most dynamic, but it may present new opportunities as the country works to increase broadband penetration, expand 3G services and data consumption. Dominated by the two largest Latin American telecom operators, Peru s wireless market still holds promise. As observers have noted, there is room to grow in Peru as mobile penetration is at 96%, 2G services accounts for 91% of the total market and 76% of mobile lines are via prepaid. Evolving technologies and more carrier competition are potential drivers of new opportunities. Analysts noted that while Peru is currently home to three established carriers Telefónica s Movistar, América Móvil s Claro and NII Holdings Nextel the country lacks the depth of competition of some markets such as Brazil. Two operators pretty much hold the market, and the operators are in a very comfortable competitive position. It is not a dynamic market, nor is there high competition, said Daniele Tricarico, analyst at Pyramid Research. More activity is expected in the future. In the mobile space, Vietnamese mobile network operator Viettel Group recently was awarded spectrum licenses and announced the launch of technical operations and trial services. Some niche companies have also entered the market, such as Olo, which is offering mobile Internet services using WiMAX technology. Despite the challenges, Tricarico noted Peru is a growth market and is far from saturated. Peru has also been going through a period of robust economic growth, which should spell opportunity for the mobile space. There are opportunities for data services, for both fixed and mobile broadband providers mostly in the corporate segment, and there are good opportunities for mobile providers to offer broadband, even Wi-Fi, Tricarico said. Although some analysts count Peru s mobile lines at 29 million, the latest official data from Peru s regulatory agency, Osiptel, states that the country had just over 34 million wireless customers in mid Of those, Movistar counted Peru snapshot Mobile telephony penetration: 96% 2G : 91% of total connections 3G: 4% of total connections Prepaid: 76% of total connections Postpaid: 24% of total connections Carrier market share: Movistar: 51.5% Claro: 43.2% Nextel: 5.3% Source: Informa Telecoms & Media/Q million customers, Claro served 11.9 million subscribers and Nextel s customer base numbered just over 1.3 million. According to an Informa Telecoms & Media report, Movistar led the Peruvian telecom market with a 51.5% market share in the third quarter of Claro followed with 43.2% of the market and Nextel with 5.3%. Although still leading, Movistar has lost some of its market share. In 2010, Telefónica s unit in Peru controlled about 54% of the market, with Claro having grown its share from 41% in Nextel s share of the market has remained stable. Elia San Miguel, principal analyst with Gartner Research, believes that Movistar will keep its leadership and make more aggressive moves following the unification of its fixed and mobile operations. Peru is a very concentrated market, with Movistar and Claro leading not only in mobile lines but also in fixed telephony and pay-tv services, said Sebastián Menutti, analyst at Signals Telecom Consulting. Although Nextel is a niche player focused on the corporate market, by deploying its 3G network, the carrier is expanding its reach, noted Menutti. He also highlighted that Nextel s average revenue per user is almost double that of Movistar and Claro.

3 These technologies allow corporations to jump into unified communication solutions, he said. Peru s mobile penetration is near saturation, though only a small fraction use advanced devices. Source: Osiptel In Peru, growing ARPU is a challenge, structure required to support telecommunications growth is one of the mar- with current ARPU of $9 per month, which is one of the lowest in the region. kets main investment areas. Generally, Peru s wireless market In addition, La Rosa said that corporate adoption of information and commu- has been growing, but there s still more room to grow, said Carlo Dávila La nications technology is also increasing, Rosa, telecommunications analyst at and enterprises will need to invest in IDC Peru. La Rosa noted that infra- networking, switching and IP telephony. New competitors on the way With only three major mobile players, Peru would seem to an attractive market for new competitors, and some companies have seen this opportunity. The Viettel Group launched its technical operations at the end of January, and Virgin Mobile has also showed interest in launching telecom services in Peru as a mobile virtual network operator. It is important to note that Peru does not have appropriate regulations in place yet for MVNO services. Viettel s technical operations started in the cities of Huarochiri, Huaura, Chincha, Ica and Trujillo. However, under the concession, Viettel was only contractually obligated to launch technical operations. As of press time, Viettel had not yet launched commercial services. The expectation is that Viettel will enter the market with more aggressive prices, charging less than current players, which would be in line with what they ve done in Vietnam, said Menutti of Signals Telecom. Erasmo Rojas, 4G Americas director of Latin America and the Caribbean, said that Viettel faces a very difficult challenge, and it might be forced to undercut rivals as they will use the same devices other carriers use. In January 2011, the carrier won a license in the the 1.9 GHz frequency band, setting the stage for it to become the fourth mobile operator in the country. In April 2012, the Viettel Group announced plans to invest about $400

