Low ARPU, the prevalence of prepaid usage, high churn rate, and spectrum and device availability are some of the barriers facing Latin American operators in deploying and developing LTE networks, especially in business model terms. The most recent report from Maravedis-Rethink estimates that there will be 51 million LTE subscribers by the end of 2017, and the CAPEX for 4G in the region is expected to reach an accumulated $13 billion by 2017.
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“LTE adoption will be fostered by the increasing use of mobile devices such as smartphones and tablets, and by the proliferation of data and video applications, including WhatsApp, Viber, Twitter, Skype, Youtube and Facebook,” Cintia Garza, Maravedis team leader and author of the report, told RCR Wireless News.
Garza said 4G adoption is expected to continue to be slow over the next two years due to a number of factors, including those listed above. In addition, Latin American operators also have to face the challenge of monetizing their network investments and making profits in low-ARPU mobile markets while MVNOs and OTT companies threaten their revenues. This could also restrict LTE development.
Currently, there are a few trials and launches in the region (Read: Update: Latin America’s LTE roll out), including Open Mobile and AT&T Puerto Rico, Antel in Uruaguay and UNE Telecomunicaciones in Colombia. However, none of these countries are expected to lead LTE implementation in the region.
“Although we have seen some early LTE deployments in Puerto Rico and Colombia in 2012, we believe that the country that will lead LTE deployment in Latin America will be Brazil. Brazil is a highly competitive market with six mobile operators in place,” Garza said.
Brazilian telecom regulator Anatel recently awarded LTE spectrum in the 450MHz and 2.5GHz bands, and among its requirements, Anatel specified that the six cities hosting Confederations Cup games have to be covered by April 2013 with LTE, while the 12 host cities for the 2014 FIFA World Cup must be covered by the end of 2013. “With this, we anticipate that Brazil will be at the forefront of LTE deployment, and some of the larger scale deployments will take place in this market next year,” Garza said.
Garza remarked that the regulatory environment and spectrum policies are very different for each market in the region. She highlighted the issues of spectrum auction delays, especially for 1.7/2.1GHz and 2.6GHz, which are the main bands for 4G deployments, and the spectrum refarming of 700MHz and 2.6GHz to make the transition from analog (TV) to digital (mobile) services.
“Many countries in the Americas are interested in refarming, reallocating and harmonizing 700MHz and 2.6GHz spectrum for mobile services,” Garza said. “However, regulatory agencies are facing many challenges in freeing up this spectrum and making the transition from broadcasting (analog) to mobile (digital) use. TV stations are gradually abandoning the spectrum, but not at a fast enough rate to supply the rapidly increasing demand for mobile services.”
Garza also noted the challenge for spectrum harmonization of both 2.6GHz and 700MHz and the rigid spectrum caps that most regulators are imposing. “Latin America has some of the tightest spectrum caps in the world, at an average of 50-60MHz of spectrum per operator in most countries, while operators in Europe hold an average of 92 MHz, and Verizon in the U.S. has 96 MHz.”
Top Barriers
Garza said some of the top barriers to LTE development were the average revenue per user (ARPU) between U.S.$10 and U.S.$12 monthly; the large prepaid mobile subscriber base (only about 20% are postpaid subscribers); and a high churn rate explained by the larger base of prepaid users.
“The loss of customers not only impact subscriber figures but also profitability. Since in Latin America, most of the subscribers are prepaid, this magnifies the problem of churn, by the ease with which it can occur. The end user has no ties with the operator other than the service that is delivered upon voluntary payments by the customer,” she said.
Both spectrum and device availability are also critical issues. “The time frame in which more players will deploy the technology depends heavily on spectrum availability and the removal of spectrum caps and other restrictions that some national regulators have implemented,” she said.
Regarding device availability, the major impact is related to the economy of scale, since the cost of early LTE smartphones will be unaffordable for a large percentage of consumers, especially in a region dominated by prepaid services and unsubsidized phones.
In addition, Garza said over-the-top (OTT) video is a challenge in the residential market, since OTT providers, such as Google, Skype, Facebook and WhatsApp, are playing important roles in the development of telephony and mobile broadband. “With the use of smartphones, the access to OTT services has increased, causing an explosion in mobile data traffic, and higher operational costs,” she said. “On the other hand, some services, such as the ones offered by WhatsApp, Skype and Viber, are affecting the income from traditional voice and SMS services considerably.”
