One year on: how Latam’s telcos are coping with Covid

26 April 2021 | Tomás Sarmiento and Georgia Jordan

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Tomás Sarmiento and Georgia Jordan

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With five major regional groups, the Latam region is facing lower revenues year-on-year, but the demand for infrastructure continues to grow. Tomás Sarmiento and Georgia Jordan, research analysts for Kagan, the media research unit of S&P Global Market Intelligence, explain.

Region-wide telecommunications groups in Latin America saw lower year-over-year revenues in 2020 amid consumer spending weakness due to the Covid-19 pandemic. The operational outlook for regional players is positive, however, as most have quickly recovered from customer losses suffered in the middle of 2020 – when pandemic-related stay-at-home orders and business shutdowns first hit the region –– finding a path to recovery and repositioning that Kagan expects to extend throughout 2021.

Latin America’s five regional telecommunications groups – AT&T, América Móvil, Millicom, Liberty Latin America and Telefónica – saw total revenues expressed in US dollars decline 14.5% year-over-year in 2020, hurt by losses in mobile telephony and pay TV subscriptions as well as by a reduction in mobile prepaid top-up rates and by discounts on premium sports TV packages due to event cancellations, which mainly impacted results in the second quarter.

The groups’ revenue declines were aggravated by currency depreciations throughout the region. By contrast, Netflix reported a 12.9% revenue increase in the region over the same period, highlighting the growing popularity of streaming services as an alternative to pay TV bundles.

The companies saw fixed revenue generating units (RGUs) – which include fixed broadband, telephony and pay TV – decline 4.4% year-over-year to 133.3 million in 2020, according to Kagan estimates. Meanwhile, mobile subscribers increased 3.1% to 480.8 million.

A severe economic contraction, estimated by the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) to have reached 7.7% during 2020, affected employment and purchasing power across the region. That likely drove Latin Americans away from traditional, more expensive fixed bundles and toward more focused offerings, such as internet-only packages. For 2021, ECLAC projects a 3.7% economic recovery across the region, which could accelerate recovery for telecommunication services.

Telefónica, AT&T worse off

Among the five regional groups, AT&T and Telefónica were the hardest hit during the year. AT&T saw continued disconnections in its signature DIRECTV satellite pay TV services, a platform that has been losing favour for several years in Latin America as well as in the US. Meanwhile, Telefónica continued its ongoing strategy of divesting from most of the region, leading it to exit most Central American markets and spin off its remaining Latin American assets, except Brazil, as well as strategic wholesale fibre networks.

AT&T’s fixed connections declined 17.9% to 10.9 million during the year, while Telefónica lost 10.3% of its fixed-line RGUs to end the year with 32.7 million, according to Kagan data. Most of Telefónica’s losses centred around legacy technologies such as fixed telephony, digital subscriber line (DSL) broadband and satellite pay TV, as the company repositions its fixed operations to focus on higher-value fibre-based services.

On the flipside, Millicom and Liberty Latin America reported 4.9% and 2.3% yearly fixed RGU growth, respectively, in 2020. Both groups have been on a regional expansion path since 2019, with the acquisition of several competitors, including Telefónica’s Central American operations. Meanwhile, América Móvil, the leading regional operator in both fixed and wireless connections, reported a 0.6% decrease in fixed RGUs in Latin America during the year.

In mobile, where operators concentrated most of their subscriber and revenue losses in the second quarter of 2020 due to the initial impact of quarantine measures, new additions rapidly recovered. Only AT&T reported annual subscriber losses in the region, coming from its Mexico operation.

América Móvil CFO Carlos Garcia Moreno said during the company’s fourth quarter earnings call that the recovery had already started in 2020. “By the end of the year, we had fully recovered our prepaid (mobile) base, the one most affected by the pandemic, which had several sharp reductions in the second quarter on account of the restrictions on mobility and on the functioning of our commercial services,” Moreno said.

Broadband in the spotlight

In 2021, Kagan expects Latin America to see an emphasis on fixed broadband growth, likely driven by more users requiring higher-speed connections to continue working from home and to take advantage of the increasing availability of over-the-top video services such as Netflix and Disney+.

In its outlook for Latin American multichannel and broadband markets, Kagan projected the region’s residential fixed broadband subscribers to expand by 5.6% to 91.1 million in 2021, a much faster pace than pay TV’s expected growth of 0.3% to 69.0 million subscribers in the same period. In mobile, Kagan forecasts subscribers in the top six Latin American markets to grow 0.2% to 550.9 million in 2021.

Fibre-optic connections are driving growth in broadband. Many operators and incumbents are migrating legacy DSL networks to fibre to the home (FTTH). Kagan forecasts FTTH broadband to grow 21.9% in 2021, reaching 30.9 million subscribers by the year’s end, while DSL continues to lose customers.

Although operators sought to reduce costs during 2020, preparing for unfavourable economic conditions in the wake of the pandemic, they have also reaffirmed their investment plans for fibre and 5G expansion in the region. América Móvil plans to use fibre for all new greenfield coverage expansions, and Telefónica has been seeking investment partners to finance fibre growth through the partial sale of its networks to operate as neutral networks.