The future of (ultra) broadband in emerging markets: the Latin - - PDF document

1

The future of (ultra) broadband in emerging markets: the Latin American case markets: the Latin American case

State of Telecom Conference

• Dr. Raúl L. Katz, Adjunct Professor, Division of

Finance and Economics, and Director, Business Strategy Research, Columbia Institute of Tele- information

Columbia Institute for Tele-Information New York, New York October 15,2011

Why is the Latin American case interesting? Three geographic regions concentrate 65% of the continent’s GDP

Population 33 Million GDP $ 416 Billion GDP it $ 19 908 SOUTH NAFTA CORRI DOR Population 133 million MERCOSUR CORRI DOR GDP per capita PPP $ 19,908 Population 48 Million GDP $ 236 Billion ANDEAN CORRI DOR 2 GDP $ 1,033 B GDP per capita PPP $ 12,795 GDP per capita PPP $ 9,398

2

Why is the Latin American case interesting: the role of cities and the rising middle class

COMPARATIVE TELECOMMUNICATIONS ADOPTION (2010)

COUNTRY COUNTRY/CITIES WIRELINE WIRELESS INTERNET BROADBAND Brazil Country 21,70% 104,68% 43,00% 7,22% Sao Paulo 37,98% 121,99% … 15,43% Rio de Janeiro 33,16% 114,87% … 10,26% Minas Gerais 20,09% 100,59% … 7,15% Argentina Country 24,50% 141,79% 11,79% 9,56%

3

Buenos Aires 40,00% 200 % 43,56% 40,58% Córdoba 25,00% 150 % 11,56% 11,12% Santa Fe 25,00% 138 % 10,89% 10,39% Mendoza 19,00% 139 % 7,47% 7,03% Chile Country 12,53% 116,00% 10,45%

Sources: Brazil (Anatel; Euromonitor), Chile (Subtel), Argentina (Indec, CNC); Euromonitor); analysis by the author

Broadband penetration in Latin American is low

109%

100% 120%

pulation) COMPARATIVE TECHNOLOGY ADOPTION (2010)

81% 36% 10% 25% 4% 0% 30% 46% 65% 22% 17% 10% 18% 20% 16% 65% 7% 8% 9% 2% 6% 24% 30%

0% 20% 40% 60% 80% a a t

netration (per 100 pop

4 4

N

• r

t h A m e r i c a E u r

• p

e A s i a

• P

a c i f i c L a t i n A m e r i c a A f r i c a M i d d l e E a s t C I S W

• r

l d

Pen

Internet PCs Broadband

Source: ITU

3

The current access infrastructure comprises four tiers, with in some cases fixed broadband capacity vastly exceeds product offerings

C Zones (***) D Zones (****) B Zonas (***)

• HSDPA (partial)
• ADSL
• HSDPA
• ADSL
• Cable

(DOCSIS 2.0)

• HSDPA

A Zones (*)

• ADSL 2+
• Cable (DOCSIS 3.0 y 2.0)
• HSDPA

( )

5

(*) High consumption zones concentrating industrial, commercial establishments and upscale segments (**) Second tier cities (***) Suburban areas (****) Rural and isolated areas

The primary fixed broadband gap is demand driven

90% 92% 94%

80% 90% 100%

BROADBAND SUPPLY (COVERAGE) VS. DEMAND (PENETRATION) (2010)

59% 63% 3% 6% 10% 7% 10%

0% 10% 20% 30% 40% 50% 60% 70% 80% Ar entina Bra il Colombia Me ico Per

6

Argentina Brazil Colombia Mexico Peru Fixed broadband coverage Broadband penetration

Source: Operators; ITU; analysis by the author

4

With high price elasticity, fixed broadband rates are a big obstacle

$350 $400 $450 $500

35% 40% 45% 50%

ration

FIXED BROADBAND PRICING PRICING AND PENETRATION

$0 $50 $100 $150 $200 $250 $300

O E C D A v g C h i l e M é x i c

• C
• l
• m

b i a B r a s i l A r g e n t i n a P a n a m á U r u g u a y C

• s

t a R i c a P a r a g u a y E c u a d

• r

R e p . D

• m

i n i c a n a P e r ú E l S a l v a d

• r

G u a t e m a l a H

• n

d u r a s V e n e z u e l a N i c a r a g u a B

• l

i v i a 0% 5% 10% 15% 20% 25% 30% 5 1 1 5 2 2 5 3 3 5 4 4 5 5

Price per Mbps US $ PPP Household Penetr

7 7

R e

Price per Mbps US $ PPP

Why are rates high?

