Latam Special: Latin America’s next frontiers
Are markets such as Colombia and Chile ready to steal Brazil’s thunder? Gareth Willmer examines the opportunities for carriers elsewhere in the region.
A new initiative by the Union of South American Nations (UNASUR) to build a major continent-wide fibre-optic ring promises to drive growth across a number of the region’s domestic telecoms markets.
The ring is due for implementation over the next 18 months and will interconnect countries throughout the continent. There are also plans to establish submarine cable links with the US, Europe and Africa, which could help to reduce the region’s existing reliance on North America.
With about 75% of Latin America’s traffic presently routed through Miami, the project is expected to reduce pricing of wholesale services across the region by a reported 30-40%, with some anticipating a potential fall of more than 50% in consumer broadband prices in certain countries. Overall, UNASUR hopes to establish independence for transporting data and enable the creation of a continental data centre and a Latin American search engine.
Wally Swain, SVP of emerging markets at Yankee Group, believes such an attempt to lower international costs is an absolute necessity for the region. There is widespread dissatisfaction, he says, with bandwidth pricing in Latin America, and while many companies are focussed on establishing a new cable landing along the continent’s coastline, a terrestrial ring is essential to deliver access inland.
In particular, the project could also help bolster connectivity to landlocked countries such as Bolivia and Paraguay. The Paraguayan government recently accused neighbours Argentina and Brazil of hindering its country’s broadband development by failing to offer competitive prices for international connectivity.
Swain says this is “a very dramatic expression” of how highly Latin American countries regard broadband penetration as critical for economic development. He also notes that the political and economic differences between these nations could potentially undermine UNASUR’s efforts. It’s a sidestory that manages to illustrate both the high potential and pitfalls facing carriers looking to extend their reach in the region.
GlobeNet is partnering on the 1,000km extension, which supports up to 100Gbps DWDM technologies, with Alcatel-Lucent. The company has also signed a deal for Colombian telecoms operator and internet provider UNE EPM Telecomunicaciones to act as anchor tenant on the new route. UNE is Colombia’s largest broadband provider and has approximately 1.7 million fixed lines, and more than one million TV subscribers and 100,000 mobile internet users.
In a key development, UNE commercially launched its 4G LTE network just a week before the GlobeNet partnership was unveiled. The operator is seeking to cover 90% of the country’s population with the service by the end of the year and attract between 120,000 and 180,000 users.
Although this is a modest figure compared with Colombia’s total of almost 50 million mobile subscriptions, it shows there is early interest in moving to next-generation services. Erick Contag, COO at GlobeNet, says it is a sign that companies are prepared to invest in mobile internet, IPTV and high-speed internet. “There is a predicted huge demand for mobile broadband [in Colombia] and carriers need very robust fibre backbones to support 4G and robust connectivity to the internet,” he adds.
GlobeNet already has a terrestrial ring-protected network extension with a landing on Colombia’s eastern border, but the new subsea fibre-optic cable system will complement it by providing a new landing on the country’s Atlantic coast. Both landings will be interconnected via a terrestrial ring.
Contag says that until recently Colombia had suffered from a limited national network infrastructure, which in some cases was shared by several operators. “Through the growth of broadband demand and investment from the Colombian government to build a national backbone under its ‘Vive Digital’ programme, new networks are being deployed to provide diversity and resiliency,” says Contag. “The combination of these new terrestrial networks and GlobeNet’s recent subsea cable landing will provide much more resiliency than what exists today.”
Crucially, the subsea network will also provide a direct link with other Latin American markets rather than having to pass traffic through the US. “From a corporate perspective, it’s very valuable to have a low latency route between Brazil and Colombia,” says Contag.
“Not only will we have an express route from Colombia to the US to address high-capacity internet and multimedia needs, but we will also provide direct connectivity to Oi’s extensive network in Brazil.” This, he continues, could prove advantageous for a number of business verticals including oil and gas, financial and insurance providers and manufacturing.
GlobeNet will continue to examine the prospect of extending its subsea cable networks to other countries in the region. Contag, however, concedes that the network expansion into Colombia was less of a risk given its involvement with a local partner. “We have gone in with a leading Colombian operator and this helps to make the business case viable,” he says.
He points out that large infrastructure projects can have a payback of 10-12 years: “Laying new large-scale subsea cable systems does not come cheap and requires huge capex. There needs to be solid business foundations and a strong commitment from investors and operators, as was the case with our new extension to Colombia,” says Contag.
Contag says Colombia has overall grown remarkably well as a telecoms market and is investment-friendly, with modernised regulation. He points out that Colombia was one of the first Latin American countries to offer a licence for converged services, while in other countries carriers have the burden of applying for and managing multiple licences. In Colombia, dominant telecoms operators are also obliged to provide local loop unbundling and wholesale services.
