OPERATOR SERIES: Telecom Argentina investing ahead of the gold rush

Telecom Argentina is the second largest fixed line and third placed mobile operator in Argentina.

The company's units include mobile operator Personal and internet service provider Arnet. In Paraguay, Telecom Argentina owns 67.5% of mobile provider Núcleo, which also operates under the Personal brand.

Originally emerging as part of a duopoly that ended in 1999, Telecom Argentina was majority owned by Telecom Italia until this year, when the Argentine government finally greenlighted investment fund Fintech's US$960mn bid to acquire Telecom Italia's 68% controlling stake in Sofora Telecomunicaciones, the holding company through which it indirectly controls Telecom Argentina.

Under its new leadership, Fintech head David Martínez pledged this year to invest 10.6bn pesos (US$661mn) in 2016 and more than 40bn pesos in the 2016-18 period.

He said that following the acquisition he would focus investments on building out fixed line infrastructure and offering pay-TV, once regulations allow.

Mexican businessman Martínez has sought to dispel monopoly concerns, clarifying he had no intention of merging Telecom Argentina with cable operator Cablevisón, which is controlled by media group Grupo Clarín and in which Martínez has a minority stake.

MARKET SHIFT

The acquisition of Telecom Argentina comes amid the most dynamic period in the Argentine telecoms market in over a decade.

Since taking office last December, the administration of Mauricio Macri has sought to stimulate investment in the sector following a decade of stagnation under the Cristina Fernández de Kirchner government.

Communications minister Oscar Aguad recently said new regulations could lead to investment of as much as US$20bn over four years in mobile infrastructure, fiber optics and equipment upgrades. Telefónica has already pledged a 36bn-peso investment plan for 2016-18, so opportunity is ripe.

When taking power, one of the first things Macri did was to create a new telecommunications watchdog, called Enacom, tasked with clearing much of the backlog hanging over from the Kirchner era.

Approval of the takeover of Telecom Argentina as well as Grupo Clarín's acquisition of Nextel Argentina were among the tasks that were dispatched. And in August, MVNO Virgin Mobile won approval to enter as the fifth mobile operator.

Getting wind of the future gold rush in the country, US media conglomerate Viacom snapped up in November Argentine broadcaster Telefe from Telefónica.

Other key moves that will impact market dynamics include setting a deadline for telcos to be able to offer pay-TV services beginning in 2018.

Regulation of triple and quadruple play is muddled in Argentina. Cable TV operators are allowed to offer telecommunications services, but telcos cannot offer cable TV. On the same token, satellite TV operators are prohibited from offering internet services. The goal of a telecommunications convergence bill due to be drafted and sent to congress by year-end is to introduce a single concessions license for all services.

Other initiatives include a subsidized 4G smartphone upgrade plan for lower income families with 2G and 3G devices and to connect some 1,200 cities to the internet via a national fiber backbone of state telco Arsat.

In another pro-market move, Argentina will eliminate next year a 35% import duty on tablets and PCs, which to date has slowed the arrival of the latest electronic devices to the country. Currently the government offers tax breaks to electronics firms to assemble devices in Tierra del Fuego province.

Aguad has vowed that average broadband speeds will increase from the current 3Mbps to 10Mbps by 2019, which is the current minimum in the US.

In the last decade Argentina fell behind its neighbors in terms of mobile broadband adoption due to a botched spectrum auction in 2012 and with networks reaching breaking point, 4G and additional 3G spectrum was only awarded in 2014.

However, the country has caught up fast and at the end of 2015, Argentina had the fifth highest 4G LTE penetration in the region at 10.39%, above the regional average (8.91%).

 

MARKET POSITION

Argentina has three large mobile operators. At the end of Q3 Telecom Argentina was the third largest in terms of subscribers with 19.9mn and a 30.46% market share behind Telefónica Movistar (31.14%) and Claro (35.51%). Nextel, now owned by Grupo Clarín, is a distant fourth (2.99%).

According to the company, at end-September Telecom Argentina had 4G LTE in 600 municipalities covering 4.3mn subscribers. It also claims it has extended 3G capacity to 80% of Buenos Aires.

In the fixed line market, Telecom Argentina had a 42.45% market share behind Telefónica (48.45%) and ahead of Claro (6.49%).

In its Q3 financial statements, Telecom Argentina said it was confident in growing demand for fixed and mobile broadband and that it will continue to deploy ultra-broadband, replacing copper with fiber.

Telecom Argentina expects to add 4,000km to the existing 22,000km of interurban fiber in 2016.

For the corporate segment the company expects to increasingly offer convergent solutions with the latest generation data center service.

Telecom Argentina has made it clear it is on the ball with future corporate IT trends and in May Personal Argentina reached a deal with General Motors to provide the mobile connectivity and SIM cards included in the new Chevrolet Cruze.

The car will come equipped with technology of the OnStar Corporation, a subsidiary of General Motors that provides subscription-based communications, in-vehicle security, hands-free calling, turn-by-turn navigation and remote diagnostics systems in the US, Canada, China, Mexico, Europe, Brazil and Argentina.

Personal will also provide a SIM IoT management platform that offers monitoring and greater visibility of the services in the vehicles, as well as including cyber security for M2M connections and data center services.

According to the predictions of GSMA Intelligence, M2M connections in Argentina will reach approximately 3mn in 2020.

 

PARAGUAY

In Paraguay Núcleo-Personal had 2.5mn mobile users, of which 80% were prepaid. According to June data from regulator Conatel, Núcleo was the second largest mobile provider with a 33% market share, behind Tigo (Millcom) (50%), Claro (13%) and state-owned Hola (3%).

In fixed internet, December 2015 numbers showed Personal had 5,653 users (a 2.62% market share) with its converged WiMax, fiber and GPON offering. Market leader was state-owned Copaco with 66,018 (30.7%).

Personal, however, is the market leader in wireless 3G and 4G LTE USB modem/dongles, accounting for 51% of the 206,896 total, according to  Conatel.

In October, the company claimed it had 250,000 active users of its 4G LTE network covering 59 localities and aims to reach 300,000 by year-end and covering 70 localities.

Germán Vidal, CEO of Telecom Argentina, commented in October the company plans to invest US$40mn in 4G LTE coverage over the next three years.

Personal uses the 1900MHz band and became the first in Paraguay to launch 4G LTE in December 2015. The company fell foul of regulator Conatel after it snubbed a spectrum auction for the 1700/2100MHz (AWS) bands, which it said were too expensive and were acquired by Tigo and Claro.

 

PERSPECTIVES

Telecom Argentina saw sales of 40.5bn pesos (US$2.53bn) in 2015, up 21% from 33.3bn the year before. Net profit fell to 3.46bn pesos from 3.73bn.

Telecom Argentina says it is the company that invests most in the country, having slashed out 24bn pesos over the last three years, equivalent to 88% of Ebitda in the 2013-15 period.

Besides ongoing investment in the core mobile broadband segment, future investment will clearly hone in on pay-TV, fiber and M2M.

In July, Enacom approved a rural connectivity program that seeks to develop new communications transport networks or strengthen existing ones, with the objective of ensuring that the quality of communications in underserved areas is similar to that offered in urban areas.

Arsat has a 32,000km fiber network in Argentina and Telecom rival Telefónica has already reached an agreement with Arsat to lease its 7,400km Refefo network, which will support its fixed and wireless services.