LATAM Telecom

Ten years in the high tech industry is a long time, but it helps to to look back at where we were ten years ago and how the markets have evolved to better understand where we are going in 2010.

This is not meant to be an in depth article but rather a collection of bits and pieces from my experience and personal observations about the trends I am seeing in the region. So without further ado here are my top predictions for the LATAM market in 2010:  

(1) The economic environment and increased competition will put additional pressure on technology vendors.

During the last ten years, LATAM operators made huge investments in network infrastructure to meet growing demand and to incorporate new technologies. However, the economic downturn is forcing them to watch CAPEX spending closely and to do more with existing footprint.

The economic downturn will continue to affect CAPEX decisions; in addition to this, increased competition and changes in the relationship with mobile operators are putting additional pressure on technology vendors.

Increased competition is commoditizing network infrastructure, driving prices and margins down significantly. Vendors like Huawei and ZTE have gained market share in Latin America, winning important bids for network infrastructure. Traditional vendors like Ericsson and Comverse are reconsidering their presence and strategy for the region.

(2) New technologies in cloud computing will change the relationship between technology vendors and operators

Network operators have traditionally based their economic and business models around infrastructure CAPEX and ROI. This is understandable considering that entrusting operations to a cloud environment can be a risky endeavor and service reliability is a top priority for them. However, 'enterprise-grade' services are a reality now and 'carrier-grade' cloud services cannot be far behind.

Just six months ago, we wrote about Telefonica's launch of Personal Instant Messaging in the region (Telefonica Movistar (finally) moving in with SMS 2.0 in Latin America). This announcement was relevant not just because it's the first launch of this service in the region, but also because it is planned as a centralized, hosted solution.

Operators and technology vendors have tried for the last decade to come up with a business model that will allow them to deploy solutions without heavily investing in infrastructure, minimzing the market risk and allowing them to co-participate in a revenue share scheme with technology vendors.

What is needed now, however, is a business model that will result in a win win situation for both parties. So far, most attempts have been unsuccesful with either party having to invest heavily in infrastructure, marketing or both. Cloud based applications, however, can be the last piece of the puzzle for these initiatives, allowing for a demand based pricing solution.

This will require, however, changes in the way operators conduct business. This will require a restructuring of the VAS organization to a more simplified model, since CAPEX will no longer play a major role in the decision process. We can expect the decision process to be more customer centric.

(3) Advances in technology and changes in the customer base will drive demand for new services and applications.

As mobile market penetration reaches saturation in the region, new opportunities will open up. Revenue growth from traditional services -voice and SMS- have flattened in the last few years and operators are looking to increase ARPU through Value Added Services.

New technologies that allow managed services will affect operators' VAS offering, opening up opportunities for new players that will be able to provide services to giants like Movistar and America Movil.

In a similar manner as mentioned in my previous point, we can expect changes in VAS offerings. Traditional models will no longer work. We have seen in the last five years the limitations that a consumption based model can offer. Users have turned away from these services; despite the fact that usage trends in messaging indicate that instant messaging has a huge potential in the region (see LATAM 2009: A Mosaic of Opportunities), operators have stayed away from "all you can eat" pricing models. Such is the case for most IM initiatives in the region during the second half of the past decade (see Will 2008 be the year for Mobile Instant Messaging in Latin America?).

These are some of the major trends I see, as a result of changes in technology, competition and subscribers. I will continue to explore how these trends will affect specific markets and services in future posts.

This week I attended the 2009 Latin America Mobile VAS Forum in Miami (June 8-10), with the participation of analysts, technology vendors and operators.

The global economic downturn is, not suprisingly, on everyone's mind. This topic kept coming up repeatedly and the attendance to the event, about half of what we saw in previous years is also an indicator of the tough times we face. However, it was encouraging to interact with technology vendors and operators who remain optimistic about the future.

In the next weeks I will add more posts about this meeting and the discussions I had both with operators and technology vendors.

This week, I want to share my thoughts on a presentation by Marcelo Castelo of the Brazilian Agency F.biz. Marcelo's presentation, titled "The Mobile as a Mass Media Channel With Internet Characteristics: The Possibilities of the Mobile Marketing" focused on case studies in mobile marketing from Latin America.

The case studies shared by Marcelo show how Latin America is doing world class mobile marketing. What I find in these case studies is a no nonsense approach to marketing in which the mobile device is integrated into the marketing strategy as a mass media channel and as an element of the marketing mix. Marcelo's vision is integrating this channel to the marketing strategy, leveraging the different capacities available (SMS, web access) and its uniqueness, which is user interactivity:

"Nothing is more expensive than a missed opportunity." -H. Jackson Brown Jr.:

Participants at the Mobile World Congress in Barcelona this week got a chance to discuss new and exciting trends in mobile services like Location Based Services, Mobile Entertainment, Mobile Advertising and Advanced Messaging services. However, the single topic that stole the show is the economic uncertainty that mobile operators and technology companies are facing. The keynote conference that opened the congress on Tuesday says it all: "Sustaining Growth in Challenging Times"(1).

No one can argue that these are tough times but doing nothing seems to be the current modus operandi of the industry. My friend Mark Pendergast referred to me a great article by Professor John A. Quelch of Harvard "Marketing Your Way Through a Recession". Published almost a year ago, it is even more relevant today: "In a recession, consumers become value oriented, distributors are concerned about cash, and employees worry about their jobs. But a downturn is no time to stop spending on marketing".

With this in mind, I'd like to follow up on recent posts where I shared my thoughts on the best opportunities and top predictions for Latin America in 2009 and why some of the services presented in Barcelona have a good probability for success in the region, despite the current economic downturn.

In this article I will focus on the key factors that can contribute to their success and will follow up with a more detailed market analysis for each service:

• Leveraging existing infrastructure can help operators introduce new services with minimal CAPEX. MMS, for example, has not taken off and other services like Voice Mail delivery to MMS and Mobile Advertising can leverage existing platform capacity. Similarly, SMS based services like Voice to Text and Call Completion can be launhced with existing infrastructure; even if they might require expanding capacity, every additional text message will translate into additional revenue.
• In an economic downturn, subscribers will spend less and ARPU will fall, but operators have other options for generating revenues from third parties. Mobile Advertising is the perfect example, operators can also consider sponsored Ring Back Tones as well as revenue share business models for Location Based Services and Entertainment.
• Data services and 3G have not delivered on the hype but the infrastructure is there; even though data still represents less than 15% of total ARPU in the region, this might be because operators are not offering the services the market wants.

Operators are caught in a difficult position, with limited CAPEX and with subscribers limiting spending; but as Professor Quelch points out, the key is ... "to understand how the needs of your customers and partners change, and adapt your strategies to the new reality".

A year ago, companies and consumers alike were in a state of denial despite clear signs of a recession. The new reality is very clear for everyone to see; the moment requires everyone to get over the shock, roll up our sleeves and get back to work.