4 Total customers/dominant carriers across Latin America markets 300 Total Customers M 94 M Number of Largest Mobile Country Major Carriers Telecom Operator(s) Brazil 5 Vivo, Telefonica Mexico 4 Telcel, América Móvil Argentina 4 Claro, América Móvil Colombia 4 Claro, América Móvil Venezuela 3 Movilnet Peru 3 Movistar, Telefonica Chile 3 Entel 50 0 Source: 4G Americas 57 M 46 M Brazil Mexico Argentina Colombia 29 M 28 M 26 M Venezuela Peru Chile million in Peru over the next 10 years. Last August, the company secured more spectrum in the 900 MHz band, which cost a total of $48.43 million. Viettel has tapped ZTE to deploy a 2G/3G wireless network in Peru, and according to ZTE, the first phase of the project will include building more than 2,000 base stations. Dubbed Viettel Peru, the company s local unit expects to penetrate the market with low prices and aims to reach 338,000 subscribers by The carrier currently has operations in Cambodia, Laos, Haiti and Mozambique. I think it will be difficult for Viettel to replicate the strategy they ve used in other regions, where they focused on rural areas, said Marceli Passoni, senior analyst for Latin America at Informa Telecoms & Media. In Peru, the players are consolidated already, and the government has set policies for rural areas. Informa forecasts that Viettel could capture 1% of the market by As for Virgin Mobile Latin America, the company has launched telecom services in Chile, with plans to expand into Colombia and Brazil. The U.K.-based operator said that while Peru was of interest, it was not likely to launch services in the country this year. Peru is a vibrant market and one of our priority target markets because we know we can offer a better deal, great customer service and a more fun mobile experience to Peruvians. We have registered our business and have been approved to launch an MVNO in Peru, said Pete Macnee, CEO of VMLA. Olo also recently entered the market, spending $50 million to launch a mobile Internet services using WiMAX technology. The offering is a prepaid mobile data services targeting the country s capital Lima. Olo is expected to expand its WiMAX network to other provinces starting in the first quarter of this year, including Arequipa, Chiclayo and Trujillo. Another player, VelaTel Global Communications (previously ChinaTel Group), has been offering WiMAX-based wireless broadband for the last couple of years under the brand GoMovil.

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6 Network evolution With LTE yet to be earmarked by carriers, wireless technology has been focused on 3G networks. Although 3G has been available in Peru for years, penetration was only 4% as of last September, according to Informa Telecoms & Media. Telecom operators have preferred to evolve their 3G networks, improving quality and coverage, instead of jumping into LTE. Both Movistar and Claro have deployed HSPA+ networks in major centers. And Nextel has started its 3G deployment throughout Latin America beginning in Peru. The carriers are relying on these efforts to gain in the mobile broadband market. But 3G penetration is still very low. According to Signals Telecom, 3G connections represent only 5% of the total market. Investment in 3G is not finished, and carriers will continue to promote 3G to boost data consumption, Signal Telecom s Menutti said. Although LTE deployment is not tied to a spectrum auction in Peru, carriers have preferred not to launch LTE with the spectrum they already have, explaining that those frequency bands are not the most appropriate ones. Gonzalo Ruíz, Osiptel s president, explained that in Peru there is no allocated radio spectrum for a given technology; in that sense, there is technological neutrality in the use of the band. We tie the auction to coverage reach, telecom service expansion and social goals, not to the technology the carrier will use, explained Ruíz. The country s Ministry of Transport and Communications has increased the maximum amount of spectrum each operator can control from 60 megahertz to 100 megahertz. In any case, observers and carriers are expecting the upcoming auction of spectrum in the 1.7/2.1 GHz band, also known as the advanced wireless services band, to boost the deployment of LTE networks in Peru. The Promotion of Private Investment (ProInversión) said plans for the auction will include two blocks in the MHz and MHz bands. The process is still in its early stages, with the auction expected to take place during the first half of In addition, 4G Americas Rojas said that Peru s government has decided to adopt the Asia Pacific Telecommunity (APT) band plan for the 700 MHz bands; however, no plans regarding the spectrum have been set. Last August, ProInversión conducted auctions for the MHz and MHz bands (Lima and Callao) and the MHz and MHz bands to provide telecom services for the rest of the country. Viettel snapped up those bands. LTE is the wireless technology of the future, said Informa s Passoni. Sooner or later all countries will adopt it, but I don t think it is time for Peru. LTE devices are too expensive for Peru, considering its economy. It would be a very high investment for little demand. Since LTE has not been deployed, Osiptel has prohibited telecom operators from using the term 4G or fourth generation to market their products. The measure is intended to ensure the accuracy of information that companies provide users about their plans and products, as required by Peru s Article 6 of Regulation Terms of Use of Public Telecommunications Services and according to the country s Consumer Act. Indeed, Osiptel s resolution is in line with standards posted by the International Telecommunication Union that set specifications for next-generation mobile technologies. The ITU has stated that IMT-Advanced, also known as LTE-Advanced, and WirelessMAN-Advanced technologies meet the requirements for 4G services. Government s role Peru s telecom regulator, Osiptel, has set three main focus areas for 2013: user rights; quality enhancement and improvement; and encouraging competition. As Osiptel s Ruíz Challenges ahead To increase the average revenue per user: Peru s ARPU is $9, one of the lowest in the region. To improve competition: Peru is a very concentrated market, with Movistar (Telefónica) and Claro (América Móvil) splitting the market. To increase Internet coverage, penetration and reduce Internet costs. To increase mobile data consumption. To expand wireless coverage, reaching remote areas.

