Mobile operator revenue in Latin America reached $107 billion in 2012, growing 9% year-on-year, placing it as the second-fastest growing region globally (behind Asia). Latin America represents around 10% of global mobile operator sales in 2012, a considerable rise on the less than 5% it contributed ten years ago. Wireless Intelligence’s Mark Giles analyses regional developments.
With unique subscriber penetration in the region calculated last year at just 52%, there is still room for growth. However at 9%, the mobile revenue CAGR over the last five years is only just over a third of that achieved between 2002-07 (see chart). This trend demonstrates that, despite its underlying growth potential, the Latin American mobile market has entered a new phase of development characterised by higher levels of maturity and intensifying competition.
America Movil CEO Daniel Hajj recently described Brazil as “a very, very competitive market”. During 2011 and much of 2012, America Movil opted not to cut its tariffs in the country in response to growing competition in order to protect its top line. However, its EBITDA margin and market share suffered as a result, which prompted a u-turn in August 2012, when Hajj stated that the company had decided to reduce its prices in Brazil in order “to be much more competitive on the mobile side”. He further added that “we give much better prices to all our base, and that means that we have [seen] a reduction [in] revenue…our revenue per minute reduced 28% last year”.
As competition intensifies in key markets across Latin America, large mobile operators have shifted their focus from customer share to revenue share. For instance, the focus of the Brazilian operators has moved from maximising net additions to retaining high-value contract customers, a change which Telefonica’s Vivo – Brazil’s market leader – referred to as “a more selective commercial approach focused on value”.
The key to unlocking greater revenue from contract customers lies in encouraging these subscribers to adopt smartphones and mobile data services. Telefonica claims that, on average, smartphone customers in the region provide an uplift in ARPU and margin of more than 1.5 and 1.3 times, respectively, when compared to feature phone users. In its Q4 2012 report, America Movil, the largest pan-regional player, recorded a mobile data revenue rise of 33.3% year-on-year, with data now accounting for one third of total mobile revenue. Smaller regional player Telecom Argentina witnessed a 29% year-on-year increase in domestic mobile data revenue to ARS5.8 billion ($1.1 billion), some 43% of total mobile revenues; CEO Franco Bertone claimed that “nine out of ten pesos of this increase year-on-year comes from volume and customer base and not from pricing”.
While mobile data revenue growth remains strong, mobile voice revenue is under pressure; Telefonica recently noted that voice-only growth models will not be sustainable over the medium-term. America Movil stated that in Mexico, “mobile voice revenues were down 3.8% on account of the sharp economic slowdown observed in the period and the continued price reductions [as] the average price per minute of voice fell 19.7% from the year earlier quarter”. This was reflected in the operator’s ARPU across the region, which fell 1.7% year-on-year to reach an average of $12.94 in Q4 2012. However, subscriber ARPU (rather than connections ARPU) remains on an upward trajectory, growing 1% during 2012. Operators such as Millicom managed to buck the declining ARPU trend; its CFO, Francois-Xavier Roger, claimed that “mobile ARPU was up by 3% in local currency as a consequence of our on-going focus on mobile data and other VAS”.
Competition is forcing mobile operators in the region to examine their operations for potential cost savings, particularly in relation to network costs. With the rollout of 3G and 4G networks demanding significant amounts of capital expenditure, we are seeing more network sharing agreements, for example between TIM Brasil and Oi. A number of operators are also seeking to divest their radio towers to third parties. In December, Vivo sold 800 towers to SBA Communications, while Nextel is in talks to sell its towers in both Mexico and Brazil; both transactions are expected to be completed this year.
Mobile operator revenue and growth, Latin America, 2002-2012
Source: Wireless Intelligence