Latin American mobile ops not immune to the global credit crunch

By Tammy Parker

The treacherous economic conditions being experienced worldwide look increasingly likely to affect Latin America’s mobile operators, which are already being buffeted by a host of legal and regulatory issues.

The region’s low penetration – about 70%, which leaves lots of room for growth – combined with the low debt levels carried by many Latin America telecoms operators seemed likely to insulate the region’s mobile operators from the flames of financial panic that have gripped worldwide economies. However, it’s starting to appear that mobile operators in Latin America will to some degree be affected by the global credit crunch and its impact on consumer spending.

It became clear on Nov. 5 that the global financial crisis had started to affect Latin America. The government of Brazil, considered the region’s healthiest economy, said that nation would see 2009 gross-domestic-product growth of only 3.7-3.8%, down from earlier predictions of 4.5%. Planning Minister Paulo Bernardo said worldwide financial problems brought the government to “a consensus that we will have lower growth in economic activity next year.”

Slowing growth, in turn, will logically affect mobile operators in the region as well. Merrill Lynch recently predicted that mobile subscription growth in Latin America would remain steady in coming months but said mobile ARPUs could fall “on average 6% in local currency in 2009.”

The firm said it does not see Latin American operators cutting opex or capex because of funding needs. But it noted that “they are likely to face the decision of whether it makes sense” to maintain existing marketing and capex plans in the new economic environment or instead preserve cash to return to shareholders or reduce debt.

Beyond the economic chaos, mobile operators across Latin America continue to face numerous regulatory and legal roadblocks to maintaining robust businesses. Erasmo Rojas, director of Latin America and the Caribbean at trade group 3G Americas, says that taxation is an enormous burden for both mobile operators and consumers in the region. “In Brazil, 40 percent of every real [Brazil’s currency] that operators receive is paid back in tax,” Rojas said.

He also contends that for mobile operators to thrive across Latin America, they need access to more spectrum and regulators need to end spectrum caps. There is also a need for “spectrum-regulation clarity,” Rojas said.

Rojas predicts that number portability will expand to more markets in Latin America. At end-3Q08, the Mexican Federal Telecommunications Commission (Cofetel) announced that 101,491 subs had taken advantage of number portability since its introduction on July 5. Cofetel said that 64% of requests came from prepaid mobile users, 6% from postpaid mobile subscribers and 30% from fixed-line users.

Brazil, which introduced number portability on Sept. 1, had seen 21,676 porting requests by end-September.

In October, Colombia’s president, Alvaro Uribe, ratified a new number-portability law, which gives the nation’s communications ministry until end-2009 to complete pertinent technical and economic-impact studies.

Likewise, Honduras’ telecoms regulator, Conatel, recently launched a public consultation on mobile number portability (MNP), initially allowing incumbent operators Tigo, Claro and Honducel and new entrant Digicel to consider proposals and offer comments, though the regulator has not announced a public timetable for MNP.