The future looks bright for Latin American cellular and personal communications services operators, according to a recent study conducted by The Strategis Group.
The report, “Latin America Cellular/PCS Markets: 1999,” states the area’s 20 million cellular and PCS subscribers will grow to nearly 80 million by 2005.
“As world cellular subscribers continue to grow, Europe and the United States are going to mature and as a result, Latin America subscribers will become a larger percentage of world subscribers,” said Stuart Adler, Latin America analyst, The Strategis Group.
Adler cited the elimination of supply constraints as a result of privatization, new licensing and digital expansion as the key drivers for growth in Latin America. He also said increasing competition and new pricing schemes such as prepaid are driving growth in the market.
Chile and Mexico were the first in Latin America to privatize their telecommunications systems in 1989. Argentina and several other countries quickly followed. But it was Brazil’s decision to sell 27 Telebras operators into 10 cellular holding companies, one long-distance company and three local providers that brought the world’s attention to the area’s vast growth potential.
During the past two years, governments across the region have issued more than 60 licenses, said Adler, with 15 additional licenses planned during the next two years. Many former monopolistic countries now are either duopolies, or have full competition (more than two operators), which is helping to drive pricing down and cellular/PCS usage up.
Currently only Chile, Mexico, Puerto Rico and the Dominican Republic have full competition, but despite the lack of competition in most other Latin American countries, Adler said cellular calling plans compare fairly well to basic U.S. plans. For example, BCP of Brazil charges a $22.68 monthly fee and 25 cents per peak minute and 18 cents for off-peak minutes.
The majority of cellular/PCS subscribers in Latin America are under contract, but growing by a phenomenal rate are prepaid subscribers.
“Latin America has more unequal income distribution compared to developed countries. Initially, operators target traditional contract subscribers, but over time, operators will move down from higher income to lower income. Prepaid basically targets the region’s huge lower-income segment,” said Adler.
Many lower-income subscribers also have either bad credit or no credit, making getting a contract difficult or impossible.
Prepaid subscribers in Brazil alone grew 65 percent in 1998, mainly due to the removal of supply constraints. And although churn is higher for prepaid than for contract customers, it “saved the day” for many Latin American countries, said Adler.
“Prepaid is basically what is driving overall growth in Venezuela and Mexico,” he said.
For cellular/PCS operators, prepaid is having a declining effect on average revenue per user. According to the study, prepaid brings in about $25 per subscriber while contract can bring in as high as $80. Still, strong subscriber growth is expected to compensate for decreasing ARPU, producing increasing annual cellular/PCS service revenue for every year of the study’s projection period.
Across the region, Time Division Multiple Access will be the dominant technology, said Adler. By 2005, he foresees TDMA 800 accounting for 55 percent of the cellular/PCS market, with Code Division Multiple Access 800 following at 24 percent and CDMA 1900 at 5 percent.
By 2002 or 2003, Adler expects third-generation technology will enter more developed markets like Venezuela.
