OPERATOR SERIES: Entel tries to keep up with its own standards

By
Tuesday, November 22, 2016

Chilean-owned telco Entel, for many years a national champion priding itself on being first to market network upgrades, quality of service and a loyal customer base, has in recent times come under pressure from new and existing competition in its local market. Meanwhile, as a newcomer in the Peruvian market, the company is growing fast, but the investments required have put margins under pressure.

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In Chile, the company offers mobile and fixed telephony, and TV services through its Entel Hogar triple play package, as well as corporate communications for businesses and IT services through a series of datacenters.

In Peru the company has offered fixed line services through its long-standing Americatel operator and debuted in the mobile market in 2014 after the acquisition of Nextel Peru.

The company is owned by Altel Limitada, which is a unit of the Inversiones Almendral conglomerate, in turn owned by Grupo Matte. Its current CEO is Antonio Büchi and Juan Hurtado is board chairman.

Entel has been something of a pioneer in both the Chilean and Latin American telecoms market with several firsts to its name.

The company was the first in the Americas to launch a GSM mobile network on the 1900MHz band in 1997, followed by GPRS in 2002 and EDGE in 2004. The company was also an early adopter in the transition to 4G, launching an HSPA+ network in 2010 with speeds of 8Mbps, and in 2016 became the first operator in South America to launch LTE-Advanced with carrier aggregation, combining the 2.6GHz and 700MHz bands.

For full-year 2015, Entel collected revenues of 1.79tn pesos (US$2.68bn), up 7.65% from 2014. The company reported a net loss of 1.10bn pesos compared to a 56.5bn-peso profit in 2014, due mainly to the heavy investments the company has had to make it in building out mobile network infrastructure in Peru.

CHILE

Mobile

Entel ended the third quarter of 2016 with a total of 13.9mn mobile subscribers (9.49mn in Chile and 4.51mn in Peru.

As of June, Entel was largest mobile operator in terms of users, with a 2016 with a 35.2% market share compared to 33.6% for Movistar and 23.8% for Claro. Entel has been the operator that has lost the largest number of subscribers since the introduction of number portability in 2012, shedding a net total of 1.14mn subscribers, almost three times that of Movistar.

This process has accelerated since the market debut of WOM in July 2015, which entered with very competitive mobile broadband prices and, to a lesser extent, the appearance of several MVNOs. Within a year WOM had surpassed 1mn subscribers and had gained a 4.7% market share.

Entel has been hardest hit in the prepaid (voice and mobile broadband) segment, which contributed greatly to an overall 3% year-on-year decline in mobile subscribers in 3Q16. In the consumer segment the decline in prepaid was 6%, which was offset by 4% growth in the postpaid base. Entel has focused its efforts on capturing and migrating customers to its postpaid base, which represented 39% of its total subscriber base at end-September, which the company says is the highest in the industry.

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Mobile broadband

Entel is the leading operator in Chile in mobile broadband with a 33.9% market share in 3G + 4G users as of June, 2016 compared to Movistar with 29.3% and Claro's 25.3%, according to regulator Subtel.

Mobile data revenues have been on the increase and multimedia plans accounted for 86% of postpaid clients in the last quarter compared to 74% in 3Q15.

Given the competitive environment, Entel has been obliged to drop prices and adopt the strategies of its competitors, such as free access to social networks for a limited time.

The company has attempted to differentiate itself through its 4G LTE Advanced network, launched in May, which at the end of September had coverage in six cities and five regions.

Fixed networks

Entel has revived its declining fixed line business in the residential segment in recent quarters through its Entel Hogar triple play offering of voice, internet and TV. Although fixed services only made up 8% of revenues from the consumer segment in Q3, fixed line revenues grew 13% year-on-year and the TV segment expanded 23% for a total of 440,000 revenue generating units (RGUs). However, TV is still an incipient offering for Entel.

In terms of market share in fixed line telephony, Entel was third in June with 17.4% behind cable operator VTR (20.1%) and Movistar (42.2%), according to Subtel.

