12 Jul 2011Argentina Broadband Overview

Argentina’s telecom industry was privatised and restructured in 1989. As part of the privatisation process, the incumbent was split into two distinct entities. They are Telecom Argentina, which covers the northern half of the country, and Telefonica de Argentina which covers the southern half. In November 2000, the government issued licences to the competing operators with respect to domestic and international calls.

Argentina’s Internet market is the third largest in Latin America, after Brazil and Mexico. In terms of broadband penetration among households (around 40 per cent in Q211) it is above the regional average, surpassed only by Mexico. The main broadband technology is ADSL, while cable connections are used by about one third of all subscribers.

The country’s fixed line penetration rate is one of the highest in Latin America. One of the factors behind this trend was an 8-year freeze on fixed telephony rates imposed by the government during 2001-2002 economic crises. However this only spurred telecom companies to focus on Internet and mobile telephony segments where prices are unregulated. For example, in Q1 2010, revenue growth from Telefonica's broadband business outstripped income in its fixed line service for the first time. Overall, between Q210 and Q211, the broadband market showed around 19 per cent growth. With relatively low broadband penetration, further healthy growth can be expected over the next few years.

Competition in the fixed line market is rather low. At the end of 2010 the two incumbents still owned around 90 per cent of the fixed lines. In contrast, the long distance market is much more competitive and VoIP is well developed. The incumbents faced stronger competition after cable TV operator Cablevision announced its intention to launch VoIP services. The move led to increasing calls from the two incumbents to be allowed to offer pay TV services in order to compete with the triple play services offered by its competitors. However, in the end Cablevision’s request to provide VoIP was rejected by the government. Although the triple play services market is underdeveloped due to regulatory hurdles and ongoing battles between operators, Argentina is one of the leading countries globally in terms of pay TV penetration, with over 60 per cent of households subscribing to pay TV services.

Incumbents

In early 2001, both incumbents launched their high-speed Internet services, but initially broadband services were slow in taking off, not least due to the economic crisis of 2001/2002. The country started to recover in 2003, and by the end of that year investments started pouring into the broadband sector again. In 2004, the market began to register healthy growth in the cable and ADSL broadband segments.

Telecom Argentina’s owners have been involved in a long-standing fight over its control. In June 2009, after failing to take full control of the operator, Telecom Italia was forced to announce its intention to sell its 50 per cent stake in Sofora, the parent company of Telecom Argentina. In February 2010, a local court revoked a previous ruling by Argentina's antitrust agency CNDC, which ordered Telecom Italia to sell its stake in Sofora. Finally, in August 2010, Telecom Italia reached an agreement with Grupo Werthein that ended all the disputes between the two. Grupo Werthein transferred its 8 per cent holding in Sofora Telecomunicaciones to Telecom Italia increasing the latter’s stake to 58 per cent. Telecom Italia’s stake in Sofora was further increased to 68 per cent in March 2011. As a result, Telecom Italia raised its economic interest in Telecom Argentina from 18.3 per cent to 21.1 per cent.

Mobile

At the end of 2010, there were just over 50 million mobile subscribers in Argentina. Despite having reached well over 120 per cent penetration, the market still has potential for growth, driven by high interest in mobile broadband services.

The market is dominated by the three operators, Telefonica’s Movistar, Claro, and Telecom Personal. At the end of 2010, Telecom Personal, a subsidiary of Telecom Argentina, had 16.3 million mobile subscribers. The operator captured 46 per cent of mobile subscriber net additions during 2010. However, in terms of subscriber numbers it was superseded by Claro, a subsidiary of America Movil, with 18.4 million customers and was closely followed by Movistar with 16.2 million subscribers. Nextel Argentina is the country's smallest mobile operator, with about 1.2 million subscribers.

In May 2011, Personal announced a total investment of ARS 5 billion over the next three years. Most of the investment will be used for expanding the operator's mobile infrastructure, coverage and network capacity. By the end of 2010, its network covered 1,800 sites with 3G radio stations.

All three mobile operators offer 3G services over HSDPA networks. To meet future demands, in April 2010 Movistar’s parent Telefonica de Argentina successfully carried out laboratory trials of Long Term Evolution (LTE) technology. Telecom Argentina also carried out 4G trials - in June 2010 in Buenos Aires and in December 2010 in Cordoba, achieving up to 50Mbps speeds.

