The past decade has seen mobile penetration rates increase dramatically as the adoption of technology continues to gather momentum. In 2012 the telecoms sector reached a milestone as the mobile penetration rate surpassed 100%, and 2013 saw another landmark event with its first major auction for 4G spectrum. However, the sector still faces several challenges, in particular the current mobile market dominance of Mexico-based América Móvil’s Claro unit. As a result, Colombia maintains one of the most concentrated telecoms sectors in the region. A study published by the Organisation for Economic Cooperation and Development found that behind Mexico and Ecuador, where markets are also dominated by Claro, Colombia has the third-most-concentrated mobile market in the region. Meanwhile, its fixed-line market has been in decline for years and faces a tough fight to regain a foothold.
MARKET BACKGROUND: The telecoms sector was liberalised in 1991, though it was not until the 2003 entrance of Telefonica’s Movistar that the mobile market began to take off. In just two years it more than tripled as prices dropped dramatically amid a renewed sense of competition. However, since then the market has become something of a one-man band as one carrier, América Móvil’s Claro, maintains a mobile market share estimated at 59.64% as of the first quarter of 2013. Now, with the administration and regulators prioritising the spread of telecom services throughout the country, several changes are being implemented to create a more competitive atmosphere.
The Ministry of Communication and Information Technology (Ministro de Tecnologías de la Información y las Comunicaciones, MTIC) is broadly responsible for the development of the sector. The Commission for the Regulation of Communications (Comisión de Regulación de Comunicaciones, CRC) is directly responsible for the regulation of services, while a third agency, the National Spectrum Agency (Agencia Nacional del Espectro, ANE), is as its name suggests responsible for auctioning and monitoring all radioelectric spectrum.
A REGIONAL PERSPECTIVE: In some ways the Colombian telecommunications market is a microcosm of the larger Latin American and Caribbean market. Its top two players in the mobile market, América Móvil’s Claro and Telefonica’s Movistar, maintain the same first and second market position, respectively, regionally as they do domestically. Furthermore, according to data from regional telecommunications organisation 4G Americas, in the third quarter of 2012 mobile penetration was just one percentage point below the regional average. In terms of data contribution to average revenue per user, Colombia’s 25% was also just two points below the regional average of 27%. In terms of tariffs, Colombia finds itself in the middle of the pack, despite Claro’s market domination. Mobile calls made within the same operator network were reported as averaging $0.14, above countries such as Chile ($0.11), Ecuador ($0.10) and Paraguay ($0.13), yet below Argentina ($0.34), Peru ($0.28) and Venezuela ($0.26). In terms of calls made outside operator networks, Colombia has the secondlowest average of $0.15 per call behind Paraguay ($0.13).
EXPANDING ROLE: Over the past decade, growth in telecommunications has outpaced that of the wider Colombian economy as services spread rapidly. From 2001 to 2011 the sector grew at an average rate of 7.46%, at a time when broader economic growth averaged 4.31%, according to data from the MTIC and the National Administrative Department of Statistics ( Departamento Administrativo Nacional de Estadística, DANE).
Much of the recent expansion in telecommunication services took place between 2005 and 2007, which posted annual growth rates of 12.47%, 16.78% and 15.71% – the only three years in which growth figures for the sector reached double digits. As a result of this expansion and development, its contribution to the wider economy has risen by a full percentage point from 2.16% of GDP in 2000 to 3.16% in 2011, according to the latest available data from the MTIC and DANE.
“Paradoxically, ICT is the only sector of the Colombian economy with zero unemployment, as there are difficulties filling the classrooms, and qualified engineers are scarce,” Alberto Samuel Yohai, the executive president of the Colombian Chamber of IT and Telecommunications, told OBG. “The MTIC has launched a series of initiatives to resolve the situation by scholarships and grants for students,” he added.
MOBILE PENETRATION: Since the introduction of mobile telephones in 1995, the compound annual growth rate of mobile users has been 44.66%, according to figures from the Colombian Association of Mobile Operators (Asociación de la Industria Móvil de Colombia, Asomóvil). This expansionary trend has manifested itself at varying rates. Though mobile penetration has grown immensely from 2000 when 5.68% of Colombians had a mobile phone, the period from 2003 to 2008 stands out for its particularly strong growth in mobile users. The latest available data from the MTIC show that by the end of 2012 mobile penetration stood at 105.3% with 49m registered users. Claro, as a brand name, entered the mobile market only in 2012 when Amé rica Móvil merged its fixed-line subsidiary Telmex with its former mobile unit Comcel. Claro is easily the largest local operator, with a market share of 59.64% as of first-quarter 2013. Movistar, which is 70% owned by Spain’s Telefonica and 30% by the government, has 24.83%. The firm is a clear leader in data services, with a share of about 50% in that market segment. The coming years could see Claro and Movistar in more direct competition. Tigo, majority owned by Millicom International (51%), had a 14.78% market share by firstquarter 2013, according to Asomóvil. In May 2013 a merger between Tigo and Empresas Públicas de Medellín (EPM)-owned UNE, which is controlled by minority stakeholder ETB (24.5%), was approved.
