Latin America Becoming Increasingly Wired and Wireless

Paid dial-up Internet subscriber accounts in Latin America continued to grow briskly into mid-2001, according to a report by the Yankee Group, which found Brazil, Mexico, Argentina and Chile account for 85 percent of the paid dial-up accounts in the region.

The Yankee Group’s Internet Strategies Latin America research and consulting practice found the differences among Latin America’s Internet markets and penetration levels are vast. Brazil, Argentina, Chile and Mexico are the most highly developed Internet markets, with Bolivia, Paraguay, Ecuador, Peru, Colombia, Venezuela, and Uruguay still overcoming obstacles to Internet growth. The disparate 1999 to 2000 growth rates in developed markets such as Chile (150 percent) and Argentina (136 percent) compared to Colombia (40 percent), Paraguay (42 percent) and Ecuador (55 percent) can be partly explained by relative differences in telecom market development levels and each country’s GDP.

“ISPs in the most mature markets are heavily focused on additional value-added services strategies and extending broadband Internet access services through ADSL, cable modem, WLL and satellite technologies,” said Andres Broner, analyst at the Yankee Group. “Less-developed markets are still grappling with low fixed-line penetration and other basic infrastructure issues. Bolivia, Paraguay and Peru, for example, averaged 7 percent fixed-line teledensity at the end of 2000.”

The Yankee Group also predicts the year 2001 will also be a vital one in the battle between incumbent telcos and pure-play ISPs. Incumbent ownership or control of paid ISP accounts moved from 23 percent at year-end 1999 to 40 percent at year-end 2000, and continues to rise. The Yankee Group detects that incumbent telcos are leveraging their end-user “ownership” and control over the local loop to squeeze out their pure-play competitors through a combination of innovating and imitating, content strategies, bundling, broadband access and usage-based pricing plans.

Meanwhile, the Latin American region also holds a great deal of promise for wireless carriers. According to research by Frost & Sullivan, the introduction of wireless Internet services could help industry participants in Latin American PCS and cellular service markets realize important new sources of income.

The Latin American wireless market is projected to rise from $15.5 billion in 2000 to $39.2 billion in 2006, ultimately reaching a total of 124 million cellular users. The rapid expansion of prepaid cellular and PCS accounts in Latin American markets has created new opportunities for operators offering competitive and creative prepaid packages. But many market participants will find these prepaid plans will squeeze average revenues per user over the next two to three years. That’s where the implementation of mobile Internet services could come into play, and reverse this trend in the long term.

“While the push toward third-generation (3G) services still has uncertainties, the overall trend toward content through wireless is quite clear, and Latin America will not be left out of that aspect of the market,” said Frost & Sullivan research analyst Victor Martelli. “By 2006, the principal Internet device for the region will likely be the cellular handset.”

Wireless carriers offering these new technologies, must also reach out to new customer segments. As in other mature markets, they will find the more affluent market segments, which have supported the growth of wireless telephony in Latin America, are largely tapped-out. Carriers must expand the addressable market by appealing to and adding new subscribers from lower income segments.

“The challenge will be to overcome that group’s lower wireless usage rates. At the same time, carriers must maintain their most profitable accounts and avoid sacrificing profit margins as they lower prices to attract new customers,” said Frost & Sullivan program leader Carles Ferreiro.