7 explained, the agency is working to increase customer service quality. That includes improving service and reducing the time that carriers take to attend to customer complaints as well as improving the way the government agency manages complaints. Regarding the quality of mobile voice and data services, Ruiz said that Osiptel has set an agenda for regulations aimed at improving wireless service quality by setting rules for coverage and quality. Osiptel is also reviewing regulatory procedures and supervision. Ruíz highlighted the need to promote competition, noting that this issue is also related to greater telecom service coverage in the country. In Peru, the market is highly concentrated, and for us, this is the main thing that has prevented the country from improving infrastructure and Internet broadband in the countryside, Ruíz said. Among Osiptel s main projects is the deployment of a fiber-optic backbone to boost broadband connections and penetration. The contract bid for selecting a vendor to deploy and manage the fiber optic backbone is being evaluated by the MTC, and bidding is expected to be held by mid This fiber-optic transport network of 14,000 kilometers, aims to reduce the deficit of infrastructure. It will be a concession contract with a private company a carriers carrier that will operate this network, Ruíz explained. Osiptel has been working since 2010 on the national broadband plan. The agency s role is to oversee the implementation and operation of the fiber-optic backbone, ensuring competition takes place so that equal access is provided. In Peru, there are three governmental agencies that regulate and influence the telecom market. The MTC is responsible for developing telecommunications policy, granting contracts and managing resources such as spectrum and numbering. Osiptel regulates and monitors the country s public telecommunication service market, and ProInversión is the government body in charge of promoting private sector investment in Peru. The government is investing to take telecommunication services to the rural areas and to universalize telecom services, Informa s Passoni noted. The fiber-optic project is important for increasing capacity across the country. Pyramid s Tricarico said that in Peru it can be very difficult to bring broadband to certain areas. In general, observers agreed that the Peruvian government has been addressing several of the most important telecommunications issues, but they also noted the lack of regulations or incentives that could encourage more competition and geographic expansion. For example, Peru lacks MVNO regulations. As noted by Ruíz, currently the government is reviewing its telecommunications law, which dates from 1988, to improve competition rules, encouraging new entrants and adding new options such as MVNO providers. Ruíz also highlighted that the beginning of number portability has contributed to a more competitive market. Last year, there were about 200,000 people who switched operators and kept their original mobile numbers, he said. Hot topics Although dominated by Movistar and Claro, Peru s wireless market is recognized for its potential. Observers are excited to see the impact Viettel could have and whether the entrance of the new carrier means prices will fall. IDC s La Rosa said that the rise of the middle class in Peru is contributing to making the wireless market more attractive for new telecom players. He added that the expansion to uncovered areas is another opportunity to be explored in the country. Pyramid s Tricarico said that telecom operators are putting effort into the extension of 3G (using both HSPA and HSPA+), deploying more antennas on base stations to support faster speeds and increasing population coverage. Looking at this, infrastructure is still a key way to differentiate, since operators are competing in infrastructure and coverage layers, and they are not in the stage of competing with services when they would be more open to sharing infrastructure, Tricarico explained. In addition, the migration from 2G to 3G technologies represents a big opportunity, as data services begin to increase. There will be an evolution of mobile data services, with big growth in the HSPA+ space, noted Tricarico. There are a lot of opportunities for operators to grow. They are focusing on HSPA+, and there will be strong growth in that area because LTE might take a year or more to happen, and they have to raise data consumption. Continued on page 9