Mobile users are watching new laws in Congress.
Two initiatives are being studied to eliminate clauses in user agreements that require minimum time commitments to providers. Getting rid of the minimum commitments will impact the industry overall, increasing the rate at which new users can purchase technology and removing barriers to new devices. Since the country is preparing to launch 4G services, the legislation will facilitate access to tablets and smartphones.
LEVELLING THE FIELD: Claro’s market dominance extends outside Colombia, as it also has a strong hold on markets in Mexico and Ecuador. In Colombia, several strategies are being employed to reduce the firm’s market dominance – one of which will see Claro charged extra each time it accesses another operator’s network. Indeed, after months of pressure against Claro’s pseudo-monopoly, the government has reacted with the creation of asymmetric fields, which generates a COP30 ($0.02) benefit for minority operators every time Claro uses their networks. The benefit is to be invested in improving their supply and becoming more competitive. Expectations are that this measure will effectively reduce Claro’s market share, bringing it down from just under 60% to between 53% and 57%. Though asymmetric fields could have the greatest impact on Claro’s market share, several other changes have or will enhance competition within the mobile segment.
PORTABILITY: A law on mobile number portability (MNP), which allows users the opportunity to switch operators and maintain their mobile number, was passed in 2009 and implemented in 2011. Theoretically, MNP should increase competition as it unburdens customers of the hassle of having to change numbers when switching providers, thereby allowing them to choose whichever operator offers the best service.
During the first 12 months that MNP was available, 500,655 customers switched operators and maintained their previous phone number, according to the CRC. However, MNP has actually benefitted Claro, which saw net additions of 275,139 customers in the year following the new MNP law. Tigo followed closely with 137,755 additions. Movistar was the hardest hit operator, having lost 262,218 customers and gaining only 74,842.
However, the effect of MNP on overall market shares has been fairly negligible, as is evidenced by the contraction of Claro’s market share in 2011/12. Movistar’s has actually been able to retain a sizeable market share despite it losing a significant amount of customers.
THE VIRTUAL NETWORK: Another aspect that could provide a boost to competition will be the addition of mobile virtual network operators to the market. Virtual operators do not possess government licences to operate spectrum and instead buy spectrum wholesale from existing operators. Rolando Martínez, the head of Ericsson Colombia, explained that the entrance of virtual operators to the mobile market in 2013 could have a significant impact on competition, as they introduce new services and often lower prices. By the end of 2013 there will likely be seven mobile virtual network operators offering mobile and voice services. Uff! Móvil, UNE-EPM, Móvil Éxito, ETB and Emcali are operating off Tigo’s network, while Metrotel and Virgin Mobile have agreements to operate off Movistar’s network. Uff! Móvil, Virgin Mobile and Móvil Éxito are already operating. Virgin Mobile gained 1% market share from February to May 2013 thanks to its initiative of charging per second instead of per minute and to the control that users can exercise on data consumption due to a switch that enables or disables internet access.
Móvil Éxito focuses on a strategy based on fair voice service rates and customer loyalty, including promotions to users on their supermarket chains. Meanwhile, Uff! Móvil was the first virtual operator in the country and focuses on providing internet access to lower strata customers and promoting banking penetration, in association with the local Bancolombia.
SOURCING REVENUE: With fewer opportunities for new customer acquisition, mobile operators will need to look for new ways of increasing revenues. One avenue is the possibility to convert existing users from prepaid to post-paid subscribers. Despite the lower costs for services offered under post-paid plans, revenues are generally higher due to minimum usage requirements.
The latest MTIC figures show that in the first quarter of 2013 prepaid subscriptions accounted for 79.31% of the market. However, a shift from costlier (in terms of price per minute) prepaid services to post-paid services is ongoing. Since the first quarter of 2010 postpaid user penetration has increased, climbing from 15.76% to 20.69% in the first quarter of 2013, while prepaid users contracted each quarter falling from 84.24% to 79.31% in that same period. Converting subscribers to the post-paid model will likely be a fairly slow process that evolves alongside broader economic growth.
In the short term, the provision of new services and packages will drive increased revenues among operators. The bundling of services has become one such method. América Móvil’s merger of its formerly separated fixed and mobile subsidiaries was done in part so that the company could offer “quadruple play services” (fixed telephone, mobile telephone, broadband internet and television). Movistar likewise merged its fixed and mobile operations and could also soon offer quadruple play services. However, as mobile voice has been the main driver of growth in the sector in the past decade, so too will mobile internet and data provide the impetus for revenue expansion in the next one.
