Although paging has existed for decades in major Latin American and Caribbean countries, developments during the past few years have placed these markets on an unprecedented growth path.
If paging service prices decline-widening the market beyond business customers-and marketing and distribution improve, the region is projected to experience robust subscriber growth throughout the rest of the decade.
Annual paging subscriber growth in the region reached 26 percent in 1994 and an estimated 34 percent in 1995. By the end of third quarter 1995, there were approximately 1.2 million paging subscribers. Brazil leads the market with more than 23 percent of the regional subscriber base, followed by Colombia with 18 percent and Puerto Rico with 16 percent.
By the end of 2000, nearly 4.4 million total paging subscribers are expected in Latin America and the Caribbean. Brazil, which will continue to be the largest market in the region, is expected to add about 1.5 million subscribers from 1996 to 2000 as competition among operators intensifies. It will retain the top position with 40 percent of the regional subscriber base while Mexico moves into second place with almost 14 percent of all subscribers in the region.
Despite these tremendous growth rates, penetration rates currently remain low. With the exception of Puerto Rico, no other Latin American market has reached 1 percent penetration, and only two have surpassed 0.5 percent penetration. Puerto Rico is the most established market in Latin America with about 5.25 percent population penetration in 1995. In general, this low penetration is indicative of the untapped potential in these markets.
Only four countries-Chile, Mexico, Peru and Venezuela-will remain below 1 percent penetration by 2000, while Puerto Rico is expected to maintain the highest penetration rate at 10.5 percent.
This revitalization of paging in the region may be attributed primarily to the introduction of alphanumeric paging in the late 1980s. But also at that time, Latin American countries were experiencing strong economic growth as well as market liberalization and deregulation, creating a more positive environment for services like paging.
Alphanumeric paging
In Brazil, paging consisted of tone-only service prior to the introduction of 931 MHz systems in 1992. Alphanumeric paging has accounted for the majority of paging growth in the past few years in the country and currently represents more than 95 percent of all paging subscribers.
In Argentina, more than 85 percent of pagers in service are alphanumeric; more than 95 percent of all pagers in Mexico are alphanumeric.
The popularity of alphanumeric paging in Latin America may be attributed to three main factors: inadequate wireline telephone networks, lack of touch-tone telephone lines and cultural factors.
The poor quality of wireline telephone infrastructure in many Latin American countries hinders the return call required for subscribers to retrieve a message. Alphanumeric paging is less dependent on the wireline telephone system since a complete text message is transmitted to the pager from a control operator. In addition, automatic numeric paging is less accessible in Latin America due to the lack of touch-tone telephone lines.
Finally, the importance of interpersonal communication and relationships in Latin American cultures reduces the acceptance of numeric paging.
Liberalization
Paging generally has been provided on a competitive basis in most Latin American countries since its inception. However, continued liberalization of paging markets is expected to promote growth by enhancing competition through an increased number of operators.
In Brazil, for example, the government issued rules that allow existing operators to obtain nationwide licenses. Operators with service in at least 12 localities across at least six states are eligible for a nationwide license, providing direct competition to the three companies that originally were granted licenses to operate nationwide systems.
Recently implemented regulation in Mexico will allow Telefonos de Mexico (Telmex), the local and long-distance telephone operator, to launch a competing nationwide paging service in 1996. Another nationwide operator was licensed and will enter the market this year, augmenting paging competition in Mexico.
Barriers to growth
Despite the positive factors influencing paging markets in Latin America, significant barriers to growth persist that threaten future prospects. Paging service is more expensive in Latin America than in other regions due primarily to the high concentration of alphanumeric paging. Alphanumeric paging is inherently more costly than numeric paging because the service is operator-assisted.
In both Brazil and Argentina, paging service costs $30 per month on average. By contrast, the average price of monthly service in the United States is $12. The comparison is even more dramatic when income differences between the United States and Latin American markets are considered.
These high service prices for paging have prevented the widespread use of paging outside of the business market.
Another barrier is that distribution and marketing of paging have been extremely limited in Latin America, reducing awareness of paging service. In most Latin American countries, operators rely heavily on direct distribution and fail to take advantage of alternative sales channels (i.e., agents, dealers and retailers). This scenario contrasts with markets such as the United States, where operators use a variety of direct and indirect channels, expanding the availability of paging service to a larger potential market.
The high service price of paging undoubtedly hinders the mass market from adopting paging. However, even segments than can afford high service prices, specifically business users, are underpenetrated due to inadequate marketing and distribution. Consequently, as marketing and distribution improve awareness of paging service and high-end markets become saturated, competitive service pricing will be the primary method of increasing paging penetration.
These bottlenecks must be minimized in order for the region to achieve the expected growth projections for paging. Marketing and distribution must improve to satisfy untapped demand in business markets. In addition, the price of paging service must decline in order to increase the addressable market for paging.
In the most successful markets in the world, numeric paging is the most popular type of paging and costs less than $20 per month. Since alphanumeric likely will remain the most popular type of paging in Latin America, operators need to find ways to decrease service prices. While a certain amount of risk exists, innovative methods of reducing prices for alphanumeric service have been attempted, including calling party pays, voice-recognition systems and pre-coded messages. As service prices decline, further penetration of the consumer segments will require a shift toward customer-owned pagers so that end-user equipment can be distributed easily through retail outlets.
Michael Krier is an analyst for Malarkey Taylor Associates-Economic and Management Consultants International Inc., based in Washington, D.C. The statistics contained in this article are based on preliminary results from the company’s “World Paging Markets: 1996” report, due out in the first quarter of this year.
