Where There Is WLL; Geneva>
Where There's a WLL ...
... there's a way to provide local service in Latin America, with Mexico
leading the way
Ricardo Castillo, Contributing Writer
It's been a long wait for Tomas Milmo Santos. But for the energetic general director of AXtel S.A. de
C.V. (Mexico City), the time is finally ripe to grab a share of Mexico's local telephone market-using
wireless local loop (WLL) technology. "We're finally ready to compete as a true alternative to
Telmex," he said in March after a call went through AXtel's new wireless local telephony service.
He'd better be ready. This is the technology's first real test in a large emerging market, and many
important questions, such as how it will work without network interfacing standards, will remain
unanswered for some time. Nonetheless, AXtel, a joint venture between Bell Canada International
(BCI, Montreal) and a group of local investors, is committing US$1 billion to WLL technology in
order to fight Teléfonos de México S.A. de C.V. (Telmex, Mexico City) for a portion of the potentially
huge local phone service market.
AXtel (formerly Telinor) will use the new network, part of a $450 million contract with Nortel Networks
Corp., to sell local services to working-class households and small offices in need of Internet
connections, Milmo says.
As Latin America travels faster toward improving its teledensity and telecommunications services,
WLL technology could prove useful to expand the local loop in urban areas and reach distant rural
outposts. Frequency allocation and lack of financing have stalled many such startup projects in the
last few years. However, activity in large countries like Mexico and Brazil signal that WLL could
finally become a reality in Latin America in the next couple of years.
Leading the way is Mexico. In its newly opened local services market, WLL technology investment
is already near $5 billion, according to industry analysts, and AXtel is one of the main entrants.
Several new companies, backed by multinational corporations such as Qualcomm Inc. (San Diego),
Bell Atlantic Corp., GTE Corp. and BCI, also are betting on WLL as a way to provide service for
Mexico's neglected residential and small business market, as well as participate in broadband
services like high-speed Internet access.
"We think we will compete not only with the incumbent but also with cable TV companies," says
Milmo, a hands-on boss who mingles with engineers and marketing managers on a daily basis.
AXtel expects to sell 2 million lines by 2005, when Mexico's teledensity is expected to have grown
from today's 11 lines per 100 habitants to 17 lines.
An equally ambitious joint venture in Mexico is Pegaso Telecomunicaciones S.A. de C.V. (Mexico
City), led by Leap Wireless International Inc. (San Diego), Mexican media giant Grupo Televisa S.A.
de C.V. (Mexico City) and Qualcomm. Pegaso last year paid $270 million to Alcatel N.V. and $310
million to Qualcomm for the hardware and infrastructure for a similar wireless access network. The
provider, subsidiary Pegaso PCS (Mexico City), launched services in Tijuana in February and will
expand to Mexico City, Guadalajara and Monterrey by midyear.
Meanwhile in Brazil, the region's largest economy, several firms have signed contracts with leading
providers to build WLL-based local service networks for upcoming local competition. Those
companies include another consortium led by Bell Canada, called Megatel do Brasil. The
consortium will provide competitive local exchange services in Sao Paulo state, Brazil's most
densely populated and demographically desirable region, with a WLL system based on
code-division multiple access (CDMA).
But even with all this activity in WLL and its promise of expanding teledensity in Latin America, the
technology still has a long way to go before it becomes widespread.
WLL operators know there are risks. In fact, part of WLL's slow acceptance in Latin America comes
from the perception that WLL is too new. Industry executives say their shareholders typically resist
WLL as part of their capital investments worldwide.
"There is no proven sound business strategy and a lot of risk. Not only are the personnel involved
new to this equipment, but unlike a wireline or mobile system, the distribution channels are yet to
be created," says Craig Karpiak, global manager for wireless access systems for Motorola Inc.
"You have to do a lot of training both in technical matters and in customer services."
Add to that a lack of crucial venture capital financing.
Investors' jitters about the region's instability have intensified with events like the Tequila effect in
1995 and the recent devaluation of Brazil's currency.