MOBILE INTERNET: With the mobile voice segment becoming increasingly saturated, operators are beginning to shift focus to mobile data services as larger proportions of users carry on subscribing to costlier data plans. Mobile broadband users have risen noticeably from 2010 to 2012 as subscribers more than tripled from 965,093 at the beginning of 2010 to 3.2m at the end of 2012, according to data from MTIC.
Unlike the mobile voice segment, Claro does not maintain a dominant market share in mobile internet. Movistar’s 47.72% market share from 1.63m subscribers was nearly double Claro’s 25.34% share from 866,272 subscribers as of the first quarter of 2013. It was closely followed by Tigo with 20.5% at 701,964 customers and UNE with 181,842 subscribers, enough for a 5.3% share. ETB holds an additional 1.05%, while Avantel has a negligible 0.02%. In the first quarter of 2013, of the country’s 3.4m mobile internet subscriptions 74.9% (2.56m) were held by 3G services, while 25.07% (797,365) were still running on 2G networks. However, the sector is now undergoing an upgrade in its mobile internet offerings with the recent 4G auction.
4G AUCTION: Following the auction of 4G spectrum in June 2013, which saw five operators acquire 225 MHz of 4G spectrum, 4G services are expected to be launched in all major cities by June 2014. The MTIC and CRC used the tender as an opportunity to increase competitiveness by limiting Claro to bidding for blocks on the 2. 5-GHz bandwidth (see analysis). Claro acquired 30 MHz at 2500 MHz, US-based DirectTV acquired one segment of 30 MHz and one segment of 40 MHz, while Movistar, the ETB-Tigo alliance and Avantel each acquired a frequency of AWS band, between 1700 and 2100 MHz.
INVESTMENT: Foreign direct investment (FDI) in the telecommunications sector began to increase in the first decade of the new millennium alongside broad economic growth, improved security and rising demand for telecoms services. According to MTIC figures, from 2002-07 annual FDI averaged $528m, the strongest year being 2005 when it reached $1bn. After consecutive years of subpar investment flows in 2009 and 2010, the communications sector in 2011, together with the transport sector, once again topped the $1bn mark, as $1.75bn worth of FDI poured in, according to the central bank. In 2012 the sector saw $2.02bn in FDI. A large part of telecoms investment in recent years has gone towards expanding infrastructure throughout the country as operators approach 100% coverage.
COVERAGE: Territorial coverage by mobile operators has extended to nearly every corner of the country. Asomóvil figures from the third quarter of 2012 show that full GSM coverage has reached 1109 (98.8%) of Colombia’s 1122 municipalities. Only five departments have yet to see 100% municipal coverage: Guainia (33.33%), Amazonas (90.91%), Bolivar (95.65%), Cordoba (96.67%) and Antioquia (99.2%). Coverage of 3G services has reached 1051 (93.67%) municipalities. Therefore, MTIC’s goal of attaining 100% municipal coverage of 3G services by the end of 2014 appears within grasp. At the same time as mobile coverage and users continue to expand, a ray of hope may have just become visible in the shrinking fixed-line segment.
FIXED-LINE: Fixed-line usage has been in decline for several years now. From 2010 to 2012 the number of lines declined 15.5% from 7.35m to 6.2m, according to the MTIC. However, after seeing fixed-line subscriptions fall 12.89% in a single quarter, from the fourth quarter of 2011 to the first quarter of 2012, the fixedline segment finished strongly at the end of 2012 and saw a slight increase to 6.3m in the first quarter of 2013.
While it is far too early for such a change to indicate a reversal of fortune in the fixed-line segment, there are several factors working in favour of its revival. First, as the bundling of services becomes more popular, fixed-line services will likely see some support from internet, mobile and television services offered in conjunction. Secondly, the fixed-line market is far more competitive than the mobile market.
With more than 30 fixed-line operators, some of which are powerful regional operators, the segment is home to private, public and mixed ownership companies with the top market share belonging to the Bogotá Telephone Company, owned by ETB, which had 26.1% in the first quarter of 2013. As in the mobile market, Telefonica maintains the second-largest market share with 20.2%, followed by Medellín-based UNE EPM (18.32%), América Móvil’s fixed-line unit Telmex (14.8%), Emcali (6.31%) and EDATEL (3.18%).
OUTLOOK: Efforts by the MTIC, CRC and ANE to level the playing field should prove successful in increasing the competitiveness of the mobile segment overall, though it is likely that Claro will maintain its dominant market share in Colombia over the short to medium term. However, tariffs are not significantly higher relative to regional averages and in some cases they are much lower, as is the case with average tariffs for calls made outside of an operator’s network. The future battle among telecoms operators will mostly take place in the mobile market, specifically within the data segment, where growing demand for 3G and 4G services continues to have a major role in overall revenue streams.
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