8 Telefónica s license renewal In January, Telefónica Peru announced it accepted the requirements imposed by the Peruvian government for renewing its operating licenses. Telefónica classified the conditions and terms required by the Ministry of Transport and Communications as harsh and said that they were unprecedented. The government had been evaluating the renewal of three of Telefónica s four operating licenses since 2012, and said the new agreement will benefit more than 10 million low-income Peruvians, directly and indirectly, since the new requirements focus on providing telecommunication services to the most disadvantaged and low-income of the country s populations. As for the Spanish-based telecom operator, Telefónica said that to comply with the MTC s terms and conditions it will have to make extraordinary investments and management efforts. The telecom operator also highlighted that it has completed its previous obligations, contributing significantly to the dramatic growth of mobile telephony in Peru with more coverage and increasingly competitive rates. The amount Telefónica had to commit to invest in rural coverage in exchange for the license renewal, around $1.2 billion, is very high, noted Marceli Passoni, senior analyst for Latin America at Informa Telecoms & Media. Sebastián Menutti, telecom analyst at Signals Telecom Group, said that it was not the first time that the state had imposed investment and coverage conditions on Telefónica. It also happened when the company acquired the assets of BellSouth Peru, and the government imposed coverage requirements for nearly 2,000 rural municipalities as a condition of accepting the transaction, Menutti said. At that time, in order to receive the green light on the deal, Telefónica was required to provide coverage Telefónica Peru was required to meet stringent coverage guidelines in order to secure continued use of its wireless licences. Source: Telefónica for localities that didn t have any type of telecom services or were underserved. Telefónica received MTC s authorization for the merger in April According to the latest conditions, Telefónica now must provide more than 12,000 free Internet broadband connections aimed at improving the performance of essential state services in areas such as education, healthcare and security. Among the agreement s positive aspects, Menutti said that mobile services will reach 409 district capitals and 1,848 locations where Telefónica does not currently provide coverage, achieving 100% mobile coverage of the district capitals. In addition, up to one million people will have a reduced rate for mobile services, which will be reflected in increased service adoption. These obligations are in line with the objectives of the National Plan for the Development of Broadband in Peru proposed to minimize the digital divide, ensuring that 100% of the country s districts have broadband, he said. On the negative side, the analyst pointed out that the negotiation delay for the contract renewals resulted in the new district infrastructure deployments beginning at least one year later than they should have, as Telefónica s licenses expired between May 2011 and February In a statement, Javier Manzanares, chairman of Telefónica in Peru, said that over the nearly 19 years that Telefónica has been working in Peru, the company has invested more than $6.8 billion in infrastructure. Our commitment to Peru is long term. We will continue to invest in Peru and will work even faster with authorities and various stakeholders of the company to continue expanding telecommunications as a tool for development, access to modernity and inclusion, he said.

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10 Continued from page 7 Rojas added that currently, Voice penetration is in line with the Latin American average, according to 4G America s Rojas, but 3G adoption lags at about 5% while the regional average is closer to 17%. The evolution of prepaid to postpaid customers is another facet to be considered. According to Rojas, prepaid accounted for 81% of the wireless market by 2010, but fell to about 76% last year. One challenge Rojas pointed to is stimulating the personal Internet connection culture in Peru. When you walk around Lima, you notice many cyber-cafés. People go there to access the Internet because at home, Internet penetration is low. Tablets could help to boost this market, Rojas said. Gartner s San Miguel, agreed that encouraging broadband use for mobile devices, even for households facing challenges, would help the market grow. Wired Internet in the home is still the most preferred way to access the Internet. As a consequence, San Miguel said that carriers data revenue share is 22% in Peru, while in Argentina it is about 30% and in Colombia 25%. Gartner s forecast is that this percentage will increase to nearly 31% in Peru by IDC s La Rosa is betting that smartphone and tablet adoption will rise. There are marketing campaigns to encourage their use, and prices are becoming more accessible, he said. When looking at the Andean region, San Miguel noted that after the crisis of 2009, the region emerged as a promising market and not only for mobile services. According to San Miguel, Peru has maintained a constant growth rate Smartphone are expected to draw consumers towards mobile broadband services in Peru. of three million new connections each year, which is a good sign. The telecom sector is already a key pillar of Peru s economy, with $5 billion and plays a major role to the country s GDP. Among the Peruvian government s challenges for the near future are to expand Internet coverage; increase in revenue, according to Osiptel. And it Internet penetration with reduced will continue to gain relevance as the industry attracts foreign investment costs; grow competition; and improve wireless services. Source: Movistar

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