Convergence in Argentina: good for competition?

By
Monday, December 4, 2017

Starting January 1, telecoms firms in Argentina will have free rein to offer quadruple play (cable television, fixed and mobile telephony, and internet), as the government seeks to stimulate competition in a highly concentrated sector led by Telecom, Telefónica (Movistar), Claro and Cablevisión-Fibertel.

The authorities had not previously allowed these companies to take advantage of their costly infrastructure to offer all the services they can, at a time when over-the-top (OTT) companies like Netflix are beginning to take an ever larger bite of the pay-TV market and communications are becoming a commodity.

Start your 15 day free trial now!

cta-arrow

Already a subscriber? Please, login

A dispute between the previous administration of former president Cristina Fernández de Kirchner and Clarín, a shareholder of Cablevisión-Fibertel, prevented the media conglomerate from entering the mobile telephony business, while its competitors were not allowed to enter the TV segment.

But a December 2016 decree from President Mauricio Macri that removes those market restrictions has led to a structural readjustment that, instead of guaranteeing more competition, actually ensures the hegemony of the previous incumbents, according to experts who talked to BNamericas.

This should not come as a surprise in an industry whose bread and butter is the consolidation that would ensure the needed scale to survive in a dynamic business constantly requiring huge investments. A case in point is the merger of Cablevisión-Fibertel and Telecom Argentina, which has been approved by shareholders and telecoms watchdog Enacom, is awaiting a green light from antitrust regulator CNDC and securities regulator CNV.

From this merger will emerge a US$13bn giant that threatens to become the dominant operator in several market segments.

Edmundo Poggio, former general manager of Telecom's fixed telephony business and now a consultant, told BNamericas that "the process to merge this company is a shock to the market, because obviously a company that has 50% of cable, 31% of mobile telephony, 57% of broadband [and 43% of fixed telephony] has great weight."

In fact, it would become the largest telecommunications company in the country, accounting for almost half of the sector's total revenues, which totaled US$7.45bn in 1Q17, according to Enacom.

Poggio warns that with the merger "we'll see what measures the government will implement to regulate the market based on what's happening, because there will be problems in the north of Buenos Aires [province] and in Córdoba, where this company has 95% of services, which makes it a quasi-monopoly."

In light of the merger, some market players are beginning to ask for temporary asymmetric regulations to promote competition in the sector, particularly in the broadband and pay-TV segments.

Asymmetric regulation has been used in highly concentrated markets such as Colombia, where Claro (América Móvil) is the 'dominant operator' in mobile telephony. Colombian regulator CRC imposed specific measures on the company to control the prices of its plans and its access to frequencies in the 4G spectrum auction of 2013. However, the asymmetric measures did not achieve the desired impact of reducing its dominance over the market.

We'll have to wait and see whether Enacom decides to apply asymmetric regulations, or whether they are part of the communications convergence bill it is formulating.

In the meantime, once the merger is made official, Telecom/Cablevisión will have to return spectrum frequencies, since the latter recently purchased trunking operator Nextel; and once it adds its frequencies to those of Personal (Telecom), the combined company will exceed the established limit of 140MHz.

For their part, Claro and Movistar will be able to offer pay-TV, which the government had initially established could only be provided by cable in order to boost investment in fiber optic networks. However, following intensive lobbying by these multinationals and after recognizing the ground that Cablevisión has already made in this segment, in November they were allowed to offer satellite services, which makes deployment much cheaper and quicker.

Although they are already allowed to offer satellite TV, it is not unthinkable that we could see an acquisition by the international giants. Claro, for example, has conducted its expansion strategy in other markets through the acquisition of small television and internet providers.

With the aforementioned approval, DirectTV will see increasing competition to its monopoly in satellite TV, while consumers should benefit from a much lower monthly bill.  

4G NETWORKS GROW AND MVNOS APPEAR

Argentina was, in 2015, the last country in the region to access LTE, or 4G data transmission technology. Investments in network deployment by mobile operators, however, have allowed coverage to exceed that of other countries that have been developing it over a longer period of time. 

An OpenSignal report on the state of LTE in 77 countries published in November indicates that current coverage in Argentina is at 73.5%; while in Chile and Colombia, which have had the service for several years, it stands at 65%.

Investments in mobile infrastructure in Argentina in 2016 totaled US$987mn, and reached US$412mn in the first half of this year, according to Enacom.

However, the speed of 4G in Argentina (11.8Mbps) lags behind other Latin American countries. It is surpassed by Uruguay (14.3Mbps), Bolivia (14.8Mbps), Chile (16.4Mbps), Peru (16.8Mbps), Colombia (19.3Mbps), Brazil (20.3Mbps), Mexico (22Mbps) and Ecuador (26Mbps), according to OpenSignal.

On the other hand, in 2018 a new mobile virtual network operator will appear. Formed by the SMEs of local telecoms chamber Catel, the new MVNO will invest US$2mn and reap the advantages of the new convergence environment to begin using Movistar's infrastructure. It will join MVNO Nuestro, which has 30,000 clients on Argentina's Atlantic coast.

Other than this MVNO, the arrival of additional new players is unlikely, unless one of the sector's big players is acquired. Nevertheless, the upcoming market flexibility will bring significant investments.

According to press reports, Telefónica plans to invest around US$2.25bn in the 2017-19 period, while Claro will invest between US$400mn and US$450mn per year, and Telecom US$2.34bn through 2019.

The telecoms environment in Argentina will see change and readjustment in 2018 that will define the future of the sector. For now, we can dare to think that, with the arrival of Movistar and Claro in pay TV, the prices for these services will fall and more will be invested in fiber – a much needed development to meet the demand of 4K television and the Internet of Things, which are beginning to soar.