As operators strive to enhance their offers in a growing array of services, the telecommunications market is going through intense growth. Investing heavily on infrastructure deployment to improve service quality, government bodies and private operators are pushing for the development of the sector. Increasing convergence of telecommunications services is prompting the rise of triple play. Growing numbers of mobile internet users are creating demand for new products and services, and adding on to investment opportunities for telecommunications operators, equipment providers and content developers. Challenges remain, though. The market is dominated by one large operator, América Movil’s Claro. Despite existing legal tools, which can be used to dilute the excessive weight of the biggest competitor in the market, the sector regulatory bodies remain weakened by institutional structures and excessive proximity to the central government.
Much dynamism has come from the introduction of 4G services, for which five operators won licences in the 2013 government auction, and several companies have already started commercialisation of new 4G offers. “Once the 4G spectrums are fully implemented the consumer will enjoy extremely advanced mobile data services. Data loading will increase up to 50 times today’s loading levels, allowing consumers to access up to 50 MB of data loading while currently it goes from 1 MB to 4 MB. Mobile voice services will stop undergoing the saturation levels that exist at this time,” Juan Carlos Archila, president of Claro, told OBG.
Market Structure
Introduction of 4G is the latest step in a market that has been moving swiftly. Growth was triggered by liberalisation in the 1990s, and later accelerated by the passing of the 2009 Telecommunications Law, which not only established the need to expand telecommunications services as a priority but also designed a set of levers to regulate operators.
The telecommunications sector achieved revenues of $13.9bn in 2012, compared to a total of $2.6bn in 2000, according to figures from the OECD. The Ministry of Communications and Information Technology ( Ministério de Tecnologías de la Información y las Comunicaciones, Mintic) oversees the sector, in combination with the Commission for the Regulation of Communications (Comisión de Regulación de Comunicaciones, CRC), which regulates services. In addition to these, the National Spectrum Agency (Agencia Nacional del Espectro, ANE), is in charge of managing the spectrum and auctioning of licences to operators.
Competitive
Foreign and domestic investment has been channelled to the sector, which has more than 10 competitors. Prominent market players, América Móvil and Telefónica, are multinational telecommunications companies, offering a full range of services in the market. Telefónica operates through its brand Movistar, which is 30% government-owned. The third operator, Millicom’s Tigo, competes in mobile telephony and internet. As an indicator of a potential consolidation trend, Tigo is set to merge with the fourth operator, state-owned UNE. The merger, approved by the competition watchdog, is well poised to combine strengths in both companies, as Tigo is the third mobile operator in terms of market share, and UNE is well positioned in internet services and cable television. In light of the merger, though, the resulting company will have to return some of its spectrum back to the government, as Tigo and UNE combined would have 135 MHz of spectrum, above the maximum 85 MHz allowed to any one provider.
Other companies compete regionally. ETB, 84.7% owned by the Bogotá municipality, offers fixed-line and internet services, as well as mobile communications as a mobile virtual network operator (MVNO). Emcali, which is 100%-owned by the Cali municipality, offers fixed telephony and fixed internet services. Operating through Telefónica’s network, Virgin Mobile launched its own MVNO operation in Colombia in April 2013. Another MVNO, Uff, is 70% owned by Bancolombia and offers mobile communications and internet.
Besides the UNE-Tigo merger, there have been other signs of increasing convergence, as competitors Ministry of Telecommunications added new service quality demands with the renewed concessions, leading to restrictions on sales to new customers if conditions are not met. Furthermore, the ANE recently announced it will auction more frequencies in 2015.
Mobile Communications
Service quality has become an integral part of regulatory supervision, with a number of fines being issued for operators (see analysis). This attests to the increasing importance that mobile communications have, with mobile phone services accounting for 40% of sector revenues. According to Mintic figures, in the fourth quarter of 2013 there were 50.3m mobile phone lines in Colombia, which represents a penetration rate of more than 100%. Claro remains the dominant player in the mobile sector, accounting for 57.61%, according to fourth quarter 2013 figures by Mintic, followed by Telefónica’s Movistar, which entered the market in 2003 and now has a 24.1% share. The third operator, Tigo, has 15.19%, as of the fourth quarter of 2013. Pre-paid mobile customers make up 80% of the market.
In a decision which came into effect in June 2014, Mintic has forbidden operators from locking consumers into mobile communications contracts by subsidising handsets. Consumers will now be able to switch operators or upgrade their handsets if they pay a fee. For Santiago Pardo Fajardo, vice-president for regulatory matters and institutional relations at Claro, the decision to ban permanence clauses and subsidising of mobile phones will hurt the expansion of 4G services, “as some people will not be able to pay for the normal price of the more advanced handsets”, he told OBG. However, this might also bring added competition to the smartphone market, which has been moving fast in Colombia. “People still want smartphones but with the new rules, they will just settle for the cheaper ones,” Carlo Villamil, category manager at Tigo, told OBG. In 2013 Colombia was considered the fastest-growing smartphone market by Flurry, a mobile applications firm, with 278% year-on-year growth in January 2013.
