A state-owned operator enters the 3G market in Argentina

OVUM VIEW

Summary

The Argentinean government has cancelled an auction of 42.5MHz of additional spectrum in the 850MHz and 1900MHz bands it had designed in 2011, and assigned all the frequencies up for grabs to the state-owned operator Arsat. The move comes as quite a surprise, despite the delays to the initial schedule set out by the government. The award was initially expected to occur by the end of 2011, but was deferred first to 2Q12 and then to 3Q12, with five operators presenting applications. The decision may have been caused by a lack of clear alternatives, but it might not actually address the concerns outlined by the Minister for the Federal Planning in justifying his choice. Arsat is also involved in deploying a national fiber network, of which it will then be the wholesale reseller (and retail reseller in some areas), and its role should be made clear in order to avoid distortions in the market. The government should also ensure that more spectrum is made available for mobile services, given that no clear plans have yet been devised for the award of frequencies in other bands.

Some of the spectrum could still have been given to operators in the private sector

The Minister for the Federal Planning made a series of points in defending the unexpected decision to cancel the auction of the 42.5MHz of spectrum that Telefonica was required to return in 2005 following its merger with Bellsouth, and to hand out all those frequencies to the state-owned firm Arsat. He argued that existing monopolies had to be tackled, and that most of the companies that showed interest in the spectrum did not comply with the requirements of the auction rules, exempting only Claro from his criticism.

Given that the current allocation of spectrum across the three main operators is broadly even, it is fair to argue that assigning all the lots to Claro might have risked creating a monopoly. However, alternative approaches might also have solved the problem; suggestions include a partial allocation of the frequencies or a review of the 50MHz spectrum cap. Telefonica has already exceeded this cap, and Claro and Telecom Argentina are quite close to doing so as they hold more than 40MHz each. A review of the cap would also go some way towards helping the existing operators deliver a better service, given recent complaints related to poor service quality. The minister pointed out that networks are reported to be very congested in Argentina, especially in the most densely populated areas, and that network congestion seems to be high on the list of users’ complaints in the country.

The issue of quality is made even more pressing by the growth of mobile broadband in the country. Data connections now represent a significant portion of the mobile market in Argentina. There were approximately 6.3 million HSPA connections as of 2Q12, the number having more than doubled year-on-year for the second year in a row. In a statement of November 2012, the mobile operator Claro reported that 40% of its customers (which now exceed 20 million) use their mobile phones to connect to the Internet daily. It is clear that operators in Argentina will need more spectrum to increase the quality of their offerings and to launch new services in a growing market.

It is also noteworthy that a market which is characterized by three big operators, all exceeding a 30% market share in terms of subscriptions, is unlikely to see a fourth entrant arising and being able to bid for a vast portion of spectrum from the outset. Arsat itself will need time to make the necessary investment in infrastructure to deploy its network, which means that end users may have to wait for several years before they benefit from the government’s decision.

Arsat’s place in the market has to be made clear by the government

Arsat’s role in the Argentinean telecoms market seems to be expanding generally. When the government launched the broadband plan “Argentina Conectada” in 2010, Arsat was given the task of deploying a national fiber optic network that covered 97% of the population with connections of a minimum speed of 10Mbps. Once the network deployment is completed, the government’s aim is to turn Arsat into a wholesale access provider (Arsat-Articom) that will sell access to existing operators, SMEs, and local co-operatives. The new operator will also provide retail services in the areas where no operator is present.

The presence of a state-owned wholesale operator, which also turns into a retail operator in some areas, may not be a problem if retail services are provided by Arsat only where there is no alternative. However, the recent spectrum award, which represents approximately a quarter of the frequencies used for 3G in Argentina, may complicate matters due to the lack of clarity around the intervention of the state in the market. It is at present unclear whether Arsat will turn into a 3G retail operator, or instead into a wholesale supplier effectively acting as a host to MVNOs. The latter may be the preferable option as it would ensure that the retail market is still in the hands of private operators competing with one other.

Argentina should look to auction more spectrum for new services

Argentina appears to be behind other South and Central American countries in the allocation of spectrum for mobile services. Regulators and policy makers are yet to devise clear plans to award spectrum for 4G services, which will typically come from the “digital dividend” obtained by freeing up spectrum previously used for analog TV broadcasting. While the principle of technology neutrality has been in place since the launch of the Personal Communications Services (PCS) in 1996, the government has not yet allocated spectrum to mobile services in bands other than the 850MHz and 1900MHz ranges, which have been used for both 2G and 3G since 2007.

Argentina is now a mature market that is likely to be profitable for the latest mobile technologies, particularly considering the relatively low uptake of fixed services. The government should look to embrace a more proactive spectrum policy that allocates additional bands to mobile operators.

APPENDIX

Author

Luca Schiavoni, Analyst, Regulation

luca.schiavoni@ovum.com

Further reading

Colombia (Country Regulation Overview) (June 2012)

Brazil (Country Regulation Overview) (May 2012)

Argentina (Country Regulation Overview) (March 2012)

Mexico (Country Regulation Overview) (September 2011)

Disclaimer

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher, Ovum (an Informa business).

The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions, and recommendations that Ovum delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Ovum can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.