• In some countries, limited infrastructure-based competition
• In most countries, submarine cable pricing represents 30% of

the cost structure

On the other hand, wireless telephony has reached universal penetration

140% 160%

ation)

COMPARATIVE WIRELINE/WIRELESS PENETRATION

0% 20% 40% 60% 80% 100% 120% Europa el Norte Latina Oriente Asia CIS Oriente Mundo

tion (per 100 popula

8 8

Eu America del America L Africa y Medio O Medio Or M

Penetrat

Wireline Wireless

Source: ITU

5

250 000 000 300,000,000

Furthermore, wireless devices are rapidly transitioning to 3G and 4G

BRAZIL: WIRELESS DEVICES INSTALLED BASE

50 000 000 100,000,000 150,000,000 200,000,000 250,000,000

9

50,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2G Subscribers 3G and 4G Subscribers NOTE: 3G and 4G include feature phones, smartphones, USB devices, connected netbooks and tablets Source: Wireless Intelligence; IDC shipment data; analysis by the author

120000 140000 160000 180000 7000 8000 9000 10000

SMARTPHONES (000) MOBILE BROADBAND CONNECTED PCs AND OTHER DEVICES (000)

By 2016, the largest five Latam countries will reach 170 million mobile broadband devices, and traffic will grow at 117% p.a.

20000 40000 60000 80000 100000 120000 2008 2009 2010 2011 2012 2013 2014 2015 2016 1000 2000 3000 4000 5000 6000 2008 2009 2010 2011 2012 2013 2014 2015 2016

CAGR* (2008‐11): 179% (2011‐16): 50% CAGR (2008‐11): 112% (2011‐16): 47% Argentina Brazil Colombia Mexico Peru 10

MOBILE DATA TRAFFIC (Argentina, Brazil, Colombia, México y Perú) (Gigabytes/month)

2008: 362,370 Gigabytes 2011: 11,906,677 Gigabytes 2016: 180,214,314 Gigabytes CAGR (08‐16): 117 %

Sources: Wireless Intelligence; Ovum; Strategy Analytics; Validas; Wirex; ABI Research; análisis TAS

6

Primary driver is low cost devices, decreasing service rates, prepaid and tiered offerings

1.0 1.2

WIRELESS PRICE PER MINUTE (2008‐10)

0 0 0.2 0.4 0.6 0.8

11

0.0 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 Argentina Brasil Chile Colombia Mexico Peru

LTE deployments, contingent upon spectrum availability, will address the wireless broadband supply gap

90% 90% 92% 94% 75% 75% 89% 94% 95% 95%

80% 90% 100%

COMPARATIVE TECHNOLOGY COVERAGE

59% 63% 65% 52% 39% 75% 75%

0% 10% 20% 30% 40% 50% 60% 70% 80%

12

Argentina Brazil Colombia Mexico Peru

Fixed broadband coverage Current mobile broadband coverage (3G) Estimated mobile broadband coverage with 700 MHz band

7

The future (2015) broadband access infrastructure

C Zones (***) D Zones (****) B Zones (***)

• HSDPA (partial)
• Community ADSL
• LTE (post 2015)
• ADSL
• HSDPA+

/LTE

• ADSL
• Cable (DOCSIS

3.0)

• HSDPA+/LTE

A Zones (*)

• ADSL 2+
• Cable (DOCSIS 3.0)
• FTTH
• HSDPA+/LTE

( )

13

(*) High consumption zones concentrating industrial, commercial establishments and upscale segments (**) Second tier cities (***) Suburban areas (****) Rural and isolated areas

In conclusion, the (ultra) broadband picture in Latin America is quite applicable to other emerging markets

• Universal adoption of 3G and 4G devices
• Spectrum reallocation to facilitate LTE deployment (with some acceleration of

schedules in Peru, Uruguay, Mexico) Ultra broadband facilities in first tier cities (Buenos Aires Sao Paulo Santiago

• Ultra-broadband facilities in first tier cities (Buenos Aires, Sao Paulo, Santiago,

Bogota, Mexico City (?), Lima (?))

• In second tier cities ultra-broadband will be cable led through DOCSIS 3.0
• Backbone and submarine cable potential bottlenecks will be addressed through

alternative private (electric utilities) or government-owned facilities

14

8

15