Maximizing Investments in the Fixed and Mobile Segments

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(No Transcript)
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Key Points

• Sector overview
• Liberalization and technology propel rapid
  growth
• The sector since 2001
• Regional recession meets the global telecoms
  meltdown
• Current developments
• Market trends reflect a maturing sector
• Market significance
• Impact of current trends on international
  traffic flows

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The sector in the 1990s
Liberalization and technology propel rapid growth
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Privatization begins in the late 1980s

• 1988 Chile privatizes fixed line monopoly
• 1989 Mexico issues Band A and B cellular
  licenses
• 1990 Argentina and Mexico privatize state run
  monopolies
•  
• 1991 Venezuela privatizes state run monopoly
•  
• 1994 Peru privatizes state run monopolies
• 1998 Brazil privatizes telecoms monopoly
  Telebras and issues
• competing Band B cellular licenses
• 2000 Privatizations begin in several Central
  American countries

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• Market liberalization follows
• 1995 Mexico passes telecoms law opening sector
  to competition
• 1997 Brazil passes telecoms law and creates
  regulator Anatel
•  
• 1998 Peru opens telecoms market to full
  competition
• 1999 Brazil sells local and long distance mirror
  concessions
• 2000 Argentina and Venezuela open telecoms
  industries
• Peru sells PCS license
• 2001 Brazil sells four PCS licenses
• Bolivia opens up long distance
  market
• 2003 Panama and Jamaica open up fixed line
  markets

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And is joined by a global revolution in
telecommunications technologies.

• 1980 IBM begins assembling a team to design the
  PC
• 1983 Motorola's DynaTAC cellular system begins
  operation
• 1988 The first optic fiber is laid across the
  Atlantic
• 1991 The World Wide Web is born
• 1994 Netscape launches its first Internet
  browser
• 1998 Nokia introduces 2G mobile handset
• 2003 Hutchinson launches 3G services in Europe

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All this lets Latin America tap into the global
telecoms investment boomTotal equipment markets
for 7 largest markets USbillions
Types of Equipment Included Switching, Access
Networks, WLL, Terminals, Transmission, Local
Cable, Data Networks
Source The Strategis Consulting Group
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The inflow of investments has led to the rapid
uptake of telecoms services
Consolidated figures for top 5 markets
Argentina, Brazil, Chile, Mexico and Venezuela 
Source Regulators and BNamericas
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Assessing liberalization Most countries now with
some competition

• The privatized incumbents (ILECs) remain dominant
  operators but face stiff competition in the most
  lucrative market segments
• Long distance markets among the most open, with
  the largest number of players
• Most large markets with at least three mobile
  operators per concession region
• Playing field even more competitive with other
  new technologies (ISP, datacoms markets)

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But telecoms policymakers and regulators still
have much work left to do

• Privatization was the easy part
• Enforcing a regulatory regime that promotes
  competition and investment is the big challenge
  now
• Stubborn persistence of high costs
• Many regulators have yet to master the mediatory
  role they must play in negotiations for
  determining interconnection and access rates
• 3G mobile spectrum allocation and harmonization
  of regulatory codes are in the horizon

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The sector since 2001
The global telecoms meltdown coincides with a
regional economic recession in Latin America
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Latin American markets fall into recession

• Regionally, LatAm GDP growth fell from 4.0 in
  2001 to 0.1 in 2002

Sources Economic Commission for Latin America
and the Caribbean (ECLAC), Dresdner Bank
Lateinamerika AG
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And the negative trend accelerates after 2000
Source Economic Commission for Latin America and
the Caribbean (ECLAC)
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Just as the global telecoms sector sinks

• The NASDAQ stock market loses more than 60 of
  its value since peaking in 2000.
• European telecoms companies write off billions of
  euros in overspent 3G licenses
• Many of the biggest companies in the global
  telecoms sector post record losses in 2002
• Other big players forced into bankruptcy, while
  many more forced to restructure massive debts

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MA activity slumps significantly

• In 2000 MA volume for the telecoms sector alone
  was US32.5bn

Source Thompson Financial, Latin American
Research Group
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As carriers retrench and shift focus to
consolidating existing operations

• Telefonica drops plans for pan-regional footprint
  and places focus strongly on Mexico and Brazil
• Telecom Italia announces desire to leave fixed
  line segment and concentrate on mobile
• Several operators (BellSouth, Verizon,
  Centennial) sell off non-core operations in Latin
  America
• 2002 PCS auctions in Colombia and Ecuador fail to
  attract international bidders despite low prices

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Large scale deals fall out of style as carriers
concentrate on strategic acquisitions

• Telefonica acquires Pegaso PCS to obtain
  nationwide footprint in Mexico
• Brazilian mobile operations consolidate as
  BrasilCel JV acquires Tele Centro Oeste and
  America Movil buys out Telecom Americas and takes
  BCP Nordeste
• But AMX did NOT buy BCP, BellSouth Chile or
  Telecom Argentina, contrary to rumors
• Brazilian fixed line incumbents Telemar and
  Brasil Telecom sweep up smaller data operators

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The sector in 2003
Market trends reflect a maturing sector
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Carriers are cutting capex as networks are in
place and the pressure rises to gain profits
2500
2844
Source Operators and BNamericas all figures
based on 1/1/2003 exchange rates
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But profits are being hit by a rising gap between
currency depreciation and inflation
Source Currency macroeconomic data and Dresdner
Bank Lateinamerika
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Debt position is key to currency vulnerability

• Carriers can cut back on foreign currency
  equipment purchases when domestic currency is
  weak
• But they are obligated to make debt repayments

Source Operators 4Q02 financial statements
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And many carriers are restructuring their debt.

