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After many delays, the long-awaited “4G” auction in Colombia took place in June. A total of seven frequency blocks were auctioned: three in the AWS (1.7/2.1 GHz) band and four in the less attractive 2.5 GHz band. Two new entrants – DirecTV and Avantel – and three well-established mobile operators –Telefónica’s Movistar, América Móvil’s Claro and the Tigo/ETB partnership – secured spectrum. Azteca Comunicaciones did not receive a license.
Colombia is a market with a relatively large number of players, but moderate competitive intensity. Combined, Claro and Movistar controlled nearly 86% of total mobile subscriptions at the end of 2012 and a nearly similar proportion of the sector’s revenue and earnings before interest, taxes, depreciation and amortization. The Colombian government has previously noted that the “4G” auction’s main purposes were to promote greater Internet access in the country and to increase competition in the mobile segment.
Mobile operators were anxiously waiting for the spectrum auction. Colombia’s telecom market is one of the largest in Latin America, worth around $10 billion in 2012. Sector growth has outpaced overall gross domestic product growth by a factor of two, primarily driven by a strong expansion of the mobile market. The mobile market is the sector’s largest, accounting for around 61% of Colombia’s telecom service revenue in 2012, when penetration levels broke the 105% mark. Moreover, adoption of mobile data services in the country has sustained average revenue per subscription; as of the end of 2012, data represented 21.4% of total mobile revenue.
The auction was called a total success by government officials. Proceeds surpassed government forecasts, amounting close to $400 million, close to 70% more than the reserve price of $233 million set by the Ministry of Information Technologies and Communications, MinTIC, before the auction. For comparison purposes, the average price per-megahertz/pop (i.e., the average price per megahertz per person within the licensed geographic area) for the 2.5 GHz spectrum blocks was 39 cents, just 37% less than what operators paid (53 cents per-megahertz/pop) a year ago in Brazil, where GDP per capita is 50% higher and the telecoms market six-times larger in revenue terms than that of Colombia, and 231% more than what operators paid (12 cents per-megahertz/pop) in Chile 10 months ago. This reflects the potential of Colombia’s mobile market as well as the fact that outside players responded to the government’s efforts to improve competitiveness, both by reserving spectrum for new entrants and by allowing Claro to bid only on the 2.5 GHz frequency blocks.
Exhibit 1: Price per-megahertz/pop (2.5-2.6 GHz band) in spectrum auctions in Brazil, Chile and Colombia
Source: regulators
Market leader Claro secured 30 megahertz of spectrum in the 2.5 GHz band, reaching the 85 megahertz cap imposed by the government. Movistar and the Tigo/ETB partnership secured spectrum in the AWS band. Avantel, a trunking operator using the iDEN standard, also secured spectrum in the AWS band, paving the way for it to offer mobile and FMC services to the enterprise market — mirroring, to some extent, what Nextel has done in Mexico.
Interestingly, DirecTV acquired an open block of 30 megahertz in the 2.5 GHz band for $37.1 million plus a reserved block of 40 megahertz for $40.1 million. The operator, which closed 2012 with 777,000 pay-TV subscribers or 18.3% of the market total, aims to expand its service portfolio to include mobile broadband services and gain a competitive advantage by developing attractive bundles. After acquiring “4G” spectrum in Brazil in 2011, DirecTV, through its subsidiary SKY Brasil, commercially launched Sky Broadband, a “4G” wireless broadband service that can be purchased separately or as part of a bundle with DTH pay-TV service. DirecTV has also expressed interest in acquiring “4G” spectrum in other countries in the region, such as Venezuela.
A subsidiary of Mexican conglomerate Grupo Salinas, Azteca Comunicaciones, which operates a fiber-based backbone network throughout the country, walked away from the auction with empty hands. Azteca may have been shut out not only by the high prices of the spectrum blocks, but also by the fact that the AWS and especially the 2.5 GHz band require more sites and towers to get coverage and capacity similar to that of an LTE network using the 700 MHz band, which the National Spectrum Agency (ANE) has already designated for the provision of “4G” services.
Even as the average selling price of smartphones and tablets has declined over the past few years, these devices remain expensive for the majority of the population in the country. This has contributed to close to 50% of the total subscriber base still connecting to 2G networks as of the end of 2012. Looking ahead, it remains to be seen whether operators’ subsidy strategies will effectively provide subscribers with affordable LTE-enabled devices when they begin to roll out their “4G” networks in 2014. For now, Pyramid Research projects that mobile subscribers connected to “4G” networks will number 2.5 million or 5% of the population in 2018 and that revenue coming from mobile data services will amount to $2.7 billion, a 107.6% increase from the 2012 figure.
Guillermo Hurtado is an analyst for the Latin American region based in Boston at Pyramid Research.
