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Industry News

Excerpt from Yankee Group Report: WiMAX Is in Latin America to Stay

February 21, 2008
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Broadband use in Latin America is one of the lowest in the world. According to Yankee Group's Latin America Consumer Market Adoption Monitor & Forecast, only 3.3% of the general Latin American population has a broadband connection.

This lack of connectivity is drawing more attention from governments, non-governmental organizations (NGOs) and operators as it inhibits the rate of overall economic growth and development because of the strategic importance of connectivity to the global economy.

Currently, the biggest demand for wireless broadband solutions comes from the high-end midsized market, corporations and to some extent SMEs with high-tech needs. Some of the earliest entrants into this niche now have been offering services for several years. At the same time, many of the companies now entering this market starting with the mobile standard have designed packages for the enterprise market as well.

However, there is pent-up demand in areas that currently lack access to developed wireline networks. Being able to install a few base stations and offer access to an area that has not seen such an offer is widely seen as another opportunity for WiMAX. However, these areas are generally not developed since they don't offer the same return on investment as in higher density areas. Getting the needed end-user equipment, even the basic elements such as a computer, but also operator-endorsed CPE is also a challenge and must also be complemented by programs that provide education and training to actually make use of new connectivity.

Furthermore, high copper prices mean increased cost for laying down new wireline networks. And more importantly for Latin America, the soaring price has also spawned a thriving illicit industry that has paralyzed landline networks in some areas costing operators millions. This gives new grace to the option of installing a wireless network.

Another area that needs to be addressed is that competition for consumers is limited by an incumbent's grip on the local loop infrastructure. Local loop unbundling has not been as great a success as hoped for in the US, and Latin American regulators have been reluctant to implement it. WiMAX allows new entrants to the market and bypass the incumbent's infrastructure altogether. Decreases in prices of CPE and a wider array of compatible devices would speed the process.

Drivers of Change

Increasing broadband penetration has gained momentum as a political platform and key point for overall development in the region. For instance, in Mexico broadband connectivity is one of the key metrics in President Felipe Caldern's 2007 to 2012 development plan. WiMAX in particular is listed as a key ingredient to bring connectivity to new regions.

The Mexican government is planning to auction spectrum for WiMAX with two business models in mind for the use of the spectrum: last mile connectivity and as an alternative to fiber-optic transport networks.

Additionally, the availability of web-based tools both for consumers and businesses means more interest in acquiring a service provider package that can mix these elements. WiMAX operators are in a much better position to harness IP benefits, both in terms of ease of technology usage and cost of deploying the services.

There a number of key countries with plans to auction WiMAX spectrum to promote a greater penetration of high-speed internet services. The exhibit above shows where these developments are taking place and what will be offered to the market.

Inhibitors of Change

Despite all the good will from the Mexican government toward extending the benefits of broadband to new areas, Mexico is also a perfect example of some of the factors holding back the technology's development. Regulatory issues continue to dog the uptake of WiMAX, especially in relation to the availability of spectrum in adequate bands.

Mexico's telecom regulator Cofetel has been debating how to proceed in this arena for several years. In early 2006, the regulator was planning to set aside certain frequencies in the unlicensed bands of 900 MHz, 2.0 GHz and 5.0 GHz, and leave the 3.6 GHz to 3.7 GHz bands for concessionaires. However, the plan was eventually dropped that same year with little public explanation.

In the beginning of 2007, the regulator announced its plans for the 3.4 to 3.6GHz bands, but the process has been slow to move forward. The plans are working their way through the complicated bureaucracy of the regulator Cofetel, the communications and transport ministry SCT and other watchdog agencies such as the antimonopoly commission and the regulatory reform commission.

However although Mexico's situation is complex and could very likely see further delay, Brazil has also had a series of problems associated with WiMAX auctions as lengthy as in Mexico. The regulator Anatel planned to launch an auction for the 3.5 GHz and 10 GHz bands in September 2006. However, a series of problems in the billing rules was detected and the auction has been on hold every since.

Even when spectrum has been put into the hands of an operator, regulatory and legal problems have pushed back the launch of services. In Chile, this occurred after WLL licenses were granted to Telmex and cable triple-play operator VTR. Although the licenses were awarded in December 2005, their use was delayed by a lawsuit from Telefonica Chile, which claimed Telmex and VTR received preferential treatment.

Unclear regulator language or outdated rules that try to put WiMAX into a category similar to fixed-line telephony are also problems that distract the efforts of a regulator.

Another key metric that for now is holding back WiMAX's development in Latin America is a limited access to computers for many throughout the region. This significantly lowers the potential market especially for fixed and nomadic services, where a computer is one of the most important elements. Additionally, the needed CPE to facilitate greater WiMAX penetration is still sparse, especially when looking at mobile devices.

On that same point, many Latin American consumers lack the needed spending power to take advantage of WiMAX services, which generally cost more than DSL or cable broadband options. The majority of WiMAX offers today target the corporate market, thus featuring faster, more symmetric downlink and uplink speeds and a low ISP reuse policy, thereby increasing the cost of delivering the service.

Market consolidation is also an issue. A high amount of the region's telecom services come via only a handful of operators with complicated management hierarchies and a regional, not country-by-country basis for decision-making. This means these large operators tend to move in a regional direction and apply similar policies across the board. This makes for a tougher entry for new technologies, but could provide an opportunity if, for example, Telmex's WiMAX plans turn out to be a success.

Competition is also a factor. Even though most markets have seen a full liberalization, there exist some examples of monopoly or quasi-monopoly situations. Although this is slowing WiMAX uptake, it is not completely limiting it, as ICE's decision to roll out WiMAX as the Costa Rica's monopoly fixed-line carrier shows.

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