Non-voice to represent half of total revenues in a couple of years

Friday, February 18, 2011

Mobile telephony penetration has long since surpassed 100% in Argentina, and mobile operators have now shifted focus to value-added services in order to increase revenues. But as more subscribers use their devices to get online, increasing pressure is placed on existing networks.

At the same time, mobile operator Movistar - part of Spain's Telefónica group - also recently finished technical tests on LTE technology, paving the way for future implementation. But will Argentina be one of the lucky few in the group to kick off LTE services?

BNamericas talked with Movistar Argentina's director of products and services, Leandro Musciano, to find out more about the company's plans for this year.

BNamericas: Movistar has been testing LTE in Argentina through a trial conducted in conjunction with Japanese company NEC. What can you tell us about the results of the trial, and what are the next steps toward future deployment of LTE technology in Argentina?

Musciano: Telefónica has been testing LTE with different providers in certain markets. Tests have been carried out in Spain and some Latin American markets. In Argentina, we did field trials with NEC. Tests were very positive technically speaking, relating to traffic, capacity and coverage issues.

What we can say is that at some point this year, Movistar is likely to conduct some commercial tests in Latin America, but not necessarily in Argentina. The company has not yet defined in which countries the commercial trials will take place. Apart from this trial, we aren't expecting any commercial launch this year.

BNamericas: And when do you believe that LTE will be a reality in Argentina?

Musciano: I believe that some deployments will be launched during 2012.

BNamericas: What's the outlook for the company's mobile broadband base in 2011?

Musciano: Movistar has surpassed 1mn data subscribers, including modems and mobile telephony subscribers. Each segment accounts for approximately half of our data subscriber base. Not necessarily all our data subscribers are 3G. We have an interesting proportion of clients using smartphones in the 2G band.

We're experiencing significant growth in the data segment, where we're adding some 100,000 new lines per month. The penetration of 3G in our overall data subscriber base is increasing month by month. In the last few months, the majority of the smartphones we sold were 3G devices.

BNamericas: What trends are you seeing in the adoption of smartphones in the local market? Do you think that the price of these devices will drop significantly in 2011 and the coming years?

Musciano: By the end of last year, we launched Android-based smartphones with a cost of approximately US$100. This launch was very positive for us in terms of sales. I think all smartphone brands are now offering in their portfolios certain Android-based devices with more limited applications to penetrate the consumer market.

We think that smartphones with a cost of some 600 pesos (US$150) could have a very high level of penetration in the mass consumer segment. We're seeing a significant growth of Android-based smartphones, with this operating system gaining share.

The success of Android is in many smartphone manufacturers' having opted for this operating system. You have Android-based phones from LG, Motorola, Sony Ericsson and from the Chinese brands as well.

BNamericas: Last year, the government implemented several measures that affected electronic goods imports, including mobile phones. However, these new regulations also boosted domestic production of mobile phones, mainly in Tierra del Fuego province. Did this regulation impact Movistar in any way?

Musciano: Yes, it had a negative impact. We had a commitment with our clients to maintain the prices of our mobile phones. We had to maintain the same subsidies for the mobile phones, so the increase in the costs of the devices affected us negatively.

However, several vendors installed in Tierra del Fuego, and now that almost all of the [domestic manufacture] projects are functioning, we have a very significant volume of phones made in the province. We expect that some 70% of our phones this quarter will be manufactured in Tierra del Fuego. This volume enables us to have manageable subsidy levels. During a certain period of time, this impacted our financial results.

BNamericas: How do you see the evolution of Arpu? How important is the data segment in Movistar's Arpu?

Musciano: Our Arpu is growing year by year, and data's contribution to our Arpu is growing significantly. We can say that non-voice services currently represent about 35% of revenues. We believe that non-voice services could account for half of our revenues in a couple of years.

BNamericas: Mobile telephony penetration in Argentina has already surpassed 100%. What strategy are mobile phone operators adopting to increase revenues in highly penetrated markets?

Musciano: There are still some niches in the market, such as mobile broadband. Another key niche is the machine-to-machine (M2M) market, which also explains why in certain markets, penetration surpasses 100%.

Another source of growth is the addition of new services to the existing network infrastructure. For many years, the mobile telephony industry based growth in the addition of new lines, not necessarily focusing on increasing profitability by offering additional services. The mobile telephony industry is now focusing on this as a way to expand in saturated markets.

BNamericas: Is Movistar currently offering unlimited data plans?

Musciano: No. We did initially, but then we developed limited data plans, in which the client can acquire a determined download capacity. Once the capacity is exceeded the client can acquire additional capacity. These sorts of plans give customers control over their data consumption.

Our competitors also launched similar control plans after us. We recently launched a plan that offers unlimited access to certain services such as chat, email and social networks.

BNamericas: Is Movistar in need of additional spectrum to support future growth? The government has announced plans to award mobile spectrum this year. Are you planning to participate in this process?

Musciano: As long as we can participate in the process, our intention is to participate. Mobile telephony spectrum is always a limited resource. We're not having problems with our current spectrum, but looking ahead, it would be good to have additional spectrum for future technologies and services.

BNamericas: The government recently approved a timeline for implementing number portability in the country this year. What is Movistar's position in this issue?

Musciano: Those are the rules, and we accept the rules. We believe we have a market strength - our customer satisfaction index. We believe that we have a very strong position regarding this, which will enable us to face number portability from a very favorable position.

I think that once number portability is launched, there will be an initial wave of customers looking to migrate to a new operator. This initial phase could last approximately two months, but then the impact of number portability will be very small.

BNamericas: Are you planning to continue investing in expanding 3G infrastructure, or is your current coverage enough?

Musciano: Movistar will continue investing in the 3G segment - not to expand coverage but capacity, to support existing growth in this segment.

About the company

Movistar is the second largest of three main mobile telephony operators in Argentina, trailing América Móvil's Claro and ahead of local operator Telecom Personal.

The company - fully owned by Spanish telecoms giant Telefónica (NYSE: TEF) - reported 16.4mn mobile subscribers at end-September 2010. Using information from Argentine national statistics bureau Indec, which reported 54.6mn mobile lines in service at end-September, this gives Movistar a 30% market share.