LATAM Telecom

Ten years in the high tech industry is a long time, but it helps to to look back at where we were ten years ago and how the markets have evolved to better understand where we are going in 2010.

This is not meant to be an in depth article but rather a collection of bits and pieces from my experience and personal observations about the trends I am seeing in the region. So without further ado here are my top predictions for the LATAM market in 2010:  

(1) The economic environment and increased competition will put additional pressure on technology vendors.

During the last ten years, LATAM operators made huge investments in network infrastructure to meet growing demand and to incorporate new technologies. However, the economic downturn is forcing them to watch CAPEX spending closely and to do more with existing footprint.

The economic downturn will continue to affect CAPEX decisions; in addition to this, increased competition and changes in the relationship with mobile operators are putting additional pressure on technology vendors.

Increased competition is commoditizing network infrastructure, driving prices and margins down significantly. Vendors like Huawei and ZTE have gained market share in Latin America, winning important bids for network infrastructure. Traditional vendors like Ericsson and Comverse are reconsidering their presence and strategy for the region.

(2) New technologies in cloud computing will change the relationship between technology vendors and operators

Network operators have traditionally based their economic and business models around infrastructure CAPEX and ROI. This is understandable considering that entrusting operations to a cloud environment can be a risky endeavor and service reliability is a top priority for them. However, 'enterprise-grade' services are a reality now and 'carrier-grade' cloud services cannot be far behind.

Just six months ago, we wrote about Telefonica's launch of Personal Instant Messaging in the region (Telefonica Movistar (finally) moving in with SMS 2.0 in Latin America). This announcement was relevant not just because it's the first launch of this service in the region, but also because it is planned as a centralized, hosted solution.

Operators and technology vendors have tried for the last decade to come up with a business model that will allow them to deploy solutions without heavily investing in infrastructure, minimzing the market risk and allowing them to co-participate in a revenue share scheme with technology vendors.

What is needed now, however, is a business model that will result in a win win situation for both parties. So far, most attempts have been unsuccesful with either party having to invest heavily in infrastructure, marketing or both. Cloud based applications, however, can be the last piece of the puzzle for these initiatives, allowing for a demand based pricing solution.

This will require, however, changes in the way operators conduct business. This will require a restructuring of the VAS organization to a more simplified model, since CAPEX will no longer play a major role in the decision process. We can expect the decision process to be more customer centric.

(3) Advances in technology and changes in the customer base will drive demand for new services and applications.

As mobile market penetration reaches saturation in the region, new opportunities will open up. Revenue growth from traditional services -voice and SMS- have flattened in the last few years and operators are looking to increase ARPU through Value Added Services.

New technologies that allow managed services will affect operators' VAS offering, opening up opportunities for new players that will be able to provide services to giants like Movistar and America Movil.

In a similar manner as mentioned in my previous point, we can expect changes in VAS offerings. Traditional models will no longer work. We have seen in the last five years the limitations that a consumption based model can offer. Users have turned away from these services; despite the fact that usage trends in messaging indicate that instant messaging has a huge potential in the region (see LATAM 2009: A Mosaic of Opportunities), operators have stayed away from "all you can eat" pricing models. Such is the case for most IM initiatives in the region during the second half of the past decade (see Will 2008 be the year for Mobile Instant Messaging in Latin America?).

These are some of the major trends I see, as a result of changes in technology, competition and subscribers. I will continue to explore how these trends will affect specific markets and services in future posts.

Reposting from CHART OF THE DAY: Google spent $750 million buying AdMob today because the mobile ad network is growing like a weed, with ad requests at 10.2 billion in September, up from 2.5 billion in January 2008. A lot of that growth is being driven by Apple's iPod and the iTouch. A quarter of AdMob's requests come from Apple devices.