Unraveling Latin America's pay TV opportunity
Jose F. Otero, President, Signals Telecom Consulting
The history of Latin America's convergence for telecommunications services usually begins with celebratory mentions of Chile's VTR, the first operator in the region to offer a triple play bundle--voice, video and broadband--to its customers. Since then, CATV (cable television) operators have emerged in many countries as the incumbent fixed line operators' main competitors. It has been the CATV operators, not the CLECs, who have successfully challenged the PSTNs throughout the region.
CATV operators' defiance was the result of one action: investment. CATV operators such as VTR heavily invested in upgrading their network to expand their footprint and start offering customers broadband speeds higher than those offered by traditional providers such as Telefonica CTC (nowadays Movistar Chile) or Entel. In other words, in more than one Latin American country the CATV operator behaved like its peers in the United States.
After this brief explanation numerous questions come to mind: Why didn't this trend take place throughout the region? Why did some Latin American countries offer residential broadband speeds surpassing 20 Mbps, 50 Mbps or 100 Mbps while others charged more than $100 for 4 Mbps? Unfortunately, the path towards convergence in the region has faced obstacles such as economic collapse, increased competition from nontraditional players, outdated regulatory frameworks, populism, and protectionist measures directed at subsidizing state-owned companies, among other. In other words, in many countries PSTN networks and CATV network operators have adopted a complacency approach to the status quo since they are being shielded from competition by their respective country regulation.
Cynics would cite infrastructure vendors as the main losers of this situation. They won't be entirely wrong, as these companies would benefit from further investment in telecommunications. However, the maintenance of outdated telecommunications public policies primarily harms a country's development, decelerates its technology adoption, and decreases its international competitiveness. In the case of Latin America, DTH and IPTV provide two key examples on how governments in their public discourse in front of international forums adamantly speak in favor of connectivity and development while their domestic policies basically hinder the expansion of broadband and pay TV services.
One must recognize that for many households having access to pay TV services is just a preamble to accessing fixed broadband alternatives.
One must recognize that for many households having access to pay TV services is just a preamble to accessing fixed broadband alternatives. Let's explain: To counter CATV's triple play advance, fixed line operators are investing in the launch of DTH services (mostly through a wholesaler like Telefonica's Media Networks) and the deployment of IPTV. The strategy for fixed line operators is to initially deploy DTH to quickly gain a national footprint and then slowly rollout IPTV to those areas that guarantee a quick return of investment. Curiously, the country with Latin America's largest IPTV provider--Colombia's UNE--prevents the operator from launching DTH services that would allow it to quickly expand its presence on a national level. This strategy would most likely be emulated by Telmex Colombia (NYSE: TMX), the country's leading pay TV provider, and would force DirecTV (Nasdaq: DTV) to seek alternatives for the direct provision of broadband in areas where its local partners' networks--ETB and Emcali--don't have a presence. In other words, DirecTV Colombia would try to implement the same strategy adopted by its peers in Argentina and Brazil where the DTH pay TV offer is bundled with fixed wireless broadband services to provide consumers with a triple play bundle.
When it comes to DTH, the cases of Ecuador and Uruguay deserve a special mention: Both countries have deliberately denied the entrance of new pay TV competitors into their markets prior to the launch of video services by the state-owned operators--CNT and Antel respectively. The main problem faced by consumers is that in both countries the state-owned operators haven't been able to fulfill the originally scheduled launch date. From these two countries, Uruguay presents an extraordinary case: it cancels a DTH license granted to Telmex and then prevents the local CATV companies from offering broadband residential services, which was part of a government development plan to increase broadband penetration and downlink speeds in the country. The immediate result: private sector investments have been reduced.
Broadband is the killer application for pay TV services.
The case for IPTV in Latin America is more complex, as it has been characterized by overoptimistic launch dates (delays from originally announced timeframes are now being counted in years in places like Venezuela!), opposition from the governments of Argentina and Mexico for its provision by PSTN (until less than a month ago Brazil was also part of this group), and the inherent high deployment costs of the technology. The cases of Argentina and Mexico are explained by each country's internal political context and not by the viability of IPTV launch in both markets. Contrary to detractors in these two countries, IPTV will not rapidly gain a large market share due to the investment necessary for its launch--in Latin America we would see FTTN/VDSL and FTTH architectures--that would make operators focus it for high purchasing power neighborhoods, the enterprise and corporate sectors. Once again, the main attractiveness of the IPTV offering is the high broadband speeds that would be provided by it as in terms of video all market players would be able to offer similar content, a fact now being strengthened by the proliferation of VoD services in the region.
So what does the future hold for pay TV services in Latin America? First, competition for pay TV subscribers would increasingly depend on the broadband transmission speeds being offered by the operator: Broadband is the killer application for pay TV services. Second, operators would continue implementing a hybrid approach for the provision of the service by tying DTH with CATV and/or IPTV services and by doing so gain more flexibility in their quest for new markets. This approach would also contribute to position DTH as the leading pay TV platform in Latin America (it already holds 52 percent of the Brazilian market).
Third, America Movil (NYSE: AMX) and Telefonica (NYSE: TEF) are clearly positioning themselves as the two leading pay TV providers in the region, with DirecTV/Sky as the third most important regional player, and each with distinct approaches: America Movil and DirecTV/Sky would continue to directly provide pay TV services to end users, while Telefonica's growth derives mostly from its wholesale division, Media Networks.
Jose F. Otero is the president of Signals Telecom Consulting and a regular FierceTelecom columnist. Follow him on Twitter @Jose_F_Otero