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Lat-Am Operators Pushing On-Net Traffic
According to a report from Signals Telecom Consulting, one strategy implemented by a variety of operators in different American mobile telephony markets has been to encourage communications within their own networks or "On Net". In order to accomplish this, these operators have developed differentiated rates structures for communications originated and ended on their networks. The objective is to encourage the concept of "community". The implementation of this policy can be seen in promotional campaigns carried out by Movistar in Argentina, Chile, Peru, etc.
The promotion of On Net communication has several objectives in mind. Operators like Telcel in Mexico, which enjoys a high market share, can attract other operators' users because, by having a larger number of clients, users are thus able to talk to a greater number of people at a lower price. Operators seek to increase network traffic in order to make use of idle capacity. Signals highlights the fact that the differences between inter-connection rates - fixedmobile (F-M) and mobile-mobile (M-M) - encourage this type of policy.
It is important to note that various regulators in Latin America have allowed for a reduction in interconnection rates which also increases mobile network traffic. The lowering of F-M and M-M interconnection prices encourages the increase of traffic passing through mobile networks. The drop in F-M interconnection revenues, which in some cases reaches 40% of total mobile operator revenues, drives higher levels of traffic moving toward mobile operator networks from fixed operator networks. The drop in M-M inter-connection rates, as has occurred in Colombia, allows for a more aggressive rate offering for Off Net calls which, by being combined with promotions oriented to promote On Net traffic, allows for an increase in operator MOU. In Colombia, the reduction in the M-M interconnection rates from COP$ 250/minute to COP$123.74/minute has allowed Movistar Colombia to offer aggressive rate plans that stimulate the increase of traffic on its network.
One of the most important consequences of the proliferation of plans rewarding On Net consumption is Multi SIM competition. Here, the user has SIM cards of more than one operator which are inserted and removed according to the destination of the call in question. The objective of this is to take maximum advantage of On Net discounts applied by operators.
Although still in early stages of development, the fixed-mobile convergence plans promoted by operators like TIM (Brazil), with "TIM Casa Flex", and earlier on by Brasil Telecom, via "Pula Pula" (Jump Jump), have also sought to increase traffic on in-house mobile networks.
The result of these strategies is an increase in Minutes of Use (MOU) by users. Mexico is one of the countries in the region enjoying high cellular consumption rates. During 1Q08, the MOU of a Telcel user reached 171, an increase of 32.3% as compared to 1Q07. Movistar Mexico, the number two operator by number of clients, reported an MOU of 142 in 1Q08, a 22.8% year-on-year increase. This increase in traffic seeks to compensate the drop in prices that, together with the incorporation of new users, bring with it a lowering of Average Revenues per User (ARPU).
The measuring of mobile traffic in Latin America developed by Signals Telecom Consulting shows the general MOU evolution of local operators. Ecuador had the highest growth. Movistar Ecuador reached the 67 minutes mark (+66.5% between 1Q07 and 1Q08). Porta also increased its MOU 28%, from 58 to 74 minutes. In spite of these increases, however, Ecuador continues to be included among those Latin American countries having low mobile telephony minutes consumption rates.
In Colombia, Movistar Colombia MOU grew from 89 to 125 (+41.6%), while the Comcel MOU went up 23.5%, from 117 minutes in 1Q07 to 144 minutes in 1Q08. In Chile, Entel PCS increased its MOU almost 17%, to 159 in 1Q08 (as compared to 1Q07). And, as of 1Q08, Claro Chile was one of the regional operators experiencing the biggest drop in MOU, -15.5% as compared to 1Q07.
As shown in the operator MOU, by country chart, prepared by Signals, Puerto Rican Centennial has the highest average user minutes consumption, with an enormous difference as compared to other regional operators. It must be understood, however, that this leadership position is thanks the fact that Centennial Puerto Rico has a flat rate business model in a market that operates under the "Mobile Party Pays" policy, meaning this operator's performance is not comparable to that of the other operators included in the Signal's analysis. Another of the operators that has shown a robust MOU increase is Movistar Uruguay, which went from 52.2 minutes in 1Q07 to 82.3 minutes in 1Q08, an increase equal to 57.7%.
The situation in Venezuela, however, shows that the Movilnet MOU remained unchanged between 1Q07 and 1Q08 in spite of the fact that this operator experienced a 24% increase in traffic. This situation can be explained by the incorporation of low income users thanks to the subsidized rates offered by this operator. The few minutes of use of these clients reduces MOU in spite of the increase in traffic. Movistar Venezuela showed a drop of 2% in MOU in 1Q08 as compared to 1Q07. Its MOU of 125.4 minutes, however, is among the highest among the operators analyzed.
Another phenomenon existing in Latin America that increases cellular traffic is the "by pass" of incoming traffic. Here, the operator that inputs the minutes chooses the best rates for carrying the call to its destination.
As has already been mentioned, there are a variety of ways used by operators to increase traffic. Regulators also have tools for increasing competitive pressure. One of the alternatives is the reduction of fixed-mobile interconnection rates. A low F-M interconnection rate in one market with various mobile competitors could increase the level of competition, pressuring operators to be more careful cost wise, especially when it comes to subsidizing handsets. On the other hand, a high mobile network access charge could be an element that encourages the entrance of new operators because the fixed communications received by their networks act as a subsidy.
With various mature markets in the region, in terms of mobile service penetration rates, the competitive dynamic is taking on new forms. The push just to increase market share is being left aside in pursuit of greater sophistication in order to retain existing clients or attract competitors' users.
Posted to the site on 5th August 2008