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americasnetwork.com
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Getting in Sync with the Future:
Four global carriers dominate the Latin American wireless market. Each hopes that 2.5G upgrades will harmonize its hodge-podge of holdings
By Chris Neal
Latin America’s mobile industry has been undergoing pan-regional consolidation for several years, and it is conceivable that only a handful of operators with pan-Latin coverage will remain once the dust settles.
The most prominent of these mobile operators include Telefónica Móviles (TEM) of Spain, BellSouth International of the US, Telecom Italia Mobile (TIM) of Italy, and América Móvil of Mexico.
The consolidation of Latin America’s mobile markets into an oligarchy of pan-regional giants is inevitable. Once the “land grab” era subsides and the main operators have the coverage they want, they will increasingly turn themselves to the gargantuan task of consolidating, integrating and synchronizing their networks, migrating them to a uniform next generation platform and forging a consistent brand and marketing strategy throughout the region.
Who’s got it together?
Although several of the major pan-regional mobile operators are making increasingly concerted efforts to integrate their networks, the process is still very much in its infancy. These operators have emerged gradually, have entered new markets primarily through acquisitions of independent operators and have inherited the Western Hemisphere curse of no common network standard like Europe has with GSM.
Technology vendors active in the region consistently report that most of their equipment and their projects are still sold and implemented at the country level, with little coordination among operators under the same management control of a pan-regional holding company.
“I would say that BellSouth International is the most advanced of the Big Four [pan-regional operating companies] in terms of consistent network planning, but we still do virtually all of our projects at an individual country level,” says Ruben Rotulo, vice president of Latin America for Agilent. “There is increased coherency lately and we are negotiating several projects now that would involve common platforms and applications for the same operator across several countries.” It is currently working with TELESP Celular (TEM and Portugal Telecom joint venture) in São Paulo, Brazil, for instance, to apply its acceSS7 system to monitor SS7 over wireless networks to other TEM operators in the region.
“Network projects by the big pan-regional cellular operators are still on a country-by-country basis,” says Jose Quintero, Alcatel Latin America’s marketing solutions manager for the broadband network division.
Most everyone agrees, however, that the move towards pan-regional network consistency hinges on operators’ strategic decisions and tactical implementation of 2.5G platforms.
Among the large pan-regional cellular operators, BSI is the furthest along in terms of consolidating its network planning, procurement and expansion efforts. The operator began a concerted effort to synchronize major network element and handset purchases throughout its 12 operators in Latin America about a year ago. BSI has achieved the greatest savings to date by pooling handset purchases. A series of informal inter-operator committees have been designed to promote consistent network planning and technologies.
TEM is also trying to increase the consistency of its network planning and will likely follow some of the consolidation strategies of its former parent company, fixed line operator Telefónica Internacional. TI centralizes major infrastructure purchases through a “mesa de compras” (buying table) in Madrid. There is a pre-approved list of vendors for each product category from which local operators can choose, and if Ericsson de Brasil bids $130 per line for a traditional switching contract there while Ericsson in Peru bids $110 per line, the mesa de compras will ratchet the pricing down to the least common denominator across all markets.
In TEM, currently, there is intelligence-sharing across operators and representatives from the Madrid mesa de compras weigh in on major infrastructure buying decisions. Telefónica fixed-line also has “Centers of Expertise,” whereby different operators in the region will serve as the example and provide consultation to other operators on specific network areas. Telefónica del Perú, for instance, is the operation support systems (OSS) center of expertise for Telefónica throughout the region.
In comparison to BSI and TEM, Telecom Italia Mobile is still fairly decentralized at a pan-regional level. That said, TIM typically exports the existing vendor relationships that it has in Italy when possible, and there is coordination among TIM’s holdings in Brazil to implement similar network elements, share back-office systems and coordinate major infrastructure and handset purchases for selling.
America Móvil, meanwhile, is to date the least integrated of the main pan-regional operators. It has been focusing on expanding its footprint regionally and pushing forward with the GSM/GPRS overlay in Mexico. As such, none of the operators outside Mexico — in which it has a stake — yet coordinate on network development efforts. It is likely that AM will be very centralized around its Mexico headquarters once it has had a chance to consolidate its holdings, however, and it has already determined that it will go the GSM/GPRS overlay route toward a pan-regional UMTS network in the future.
Although small in comparison to the Big Four, Nextel is a noteworthy example of the benefits of having a consistent, integrated pan-regional — indeed, global — mobile network. Nextel built its networks from the ground up in the major business centers of Brazil, Mexico, Argentina, Peru and Chile using Motorola’s iDEN infrastructure for SMS services. As a result, the operator coordinates equipment and handset procurement orders not only across its Latin American operations, but globally. This gives the operator significant leverage at the bargaining table.