Corporate & SME segment

In recent years Entel has developed a strong corporate business offering IT and integrated communications services to large companies and SMEs, complemented by a series of state-of-the art datacenters.

Growth in that area of business has been slow this year (with revenues falling 1% year-on-year in 3Q16) due partly to a soft economy and declining mobile voice revenues. However, the company has said it is primed to leverage the emerging trends of machine-to-machine connections. The company is also seeing increasing income from network rental due to the recent influx of MVNOs.

Entel has also been spearheading the rollout of mobile broadband to remote parts of Chile. The company was allocated a subsidy of 2.5bn pesos (US$3.7mn) for a project from regulator Subtel's universal services fund at the end of 2013 and this year went live with a satellite broadband connection on Easter Island, deployed by O3b. The company has also rural coverage obligations as part of its license in the 700MHz band.

PERU

Entel Peru's expansion into Peru has been a hugely ambitious but largely successful move, although the considerable investment in network rollout has hurt its bottom line.

Revenues rose 49% in Q316 year-on-year to US$137mn, while the company narrowed an Ebitda loss to US$40.4mn.

The Entel Group this year approved a US$3.5bn, five-year, investment plan for Chile and Peru, with US$1bn of that destined for Peru alone. Some US$290mn of the slated investment for Peru was spent in May this year on acquiring a license in the 700MHz band.

Mobile

Entel has built on the 3G infrastructure it inherited from the former operator Nextel to consolidate itself as the third largest network operator with a 12% market share in June, behind  Movistar (47%), Claro (33%) and ahead of Viettel (6.8%), according to regulator Osiptel.

In Q3, Entel Peru's total mobile base reached 4.51mn, up 77% over 3Q15. Since mobile number portability was reintroduced in July 2014 to June 2016 Entel attracted 185,000 new users, by far the most of any operator.

Entel Peru has made a big push for 3G and 4G users. In June, 94% of its subscribers were on 4G/3G or 2G networks. In March, Entel users with smartphones with broadband connections made up 8% of the market.

However, migration is slow and postpaid clients still only represent 1% of Entel's base. Prepaid (62%) and the rest are on controlled plans. In fact, last quarter the prepaid base actually grew 118%.

A 19% reduction in mobile termination rates and lower recharges in the industry as a result of strong competition have led to lower blended monthly ARPU for Entel, falling 20% versus 3Q15 to US$8.5.

That said, the company has begun offering wireless telephony services to the residential segment and had 10,000 RGUs at September 30. Wireless broadband is also starting to be offered in the regions of Lima, Junín, La Libertad, Arequipa and Piura.

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FIXED LINE

In Peru, the Entel group offers wholesale international and domestic fixed line traffic, as well as data/IT and corporate communications services through its Americatel unit. The rest of Americatel Corp, which operates throughout Central America, was sold in 2007.

In 3Q16 revenues for the unit fell 7% year-on-year to US$9.8mn, due to slipping wholesale revenues.

In June, Americatel was the third fixed line operator, but with only 1.29% of the market versus Telefónica with 75% and Claro (América Móvil) with 21%. Entel has no TV services in Peru.

GENERAL STATUS OF THE GROUP

Once the undisputed leader in mobile broadband in Chile, Entel's crown has been challenged not only by newcomers like WOM, but the whole industry upping its game.

At the beginning of November, WOM tripled its mobile broadband offering to 7GB and 300 minutes of voice calls for 15,990 (US$23) per month, which also obliged Entel to introduce plans for consumers and businesses.

Entel's continues to sell its network on the premise of superior network and customer service.

In terms of Entel Hogar, this is a new and growing niche for Entel but is far from being on a level of competing with VTR, Claro and Movistar. The corporate IT business is solid and tapping into a growing market.

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In Peru, Entel has positioned itself well, but will need to keep piling investment dollars into that competitive market to keep up with the giants América Móvil (Claro) and Telefónica (Movistar). Telefónica has already launched 4G LTE-A in Peru. In September, Claro launched 4G in 13 districts in Lima and even acquired two flailing operators in August to gain access to their 2.5GHz spectrum.