Like in other countries, Argentine mobile operators are facing capacity constraints. To address the issue, in May 2011, the government announced plans to auction mobile licences during H2 2011. Radio spectrum in the 1890MHz-1985MHz band and 830MHz-879MHz band will be put up for sale. Auction winners will have to provide total coverage in their concession areas within 5 years of receiving the licences.

Competitive Landscape

Given the historical split into two geographically distinct entities Telefonica de Argentina and Telecom Argentina are not explicitly competing against each other. They are competing against the dynamic cable TV operators such as Cablevision and the rising wireless ISPs. In that respect, the Argentine broadband market is unusual, since it is not suffering from what Europeans know as a system where one operator has significant market power (SMP). This circumstance has led to a fiercely competitive market in recent years, not least because of substantial new investment in coverage expansion.

The market is divided fairly equally between three players, namely Telefonica de Argentina, Telecom Argentina, and Cablevision owned by Grupo Clarin. At the end of March 2011, Telecom Argentina and Telefonica de Argentina each had just over 30 per cent market shares while Cablevision had about 24 per cent.

In Q408, Cablevision absorbed Multicanal, another cable TV operator owned by Clarin, thus almost doubling its market share. However in March 2010 the merger was annulled by the Argentinean government which gave the two operators six months demerge. Cablevision experienced another blow when the Argentinean regulator revoked its request to provide VoIP services in July 2009. The rejection followed intense lobbying by incumbents Telefonica de Argentina and Telecom Argentina. Furthermore, in August 2010 Argentina's government ordered the closure of Fibertel, Cablevision’s ISP, requesting Grupo Clarin to inform its customers that they have 90 days to find a new ISP. According to the order, Grupo Clarin illegally absorbed Fibertel in January 2009 without the approval of the commerce secretary. Cablevision has denied the allegations and submitted an appeal which was successful. In March 2011, Argentina's government announced plans to appeal a federal court ruling that ordered the suspension of the cancellation of Fibertel's broadband licence. During 2011, Grupo Clarin expects to add about 90,000 pay-TV and 110,000 broadband subscribers.

Telefonica de Argentina is being pushed into network upgrades by the rising demand for its broadband services and competition from cable competitors. It announced plans to invest over USD 551 million in 2010, about 30 per cent more than in the previous year. This investment was mainly used for the expansion of mobile Internet and broadband capacity, especially via fibre networks. In the next stage, the operator announced plans to invest over ARS 2.1 billion in 2011.

Telefonica de Argentina has been preparing for an IPTV launch despite being warned by the government that it is not authorised to do so. In January 2009, it started piloting an IPTV service in Buenos Aires. While waiting for regulatory changes, in April 2009 the operator launched a triple play bundle jointly with DirecTV in the Rio Negro province. The service will be extended to other areas covered by both operators. However, in September 2009, Telefonica de Argentina was told that it would have to change its shareholder structure if it wants to offer triple play services. The operator, fully controlled by Telefonica de Espana, will not be able offer triple play services until it sells a stake to a local company. Telefonica de Argentina pushed on regardless, announcing plans in 2010 to launch a video on demand (VoD) service, initially in Buenos Aires and the surrounding area.

Telefonica’s move into TV services market was promptly followed by Telecom Argentina, which launched a triple play bundle under an agreement with DirecTV in summer 2009. Provided under the SuperPack brand, the offering was initially available in the city of Salta.

In recent years, Telecom Argentina focused its efforts on the deployment of a Next Generation Network (NGN). Having committed the capital expenditure of around ARS 2 billion in 2010, the company focused on the development of its broadband services, the roll-out of NGN, expansion of mobile infrastructure and 3G network coverage. Along with standalone DSL broadband services with up to 20Mbps speeds, during Q410 Telecom Argentina launched a bundled offer which included mobile broadband. Another new service launched by the operator in May 2010, was Mi Numero Arnet, an additional IP based phone line available to the operator's broadband customers. It was launched following an ARS 6 million investment.

Other operators are also contributing to upgrading Argentina’s telecoms infrastructure. In March 2010, mobile operator Claro and Mexico’s Telmex completed a major infrastructure project. Following an investment of ARS 673 million over the last five years, they deployed a 15,000 km fibre network across the country. The final stage, connecting urban and rural areas with 750 km of fibre, will cost ARS 78 million.

