Mexico’s auction could bring new entrants to country: But winners will have difficult time getting marketshare

While Mexico’s long-awaited auction for 3G licenses may be good for consumers, a new entrant in the marketplace likely will have a difficult time gaining marketshare or realizing a profit soon, according to IE Market Research Corp., which recently issued a five-year forecast on the Mexican market.
The Mexican government has released rules on the spectrum auction, and winners could be announced by mid-2010. The government initially planned to auction the spectrum in 2007, but the auction was beset with delays between various government agencies. It now appears the government will auction nine spectrum blocks at the 1850-1990 MHz bands and hold a separate auction for spectrum between 1750 and 1910 MHz bands.
America Movil, which held a 72% marketshare in the second quarter, and Telefonica, which had a nearly 20% marketshare are expected to bid for licenses, said Carlos Fernandez, an analyst at IE Market Research. Indeed, part of the reason for the auction is to see more competition in the marketplace, where America Movil dominates. America Movil is owned by Carlos Slim, one of the world’s richest men.
In addition to the top two operators, “there has been speculation in the media about Mexico’s largest media company Grupo Televisa, which is wanting to offer wireless services in Mexico through its cable division Cablevision. We think that Televisa will also likely bid. Also, the smaller mobile operators in Mexico such as Iusacell and NII Holdings’s Nextel Mexico unit will also most likely bid at the auction,” Fernandez said. NII Holdings is a Reston, Va.-based company that uses iDEN technology and operates in Latin America, with 7 million subscribers across a number of Latin American markets.
Mexico continues to experience double-digit subscriber growth but wireless growth started to slow earlier this year and average revenue per user has declined as well as operators continue to compete for customers, IEMR said. The research firm said it expects the Mexican wireless market to total 110.3 million subscribers by 2013, up from the 77.9 million recorded in 2008. America Movil’s Telcel will continue to lead in the space, seeing its subscribers grow from 56.4 million in 2009 to 81.2 million in 2013. Telefonica’s Movistar Mexico will also keep its second-place spot with more than 20 million subscribers in 2013, IEMR predicted. However, the company thinks Movistar and Iusacell will lose marketshare going forward while Telcel and NII will gain marketshare.
Any new entrant in the Mexican wireless market will have a difficult time making a profit, Fernandez said. “By the time the the newcomer launches the service in late 2010/early 2011, we are forecasting that wireless penetration in Mexico will be about 82.5%, which means that new customers will come from low-income groups or by incentivising existing customers at Telcel or Movistar. All of this means lower ARPUs industry-wide, but especially for the new entrant. I think even if you maintain aggressive assumptions about market share of net adds (let’s assume 25% – 30% of net adds for the new entrant), slightly positive ARPU growth (1%-2%, which is not the trend in Mexico), and EBITDA margins in line with other start-up operators, the new entrant will not be EBITDA positive for at least one to two years after starting operations,” Fernandez said.
Mexico’s ARPU stood at $14.71 in 2008, and is expected to drop more than 4% this year, Fernandez said, and drop a dramatic 10% again in 2010 as wireless operators drop prices ahead of perceived increased competition. About 89% of subscribers are prepaid and wireless is the primary communications tool, as wireline penetration rates are at about 20%, he noted. Most of the data on the networks is SMS.
Innovation in mobile marketing
Having said that, some innovative mobile marketing offers are coming to the nation. Earlier this fall, Spain-based Bems said it partnered with NeoMedia Technologies to distribute 2D barcode solutions throughout Latin America. Telefonica chose Bems as its exclusive partner to develop 2D barcodes in Latin America in a four-year deal.
“As we’ve consistently maintained, commercialization of barcodes calls for an open and interoperable market that can provide the scale needed for brands and advertisers to exploit the benefits of the mobile marketplace. We feel that our work with Bems and gaining entry to the Latin American market is yet another step closer to global adoption of this powerful technology,” commented Iain McCready, CEO of NeoMedia.