Market Trend

AHEAD OF THE CURVE: Bringing down the establishment

It has been a long time coming, but has a new era of connectivity, capacity and competition finally arrived in Latin America?

There are a number of criticisms traditionally directed at the Latin American telecoms market. A shortage of subsea cable routes has kept the price of international bandwidth relatively high. Many markets lack sufficient competition, with the region as a whole dominated by América Móvil and Telefónica. The region has yet to develop its own content ecosystem, and is reliant on content hosted in the US. Huge disparities in infrastructure and quality of service still exist across the vast continent.

On all these counts, however, Latin America is slowly but surely making progress, most visibly with the first point. Four new subsea cable projects are due to go live in the region in the coming years, marking a new era of capacity and redundancy.

Be it Level 3 Communications’ first subsea cable connecting Colombia via the Pacific, the consortium backed Pacific Caribbean Cable System (PCCS) that will help connect Central American countries to the continent, Seaborn Networks’ first direct cable between New York and São Paulo or América Móvil flexing its financial muscle with the deployment of its very own AMX-1 cable, each project appears to be bringing something new to the table.

New cables, new carriers?

The introduction of these subsea cable systems could play a valuable role in coaxing the international carrier community into conducting business in the region.

In March, TeliaSonera International Carrier (TSIC) signalled its intent to increase connectivity in Latin America when it launched a PoP in Boca Raton, Florida, US. With many financial services companies, cloud and IT providers, network service providers, ISPs and CDN companies located in Boca Raton, the city has emerged as a strategic location for access to business in Brazil.

Given TeliaSonera’s rapid expansion in the US market last year – when it added 11,500 fibre miles to its global backbone, and put in place plans to extend its reach to 44 US cities by the end of this year – this move appears a logical next step for the carrier.

“That transaction was important for us to have a network in the south east of the US to support the gateway to Latin America for our global network,” says Ivo Pascucci, regional director of Americas at TSIC. “We have global customers that need to reach Latin America, so we can provide capacity from Europe or Asia across the US to these gateway markets, and from there it is a jump-off point to the region.”

As well as being provided with new connectivity options to Latin America, Pascucci points out that greater redundancy is now also available to carriers. Although only 44 miles from Miami – the traditional gateway for traffic between the US and Latin America – Boca Raton sits outside of the evacuation zone for hurricanes of up to category five.

In 2012, Equinix opened its first data centre in the city, which has since become an attractive option for carriers, including TeliaSonera. Meanwhile, further north in Florida, several new cables – such as América Móvil’s AMX-1 and the PCCS – are due to land in Jacksonville.

“Networks are looking for redundancy, and that’s part of the driver behind landing in Jacksonville, versus southern Florida where all the other cables are today,” says Pascucci. He admits TeliaSonera face a challenge entering a market dominated by operators that own “cable, infrastructure and the end users”, but that the carrier can draw on its global expertise in IP.

“I think from our focus in the wholesale space, our AS1299 brings a real value and always ranks very highly [in the Renesys rankings] in every region,” says Pascucci. “I think we can bring products and services that the market is demanding. Trying to get into end user or retail services in Latin America requires huge investment and means going up against established players. But for wholesale, with the customers we have in Europe and North America, we can help them reach Latin America and the Middle East.”

New entrants into Latin America have nevertheless been few and far between in recent years, with the likes of Vodafone failing to penetrate the market. Jose Mercado, senior analyst at Pyramid Research, believes it is difficult for even Tier-1 carriers to compete against regional players which understand the market’s idiosyncrasies.

A more likely scenario, he says, is that Carlos Slim’s América Móvil will finally establish itself on the international stage. The Mexican giant has made strides in Europe, where it is the second-largest shareholder in Telekom Austria, and it is strongly rumoured it will acquire the company’s remaining shares from the Austrian government at some point this year.

