ANALYSIS: Smartcom's Future Lies in Innovative Services

Chilean mobile operator Smartcom is scheduled to launch GSM services in May or June this year, marking a transition from the CDMA network it has relied upon to date.

The transition allows Smartcom to fit in with the regional strategy of mobile holding company América Móvil, which acquired the operator in August 2005. However, this also means Smartcom will be running the same mobile platform as Chile's other two operators, Movistar and Entel PCS.

According to Erasmo Rojas, Latin America and Caribbean director for GSM industry association 3G Americas, in order to see a return on the investments made in its new network, Smartcom needs to capture new clients with sophisticated services, modern applications over EDGE or push to talk.

In fact, considering the maturity of Chile's mobile market, industry players generally do not expect Smartcom's migration to GSM to have a huge impact compared to the underlying growth trends, and they are unanimous in recommending a focus on value added services.

AMX BUSINESS MODEL

Upon acquiring Smartcom, América Móvil immediately started studying whether to migrate to GSM from CDMA, to be in line with the majority of its assets. Unofficial figures estimated the migration would cost nearly US$250mn considering Smartcom's 1.7 million subscribers, and this was considered in AMX's US$3bn capital expenditure plan for 2006. AMX acquired the operator for US$472mn, from Spanish energy company Endesa.

The general opinion is that by having compatible networks throughout the region, América Móvil would gain more competitive advantages in the Chilean market compared to rival operators Movistar and Entel PCS.

"The migration to GSM has its roots in the company's owners and in the fact that they are operating GSM in almost all the countries where they are present," local telecoms analyst Roberto Gurovich told BNamericas.

COST REDUCTIONS

"[Having one technology across the region] gives AMX a very powerful [equipment and supplies] purchasing capacity and they take advantage of this and deploy GSM networks because of this reason... besides costs, I do not see any other advantage," Gurovich added.

Rojas also emphasized the importance of economies of scale. "Since Latin America is a market with a high penetration of prepaid users it is important to have handsets that are not too expensive. If you offer an expensive terminal with a high subsidy and you have no guarantee that the user will stay with you, then you are losing money."

Spain's Telefónica Móviles has a similar strategy and is implementing GSM technology to unify operations, including all of the CDMA subsidiaries it acquired from BellSouth in 2004-05, except those in Peru and Venezuela.

MANUFACTURERS' POINT OF VIEW

Many industry players, particularly French equipment supplier Alcatel and Korean hardware manufacturer Samsung, expect the Chilean mobile market to grow, although not rapidly, once Smartcom completes its migration to GSM technology.

Alcatel expects its 10% market share in Chile to receive a boost over the next few months, particularly after Smartcom's migration takes place, Alcatel Chile sales and marketing manager Pablo Radó recently told BNamericas. The goal is for revenues of US$40mn in Chile this year.

Samsung Chile's commercial director Rodrigo Herrera said growth of handset sales will not be explosive this year, given the large number of existing mobile users.

On the whole, manufacturers expect to sell 4-4.5 million new handsets in Chile this year, without considering Smartcom's GSM launch. However, Herrera believes "we can aim for 5 million because of [the GSM launch], mostly because of greater competitiveness at the beginning of a launch process. And it will also set a higher goal in terms of penetration, probably 75-80%."

THE IMPACT IN THE MARKET

Mobile penetration in Chile is now approximately 65.5%, in a population of nearly 16 million, according to statistics from the telecoms regulator Subtel, which estimated that Chilean mobile operators closed 2005 with 10.57 million users. Various studies place Movistar Chile as the market leader with a 46.8% share, followed by Entel PCS with 36.5% and Smartcom with 16.7%.

"I do not believe [the migration to GSM] will have a great impact in the market. The situation will not be much different to what it is today," Gurovich said.

For Rojas, América Móvil's best option in Chile is to gain market share by capturing users from Smartcom's competitors.

"Beyond taking care of its current share, they need a strategy to capture part of the share from other operators, and since they will be using the same technology, they need to highlight [a broader range of] services, quality of service and better coverage," Rojas said.

"I do not believe they are aiming to become market leaders, but they could easily increase that 17% share if they launch innovative services, something that the Chilean user sees as different from what the others are offering," he added.

BNamericas.com"

Posted to the site on 20th April 2006