Other carriers appear to be taking note. Hector Alonso, president, Latin America & Caribbean at Level 3, says Colombia is “growing as a very good case” for Level 3, with one of its 14 data centres in the region located there. “The Colombian government was one of the founders of the trend of digital government,” he says. This is supported by the country’s national fibre-optic project, due for completion in 2013, which aims to deploy more than 15,000km of cable.
David Berrios, director, business development, Latin America at NTT Communications sees the country as the next step of its development in the region, having already placed major focus on establishing its global IP PoP in Brazil. Berrios raises speculation that the company could be willing to enter the nation soon, by stating that it would “definitely be a good landing country in the next 16 months.”
He says the country boasts modern infrastructure, a high level of competition and healthy growth. He adds that there are few barriers to entry and providers like VTR, Entel and GTD compete head-to-head on broadband and fibre networks. Swain agrees that Chile is one of the most advanced markets in the continent – “they are always first with... fill in the blank.”
In addition, Chile has outlined plans to triple per-capita broadband penetration and telecoms investment in line with the OECD average by 2014 and provide universal broadband by 2018. Berrios adds that Chile borders Argentina and Peru and acts as a gateway to Bolivia.?The country does, however, have its limitations.
With a relatively small population of below 20 million, Chile also faces steep geographical challenges outside of the capital Santiago and coastal areas. “Chile is an extremely long country,” he says. “Building a fibre network end-to-end would require a huge amount of capital investment to serve a very small population in some areas.”
From a subsea cable perspective, GlobeNet’s Contag also feels that Chile may provide limited room for growth because it is already a relatively mature market and well-served by Telefónica’s SAM-1, the pan-American submarine cable system and Level 3’s network. The market could therefore prove a tight squeeze for new entrants and those looking to extend infrastructure.
New horizons and hurdles
“From a corporate and investment perspective, we don’t know what it could turn into,” says NTT’s Berrios. He says that until the clouds clear over its future, there are “too many challenges” for NTT to move into Argentina.
Carriers also refer to the strong grip that Telefónica and Telecom Argentina exert on the market. Berrios says that: “There are lots of smaller ISPs and carriers, but they cannot increase their market share significantly. Fibre in the ground is really controlled by two companies.”
On the other hand, Level 3’s Alonso says he doesn’t believe that competition in Argentina is too different from that in Colombia and that the country is a strong growth market. He points to government plans for the deployment of 25,000km of fibre to close the digital gap, expected to be completed in 2014. Berrios also highlights how Argentina shares borders with Brazil, Paraguay and Bolivia and that can therefore offer affordable reach to central Latin American countries.
Level 3 has overall established a strong presence across Latin America, acquiring many licences throughout the continent. Such success stories are helping to entice other international carriers to enter the region, including the likes of TeliaSonera International Carrier.
The company does not currently have a direct point of presence in Latin America, although it carries out sales and business development in the region and services customers from Miami. However, Ivo Pascucci, head of sales in the US at TeliaSonera International Carrier, says that “in the next two or three years it is a safe assumption that we will have a more significant presence”. This could take the form of acquiring subsea cable capacity, finding local partners and establishing PoPs.
He adds that prices have come down significantly over the last couple of years, alongside positive developments to backhaul and terrestrial capacity and networks. “There is not lots of intra-regional traffic exchange,” says TeliaSonera’s Pascucci. “We see an opportunity to play a bigger role directly in the regional exchange of traffic... to support traffic bilaterally is increasingly important.”
But despite the promise of Latin America, there are still a variety of obstacles that hold up developments for carriers, not least the cost of connectivity. Pascucci estimates subsea cable capacity between the US and Latin America is 10 times as expensive as transatlantic subsea cable capacity between the US and Europe and that it is even more than 10 times as expensive to buy IP transit locally in Latin America compared to the US. These costs, however, are widely expected to fall over time.
Inhospitable terrain in a number of countries and the more spread-out nature of populations in many Latin American countries makes rolling out networks problematic, with a lack of fibre to areas like the upper Amazon. More centralised populations have, however, been cited by some as a benefit, meaning less roll-out to reach a higher proportion of the population.
Regulation also differs markedly throughout the region. Countries like Colombia and Chile are fairly open, but others have far more regulatory restrictions.
But as Brazil has proved, carriers must ensure they establish a presence in these markets before demand explodes. Yankee Group’s Swain says that “the priority right now is fibre backbones and then it’s back to international connectivity… advanced mobile broadband networks need fibre.”