In Focus: Americas - A question of priorities

Vaughan O'Grady, Editor

This article first appeared in the Informa Telecoms & Media publication 3GSM World Focus Online (Issue 17, October 4, 2005). Click for more information on this publication or sign up for a free subscription.

Putting a wireless overview under the heading 'Americas' implies certain similarities in the wireless scene across North America and Latin America - which of course there are, notably the fact that in both territories there is competition not just among operators but among technologies: GSM, CDMA and the slowly declining TDMA.

However, there are also differences. Cellular in the US enjoys penetration of over 65 per cent (albeit Canada has not yet hit 50 per cent of its estimated 32 million population) compared to the rest of the region's 30 per cent average. Also, prepaid is overwhelmingly the payment method of choice across much of Latin America and the Caribbean. In the US and Canada, by contrast, the reverse is true, although operators in the two richest territories are increasingly eyeing prepaid as a way to reach customers who want more control over their bills, as well as credit-challenged customers. They may even choose to do so partly through MVNO relationships. In this way they can generate more use of their network without suffering negative effects on their own ARPU figures or higher churn rates.

In the meantime, the major GSM names in both countries are enjoying something of a purple patch as Cingular in the US, following its acquisition of AT&T Wireless Services, and Rogers in Canada, with its takeover of Microcell, become the leading operators in their countries.

In the early part of 2005 Cingular became the first US operator to reach the 50 million subscriber milestone. That, however, included TDMA subscribers. As of August GSM alone accounted for 44 million subscribers on the network, a number that is likely to rise quickly as more are transferred from the old TDMA system. Number two GSM operator (and number four operator overall) T-Mobile has used aggressive tariffs and a wide choice of phones to help build its user base to nearly 20 million. But the company will face increased competition when the pending merger of Alltel and Western Wireless is completed, especially as, thanks to Alltel's extensive wireline operations, the operators have the ability to bundle service.

As figures from Informa's World Cellular Information Service (WCIS) indicate, GSM as a whole in the US and Canada trails CDMA at around 75 million subscribers to CDMA's well over 100 million. TDMA is fading out gradually: mid-2005's total was 17.26 million. WCDMA has, so far, made little impact, although plans are already being announced by US GSM operators (see interview with 3G Americas in our news section) to hasten the growth, not only of EDGE and WCDMA, but, in the case of Cingular, of HSDPA, with one eye presumably on the challenge of EV-DO, notably from Verizon.

In Canada too, 3G is happening, albeit slowly. Rogers Wireless deployed EDGE in June 2004 but has not yet announced any plans to progress to UMTS. Telus Mobility and Bell Mobility are gearing up to deploy 1xEV-DO in 2005 and the first quarter of 2006.

3G is much less of a concern in Latin America and the Caribbean, where 2G/2.5G rollout is still a strong focus. This area kicked off the year with figures that made it the fastest-growing region for both GSM and CDMA technologies, in part because, like their counterparts in North America, Latin America's TDMA operators are migrating to GSM or CDMA via network overlays. In the first quarter of this year, GSM subscriber numbers overtook those of TDMA. At the mid-point of this year according to WCIS, in the Americas excluding the US and Canada, GSM accounted for 89 million customers, TDMA 55 million and CDMA 51 million.

The markets recording the biggest growth numbers were Brazil, Mexico, Colombia and Argentina. The region's largest and most developed mobile market, Brazil, added seven million customers in the second quarter, finishing with 76 million customers (33 million GSM, 21 million TDMA, and nearly 22 million CDMA). Mexico, the second largest market, added 1.6 million subscribers for the second quarter, a decline in growth relative to the previous three quarters, accounted for by falls in TDMA and CDMA. This may explain why GSM grew by more than two million subscribers in the same period, reaching more than 20 million of the country's 42 million subscribers.

Argentina's GSM growth has been spectacular of late. The third largest mobile market in the region had nearly 17 million cellular subscribers in the second quarter, up from some 15 million three months earlier. Of these, six million used GSM, up from four million three months ago.

Finally, Colombia added nearly 1.2 million subscribers in 2Q05, making 13.4 million mobile customers - 7.1 million of them GSM.

Surprisingly perhaps, there is some 3G activity in Latin America - although not perhaps the sort that GSM operators might prefer. Six EV-DO networks are active in the region. But the reality of deploying new networks to enable high-end data services for people in largely struggling economies means 3G may be only a dream for many Latin American operators, especially those that must deploy entirely new networks in order to provide WCDMA-based services. However, despite this, regulators in some countries are set to offer more frequencies for 3G use.

Some observers say that last year's decision by Cingular Wireless to aggressively deploy WCDMA/HSDPA in its 850MHz and 1900MHz mobile bands could open the door for Latin American operators on the same spectrum to follow suit. Others say the costs will still not be justifiable, considering the relative immaturity of the Latin American market.

Operators that already target youth and other niche segments with services such as games and music could have reason to upgrade to 3G and boost their traditionally anemic ARPUs. But early experience with EV-DO in Latin America shows that operators appear more likely to use it as an alternative broadband access method for desktops and laptops than as a service for handhelds.

For now, however, the bottom line is that with a regional mobile penetration rate that hovers at about 30 per cent (and even such major players as Brazil, Mexico and Argentina have only breached the 40 per cent mark), it will not be 3G but prepaid that will remain a priority for operators, along, perhaps, with price subsidization, financing plans for device purchase, cost controls and, in all likelihood, some help from the GSM Association's recent initiative to target what it terms the ultra-low-cost mobile-handset-market segment.

Not surprisingly, the dominance of prepaid service plans has resulted in Latin America experiencing some of the lowest ARPU in the world, next to Africa - and next to no short or medium-term chance of the $40-50 ARPUs common in the US and Canada as new, less well-off end users come on board.

This article is based on material from Global Mobile, a research and newsletter service from Informa Telecoms and Media (www.telecoms.com).