Meanwhile Cablevision started deploying FTTB in early 2010, hoping to sign up around 1,000 subscribers in the first phase. In 2011, the cableco plans to invest USD 300 million to upgrade its network, implement a fully digital infrastructure and expand HD TV services. The company plans to increase the broadband speed delivered by Fibertel to 30Mbps. Between 2011 and 2015 Cablevision plans to invest USD 1.6 billion in development of TV and Internet services.

Developments

Pricing and Tariffs

As of Q211, Cablevision offered its entry level service ‘Fiber 640’ with 640 Kbps download speed for ARS 99.90 per month. In the same period Telecom Argentina charged ARS 109.90 for its entry level DSL service with a 1 Mbps download speed. Telefonica de Argentina’s entry level service with 1 Mbps download speed was priced at ARS 95 over a promotional period of 12 months.

On the other end of the scale, very high-speed services with downstream speeds at 10 Mbps are much more expensive - Cablevision charged ARS 500 per month for this service.

Broadband Statistics

As of Q2 2011, Argentina had around 4.18 million broadband subscribers, up over 18 per cent year-on-year. Broadband population penetration was 10.8 per cent (up 1.6 per cent y-o-y) while household penetration was nearly 40 per cent, up 6 per cent. DSL remains the most popular technology used by 2.893 million subscribers (69 per cent). Cable modem was used by the remaining 31 per cent - 1.285 million subscribers. The share of cable connections grew by 3 per cent y-o-y.

Country	Technology	Unit	Total	Total	Total	Total	Total	Total
Country	Technology	Unit	2010Q3	2010Q4	2011Q1	2011Q2	2011Q3	2011Q4
Argentina	DSL	Subscribers	2,734,700	2,832,700	2,892,700	2,984,300	3,085,900	3,159,000
Argentina	Cable Modem	Subscribers	1,105,000	1,146,800	1,215,000	1,265,000	1,315,000	1,365,000

Regulatory Developments

The National Commission of Telecommunications (CNC) established in June 1990 is the regulating agency of telecommunications and postal services in Argentina. The second main regulatory authority is the Secretaria de Comunicaciones (SDC) which works on a single policy framework. The SDC is responsible for the development of the telecommunications sector in Argentina. According to the policy framework, a single licence can be applied which allows operators to provide services in various domains such as fixed or mobile services, national or long-distance calling.

In November 2000, full liberalisation of the Argentine telecommunication sector began with the encouragement of new technologies and new competitors into the market. In the same year, a treaty on Local Loop Unbundling was agreed but has never been put into effect. This is because such a practice would involve both incumbents opening up their networks to each other and they are currently geographically separate. Neither has any interest in challenging the other on their home turf.

As far as VoIP services are concerned, Resolution 764/2000 of the Secretariat of Communications states that VoIP services are a free telecommunications service in competition in Argentina. No restriction on the provision of VoIP has been implemented.

In March 2009, the government announced its draft broadcasting bill, challenging the virtual monopoly of Clarin's merged units - Cablevision and Multicanal. The bill will allow fixed line operators to provide triple play bundles by adding TV services to their current broadband and telephony offerings. The new regulation will explicitly prohibit ‘monopolies’ and ‘oligopolies’.

In January 2010, the Argentinean government fined Telefonica de Argentina USD 27 million for failing to inform antitrust authorities of ownership changes. The latter took place in June 2009, when Telefonica de Espana decided to take full control over Telefonica de Argentina, acquiring the 1.8 per cent stake that it did not yet own. Telefonica de Espana now controls Telefonica de Argentina and, through Telecom Italia, also has an indirect stake in rival operator Telecom Argentina.

Later in 2011 the government plans to call public tenders to lay 12,500 km of cable in 2012 as part of the country's federal fibre network project. This deployment adds to the recently announced deployment of 12,500 km of fibre during 2011. Once the national fibre platform is fully deployed, more than 1,400 cities and localities across Argentina will have connectivity.

Relevant Websites

Secretaria de Comunicaciones: http://www.secom.gov.ar/

Comision Nacional de Comunicaciones: http://www.cnc.gov.ar/

Sources

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