"It seems that the economy and infrastructure are in a sort of catch-22 in this region," says Jorge
Fuenzalida, an Atlanta-based analyst at Deloitte & Touche Consulting Group (Deloitte Consulting,
New York). "The economy needs better telecommunications infrastructure to grow, but investors
want to see the economy grow before investing in infrastructure projects."
By far, though, the key barriers to a widespread use of WLL are the lack of spectrum and of
standards. Spectrum varies from country to country; in many cases, large numbers of existing radio
frequency applications of various kinds have limited its availability.
The number of wireless providers will grow in Latin America by the year 2000 from two per market to
three to six per market, says Fuenzalida. That trend is led by Mexico, where the government
auctioned local and personal communications services (PCS) WLL licenses in 1998. Argentina
recently renewed its PCS auctions, and Brazil auctioned B bands in 1997.
Although a significant amount of spectrum is still available for both mobile and WLL applications,
the governments are moving too slow to allocate it, says Robert Graff, Lucent Technologies Inc.'s
technical marketing director for Latin America and the Caribbean.
"In the 3.4 GHz to 3.7 GHz band for WLL, only Mexico has completely awarded spectrum," Graff
says. "Argentina, Colombia and Brazil are just halfway there. Peru has allocated but not awarded,
and Venezuela and Chile have not even allocated."
Experts like Graff and Fuenzalida argue that the lack of a common worldwide standard for wireless
communications also increases the investment risk in this new technology. Like the rest of the
world, Latin America has been plagued with a litany of incompatible wireless standards.
So far, the region's pilot and commercial WLL deployment shows an alphabet soup of standards,
including CDMA, time-division multiple access (TDMA), digital enhanced cordless
telecommunications (DECT), total access communications system (TACS) and advanced mobile
phone service (AMPS). "Lack of standards raises the initial capital requirement and initial prices of
services," says Fuenzalida.
Despite these obstacles, WLL still offers substantial promise in Latin America. The average
teledensity hovers around 9 lines per 100 people, and various market reports expect Latin American
WLL users to reach anywhere from 3 million to 7 million by 2001. The Strategis Group (Washington,
D.C.) predicts that the region will become the second-largest WLL market in the world by the same
year, with a 24 percent annual growth, trailing only the Asia-Pacific region.
The Waiting is the Hardest Part
The pending requests for phone lines from some 20 million Latin Americans is another factor
triggering WLL solutions. According to The Yankee Group Europe (Watford, U.K.), Brazil has more
than 2 million people waiting for cellular phones and 10 million for landline connections. Mexico has
reported backlogs reaching as high as 1 million people for landline service.
With the liberalization of these markets, the speed at which a carrier can add lines becomes
critical. In regions where the average level of disposable income is low, service must be made
available at low cost. And new entrants will require a relatively cheap option for building a network.
In fact, Pegaso president Alejandro Diez Barroso says the most attractive features of WLL are cost
and installation speed. Pegaso also plans to offer Internet and data transmission services in Mexico
and estimates an installation cost of $700 per line, compared to $1,300 to $1,400 for a conventional
wireline.
"We were awarded licenses in May of 1998, which officially were given to us in September," says
Diez. "We signed contracts with equipment vendors in the four months after that and started
services in February."
Diez and others in Mexico are also following closely what is happening in the United Kingdom,
where existing wireless operators are looking at offering broadband services through WLL systems.
Take Tele2, which offers Internet access in parts of the Thames Valley to more than 1,000 users at
speeds of up to 384 kbit/s. These speeds are six times the 56 kbit/s available to a BT customer
who attaches a modem to a normal telephone line, and three times 128-kbit/s ISDN service.
"Our options are not to go head to head with Telmex, but to find niche markets to exploit our
technology," says Diez. "We see the changing traffic mix, the Internet explosion. We want to be the
providers of that extra transmission speed that will make it much faster for a customer to access
the Internet."
As the cost of wireless access continues to drop, wireless services will become more affordable.
And in Latin America, where the demand for lines is expected to continue growing, WLL should
prove to be a catalyst to expand the local loop.
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