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Analyst Angle: Latin American regulators measures to foster competition will not have a big impact in the short term

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Latin American regulators are more concerned about the mobile market concentration in some countries, such as Colombia, Mexico and Peru, and they have implemented a range of measures in an attempt to foster competition.

In Mexico, where America Movil’s subsidiary Telcel accounts for 70% market share according to Informa Telecoms & Media, the government has implemented though new regulations, which will give regulators more power to stiff penalties and asymmetric regulations, or even force dominant players to sell assets, and will open up the sector to foreign investment. In the asymmetric regulation, the government imposed that the mobile interconnection rates Telcel pays should be higher than what other operators pay given its dominant status. In addition, Telcel had to cut by more than half the interconnection fees it charges its rivals.

In Colombia, there was a long debate around the proposed anti-monopoly legislation plans for the telecommunications sector, which outlined proposals to limit operators’ market share to 30% of total sector revenues. The initiative was aimed at curbing America Movil’s Claro division’s dominance in the country, which has over 60% market share. However, despite the support the anti-monopoly bill received from Claro’s competitors, the government failed to reach an agreement on the measures. But prior to shelving the anti-monopoly bill, the regulator implemented a range of measures to reduce Claro’s dominance in the market. Telecommunications ministry Mintic partially excluded the operator from the LTE spectrum auction, while telecoms regulator CRC implemented asymmetric connection rates against the operator.

Recently, in an attempt to attract new companies and foster mobile competition, the Peruvian government has approved a bill that enables the entrance of mobile virtual network operators into the local mobile market and it will also permit the entrance of new operators that will use existing network infrastructure to provide telecom services in rural areas. The bill stipulates that mobile operators with a market share of over 25% will have to allow MVNOs, forcing mobile operators Claro and Movistar to rent out their network infrastructure. Currently, the market is dominated by Telefonica’s subsidiary Movistar, accounting for 54% market share, followed by Claro with 40% and Nextel with 6%. In 2010, the government implemented asymmetric regulation, but given the country has only three players in the market and Nextel has low network coverage, it made it difficult to increase market competitiveness.

The Latin American governments´ initiatives are important steps to create favourable conditions to reduce mobile market concentration and are already negatively impacting operators’ financial results, but it is unlikely it will have a big impact and change drastically the market share in the short term. Dominant players can offer benefits to retain customers, mainly in the high-end segment, challenging smaller operators to lure these clients. Dominant operators also have bargaining power and economies of scale to acquire handsets at lower prices, which will have a direct impact on end-user, and also these operators can offer better handset subsidies that are highly valued by customers.

Despite of the fact that asymmetric regulations increase market competitiveness, dominant players still can make aggressive offers to retain and attract new customers. An alternative is watchdogs exercising price control over the dominant operator by not allowing them to cut prices below the regulated level in response to other companies.

Marceli Passoni is a senior analyst with Informa Telecoms & Media, covering Latin America. She examines the region’s operators’ strategies and performance, ongoing regulatory issues, networks deployments, new products, service launches and analyzes the key trends in the region. Passoni regularly writes country profiles, case studies and in-depth analysis for Informa Telecoms & Media’s Intelligence Center. She also writes on Latin American issues for the research service Global Mobile Daily and Informa’s reports. Passoni holds a degree in Business Administration from PUC and is a post-graduate in Management Services at ESPM in São Paulo.

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