Although, the company has experienced a less-than-spectacular start to life in Europe – failing in its attempts to take over Dutch operator KPN – Mercado says it is only a matter of time before it delivers in the region: “América Móvil performs well with operators that are financially struggling. They are very good at getting customers fast,” he says. “I think that Spain is its main target [in Europe]. Just as Telefónica went in to Mexico, I think Móvil will now go to Spain to compete with Telefónica in its domestic market.”

If América Móvil succeeds in the European market, it may also mark the company’s entrance into wholesale. Its attempts to expand globally seem even more likely considering the regulatory resistance it and other players are now facing in Latin America.

In Mexico, where its fixed-line division holds a staggering 80% share of the market, América Móvil was labelled a “preponderant economic agent” – the nearest politically correct gets to dominant – before the Mexican anti-trust regulator imposed a series of stringent measures on the company. This includes banning América Móvil from charging national roaming fees, enforcing the company to share its infrastructure with other operators, particularly in the local loop segment, and closely monitoring its interconnection fees.

Mexican regulators are not alone in fighting back against the regional dominance of Telmex and Telefónica. Colombia has also put in place a strong regulatory framework to encourage competition while Brazilian regulator Cade’s approval of a merger between Oi and Portugal Telecom will only enhance competition in that country’s market.

All of which indicates an era of more efficient regulation in Latin America.

Brazil’s balancing act

Likewise, there have been some encouraging signs that local content is growing in the region. For Internexa, which has deployed 28,000km of terrestrial fibre connecting seven countries in the region, this means it is starting to see its vision of a real Latin American internet coming to life.

The company’s CEO, Genaro Garcia Dominguez, says that intra-regional IP traffic between countries in Latin America is rising. The company has been working alongside CDNs to facilitate the growth of local content, and is now approaching media companies to locate more content in the region.

“We have established interconnections with other ISPs and content providers in the region in order to exchange content between countries, and not so that it transits via the US,” he says.

Garcia estimates that 50% of the capacity the company provides is now for inter-regional traffic. As a result of the increasing volumes of this traffic on its network, the company has begun upgrading segments of its terrestrial networks to 100G, and in March, received a 100G transponder from NEC for commercial operation in Colombia.

“We are preparing our network to support the growth in connectivity,” he adds.

Internexa has also made strides to extend its IP backbone, most notably in Brazil where last year it acquired NQT for a reported $88 million. The move gave Internexa access to a 2,700km fibre-optic network in Rio de Janeiro, while at the same time it has also been deploying a 4,000km fibre network in São Paulo state.

All eyes are of course on Brazil as it prepares to host the FIFA World Cup in June, followed by the Olympics in 2016. Garcia says his company’s involvement in the country is far more long-term than these two tournaments, but admits they will help drive traffic growth.

This is a view also shared by Neutrona Networks, which has encountered a mixed lead-up to the World Cup. The company specialises in helping carriers customers connect their Fortune 500 companies in Latin America, and had originally eyed the event as a major platform to grow new business. However, the company’s carefully laid plans did not quite come to fruition.

“We were expecting to prepare and price for the World Cup last year. The pricing came out at the start of March, which didn’t give us time to properly prepare the programme,” says Neutrona CEO Mateo Ward.

Carriers outside of the region, he claims, also encountered difficulties during the Confederations Cup held in Brazil last year, with many resorting to satellite connectivity for their broadcast customers.

Neutrona has since distanced itself from directly promoting its services for the World Cup, but has experienced an indirect growth in its enterprise business as a result of the tournament: “We did see over the last 18 months a huge growth in Brazil for large enterprises investing in their new offices,” says Luciano Salata, COO and president of Neutrona.

Subsequently, the company has launched five new PoPs across Brazil and made a multi-million dollar investment in its core network ahead of the World Cup.

Looking further ahead, Salata adds that “one of the best things that happened in Barcelona’s history was the Olympics, and hopefully the same can happen in Rio”.

For Brazil, and the wider Latin America, a pivotal two years lays ahead.

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