Fixed-Lines
In direct contrast with mobile expansion trends, the number of fixed-line subscribers has been stagnant, with 15.2 lines per 100 inhabitants, according to fourth-quarter 2013 Mintic figures. This is a low figure compared not only to OECD norms, but also with most Latin American neighbours. Despite this, there was marginal growth of 0.9% in the number of fixed-lines between the third and the fourth quarters of 2013. Similarly to other growing economies, the reduction of fixed lines in Colombia can be explained by the rise of mobile communications and a substitution effect. Major fixed telephony markets remain aligned with major population centres. Some 55% of fixed subscriptions concentrate on Colombia’s three main cities, Bogotá, Medellín and Cali, according to figures by the OECD.
Fixed-line communications have typically had a high degree of government participation, mostly due to the conditions before liberalisation in 1993, with regional or municipal authorities in charge of regional utility companies. The fixed-line market has a total of 21 competitors, some of which derive most of their market share from specific regional presence. The biggest player is Bogotá-based ETB. The company accounted for 24% of market share, according to third-quarter 2013 figures by OECD, followed by Spanish operator Telefó nica which operates country-wide and has 20% of the market. Empresas Públicas de Medellín is the third fixed-line operator at 17.7% of market share. Regional telecommunications operator América Móvil, which is market leader in the mobile segment with Claro, has a 16% share of the market.
Additional potential growth is sure to come from the bundling of fixed-line communications with mobile services, internet provision and pay-TV. Triple and quadruple play opportunities are being enabled by government efforts to expand the nation’s fibre-optic network. “The government’s plan for the fibre-optic cable is to reach 95% of all towns in the country and it has done a good job at achieving that,” José Alberto Escalante, a sales manager at Grupo Unión, an engineering solutions company working with the telecommunications sector, told OBG. “This is a new step for Colombia because the use of tablets, smartphones and other mobile 3G consuming devices are weakening the bandwidth,” he added. “With major cities connected, all that is left to do is extend the lines to homes, but that decision depends on each operator.”
Increasing Competition
For infrastructure deployment to have the desired effect, a more competitive environment is needed. As the OECD states in its 2014 review of telecommunications regulation in the country, “Colombia has a very concentrated mobile market, and the largest mobile network operator has a similar market share (about 60%) to that of the largest mobile operator in Mexico (69%) and in Switzerland (59.4%), both with the largest shares in the OECD.”
In 2013 Claro recognised that asymmetrical interconnection fees imposed on the company by CRC in January 2013 were having an impact on profits. Another measure banned Claro from charging differential on-net and off-net rates to consumers. It is still unclear how these measures, coupled with other recent regulations, will impact the market in Colombia. “I do not foresee all the operators who compose the market surviving unless substantial changes occur in the regulation. If the core structure of the market is not changed, we will witness how one operator continues to keep most of the market and the five others struggle to survive,” Esteban Iriarte, the president of Tigo, told OBG.
Regulatory Framework
The sector’s regulatory structure is made up of two different entities. Mobile and fixed communications as well as internet provision fall under the CRC, while paid-television operations fall under the National Television Authority. In 2009 the telecommunications market received a clearly defined market framework through the 1341 Telecommunications Law, which created the necessary instruments for regulators to deal with situations of market dominance. Despite this, the market remains concentrated. Much of it has to do with the nature of the telecommunications regulatory body. Despite having the necessary legal tools to act in the market, through asymmetric legislation, for example, regulating power is weakened. Contrary to other countries, where sector watchdogs are autonomous, Colombia’s CRC is under Mintic, which has the enforcement and sanctioning power over the industry’s operators. Furthermore, by not having a fully autonomous regulatory authority for the sector leaves it exposed to potential political meddling. An example of this is given by the fact that members of the government are allowed to serve as commissioners at the CRC. In a report on Colombia’s telecommunications regulatory framework published in 2014, the OECD underlines this as especially worrisome, considering the fact the government has a considerable share in the second biggest operator in the country, Colombia Telecomunicaciones, which owns Movistar.
Another regulatory challenge derives from the separation of telecommunications services and paid-television provision under two different authorities. With operators bundling offers, a regulatory oversight combining the two businesses would make market regulation more agile. Easier bureaucracy for infrastructure set up would also do much to raise service quality and coverage. In some areas, local regulations prohibit mobile communications antennas in residential areas, making it hard for operators to offer services.
The sector has proved its important role in the general economy, and the growth levels of the past years have raised connection levels. However, in order for growth to equate to better quality, certain competitive measures will need to be implemented to reduce the prominence of the biggest operator. Existing regulatory tools can curb market dominance. However, this mandate needs to be centralised in a single institution. Service quality, especially outside major cities, will also depend on easing infrastructure deployment. Better coordination between central government and regional authorities could facilitate the establishment of antennas and telecommunications towers in Colombia’s rural areas to enhance coverage. This will be especially important as 4G services become more prevalent.
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