• Some act out of necessity
• Telecom Argentina to spend up to US305mn to buy
  back debt through cash tender offers
• Alestra shareholders to pay US80mn to buy back
  debt and restructure maturities
• While others simply seek to improve their
  structures
• CTC to extend a US150mn loan due 2003 for
  another 4 years
• Entel Chile carries out US150mn bond issue in
  February 2002 as part of initiative to
  restructure debt term
• But mega-bankruptcies are on the way out
• WorldCom, Global Crossing, NII Holdings and
  Impsat captured headlines in 2002 as the worst
  days of the crisis hit home

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Restructuring may help control costs and allow
for operational flexibility

• A sample of Latin Americas biggest telecoms
  bankruptcies Global Crossing, Impsat, NII
  Holdings and Chilesat have all emerged with clean
  balance sheets and aggressive market strategies
  after restructuring in 2002
• While debt-laden players such as BCP and Telecom
  Argentina are forced to operate conservatively
• But cost control is not enough To improve
  profits in an evolving market carriers must
  identify and capture the emerging high growth
  segments.
• So what are the trends across the different
  segments?

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Local service revenue growth is tapering off
Source Operators and BNamericas
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And long distance revenues are slumping
Source Operators and BNamericas
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Mobile sales growth continues at a steady rate
Source Operators and BNamericas
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And data and Internet services continue to grow
Source Operators and BNamericas
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Consolidated market figures show that mobile and
data are clearly on the rise
Source Operators (Cantv, CTC, Telcel, Telemar,
Telmex, Telesp Celular) and BNamericas
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Mobile and data service revenues continue to grow
despite the economic recession
Source Operators (Cantv, CTC, Telcel, Telemar,
Telmex, Telesp Celular) and BNamericas
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These emerging trends are expected to continue
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Carriers are recognizing the new opportunities

• Fixed line and cable operators are betting on
  ADSL and cable modem technologies and investing
  heavily to market residential broadband services
• Versatile fixed wireless access (FWA)
  technologies being adapted by carriers across the
  region
• Datacoms operators continue to expand their
  portfolio with new data applications
• Internet Protocol (IP) technology continues
  expansion and Voice over IP services make inroads
  into LD market
• Wireless LANs begin deployment in Brazil 1Q03

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Mobile operators are gearing up for 3G

• SMS traffic takes off after carriers establish
  interconnection in Venezuela, Chile and Peru
• GPRS operators launch MMS in four countries while
  3G CDMA 1xEV-DO and BREW debut in Brazil
• America Movil announces plans for 2.75G EDGE
  technology in three countries
• M-commerce takes off in Sao Paulo and other major
  Brazilian markets in 2002
• Operators expect data services to go from 2-3 of
  revenues today to gt10 by 2005

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Making a clear bet on data applications

• Business IP VPNs, inventory checks, orders,
  company directories, GPS and telemetry
• Entertainment ring tones, digital cameras,
  games
• Community chat, e-mail, TV and radio contests,
  text and multimedia messaging, Wi-Fi access, VoIP
• E-commerce payments and purchase of metro
  tickets, soft drinks, cinema tickets, dollars,
  and stocks
• Information news, sports, finance, status of
  bank account, stock trades

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Market significance
Impact of current trends on international traffic
flows
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Growth in international traffic is being driven by

• Economic growth
• Consumption of traditional local and long
  distance services are strongly tied to economic
  growth an economic recession is bad news for
  these segments
• Mobile services are steadily moving toward this
  category as the mobile market reaches saturation
  in many countries
• New technologies
• New technologies create new markets
• And may consume greater amounts of bandwitdth
• But new services can also cannibalize existing
  markets

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Questions for discussion

• What does the emergence of data and Internet
  services and the eventual dominance of wireless
  data mean for carriers and international
  network operators?
• Will the ratio of residential versus business
  consumption of data services play out similarly
  in Latin America?
• What implication does the emergence of data and
  value added services have for carrier bandwith
  demand? How will this affect interconnection
  negotiations?
• How can international carriers of traffic hedge
  against economic volatility?

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Contact Information
David Gates Editor Technology
Services dgates_at_BNamericas.com Business News
America Ltda. Carmencita 106 Las Condes,
Santiago, CHILE Tel [phone] www.BNamerica
s.com