“The basic network elements in all of our operating countries are the same,” says Doug Dunbar, Nextel International’s vice president of marketing and sales. “We can pool infrastructure, OSS and terminal requirements not only from all of our Latin American operations, but from the US and Canada as well. This gives us a great bargaining position when we go to Motorola with a huge order.” The consistent network also allows Nextel to provide seamless roaming on all of its networks with the same handset and phone number, which is a tremendous advantage for corporate customers with high-frequency business travelers.
The future’s so bright
All the big operators are on the cusp of migrating their mobile networks to packet-based, 2.5G networks. The decision between GSM/GPRS/EDGE and CDMA-95-B/CDMA 1xRTT has been or will likely be made at the corporate headquarters of the pan-regional mobile holding companies rather than at the country operator level. It is above all else a strategic, rather than a technological decision. And once it has been made, the drive toward synchronization of networks across countries will begin in earnest.
TEM has not yet made an official decision as to whether it will go the GSM/GPRS route or the CDMA 1xRTT path in Latin America. In Spain and Europe, TEM is a GSM operator at heart, but TEM’s Latin America holdings, which comprise a significant portion of its global revenues, could warrant a separate hemispheric standard if the cost-benefit analysis warranted it. TEM has both TDMA and CDMA networks throughout the region.
TIM is a GSM operator through and through and has spread GSM in every Latin American market where it built or is building its own network (Chile, Bolivia, Peru and Brazil PCS) and its acquisitions are targeted toward GSM operators whenever possible (Digitel in Venezuela). Its Argentina and Paraguay networks (Telecom Personal and Telecom Personal de Paraguay, respectively) are TDMA, however, and it has TDMA networks for its various cellular operators in Brazil (TIM-Maxitel in Belo Horizonte, TIM-Telecelular Sul in Paraná and Santa Catarina, and TIM-Nordeste in Recife). The investment required for a GSM overlay on these networks is enormous. TIM is under pressure to cut costs, and there are numerous minority stakeholders in its Brazilian operations that could hold up the process.
“The required investments are difficult to justify right now,” says Andy Castonguay, program manager for the Yankee Group’s Latin America Wireless Advisory Service. “The costs of switching their existing subscriber base over to a GSM platform and GSM handsets is enormous, and it’s not at all clear that the extra revenues from GPRS services or the savings from being added to TIM’s global GSM buying pool will justify it,” Castonguay says.
America Móvil has already begun the overlay of its 14 million subscriber Mexico TDMA network (Telcel) to a GSM/GPRS platform in Mexico, although it will only gradually migrate its TDMA subscribers to GSM handsets as the TDMA handsets will work on the new platform.
“Telcel will work with Ericsson to develop 10 new applications for its GSM/GPRS network every two weeks, then export them to America Móvil’s other networks in the region,” says Jonathan Tirone, senior analyst for Pyramid Research’s mobile infrastructure forecasting service.
The operator to date has been focusing primarily on expanding its footprint in Latin America, and now plans to consolidate its recently acquired portfolio of operators in the region.
None of these operators can afford to recklessly rush into massive network overhauls just for the sake of having integrated networks. As Nextel’s Dunbar put it, “We won’t force standardization for standardization’s sake. If customer loyalty in Japan requires that we offer mobile videoconferencing, while customers in Peru just need reliable voice service and short messaging, then the pace of network evolution will reflect that to an extent.”
The customer is always right
Operators will only integrate their networks and push toward common next generation platforms as fast as customers and competition make them. Particularly in light of the unrelenting punishment to which investors have subjected European operators for their expensive bids on 3G licenses, Latin America’s pan-regional mobile operators are moving cautiously and tentatively forward toward this nirvana of integrated, seamless, next generation pan-regional networks.
“Our main goal is focus on our core customer segment’s needs and requirements,” explains Nextel’s Dunbar. “By going through an extensive customer needs evaluation, we can then determine our network planning priorities.” Likewise, other operators such as TEM are focusing heavily on “profitable growth,” rather than the attention to absolute subscriber growth and rapid product development that characterized the boom years of the late nineties. TEM and other operators have been burned by over-investments in WAP roll-outs, which have often proved to be disappointing from both a technology and business standpoint.
The consolidation of Latin America’s mobile markets into an oligarchy of pan-regional giants is inevitable. The degree to which these operators are seamlessly integrated operations exploiting their scale, scope and collective experience varies drastically, but is overall very low. Migrating existing 2G networks to next generation, packet-based platforms will coincide with the true consolidation of these operators to create something resembling a unified, and hopefully more efficient and competitive, regional mobile services market. The pace at which these operators proceed with these efforts represents the greatest strategic challenge that mobile service provider executives will face for the forseeable future, and the process promises to fundamentally change the competitive and technological landscape of Latin America’s mobile markets.
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