Even with the world economy going in the toilet there is still some opportunities throughout the world to make life a little easier. The way to do it through communications, it provides jobs for the local el Salvadoran population, provides better telephone service and helps the country become stronger.
Central America’s El Salvador has grown rapidly in recent years with aggressive mobile phone promotions and now telecoms operators are seeking new opportunities, according to Pyramid Research.
Jose Magana, telecom analyst at Pyramid, says that El Salvador, which ranks 12th in Latin America in terms of market size, has shown “remarkable” growth in Central America.
“El Salvador’s telecom industry expects to generate $1.5 billion in 2009 and this should rise to US$1.7 billion by 2014,” Magana says.
Mobile operators such as Tigo, El Salvador’s No. 1 mobile operator, hold almost 40 percent market share, followed by Carlos Slim’s Mexican América Móvil that has been establishing its single brand Claro across Central America with close to 30 percent.
Telefónica Movistar is in third position in El Salvador, with rivals such as Caribbean mobile giant Digicel growing fast especially in the lower income segments, according to Pyramid.
Laissez-faire regulation
According to a report by Pyramid, El Salvador is one of the Latin America’s most successful telecoms markets largely due to laissez-faire regulation.
The regulator Superintendencia General de Electricidad y Telecomunicaciones (SIGET) is open to allowing new operators into the market and the use of new technologies such as cable and DSL.
The regulator has also encouraged competition with five mobile operators active in a relatively small country that is easy to cover, he says.
Magana says that mobile phone operators have penetrated into lower income groups and are finding it easier to expand across the country compared to fixed line operators.
As a result, fixed line operators are likely to see penetration rates shrink to 20 percent by 2014 from 28 percent currently, Magana says. While El Salvador’s mobile subscribers currently at around 100 percent penetration with 6.9 million subscribers and should reach 8.1 million in 2014, he says.
With fierce competition between operators to secure market share, mobile operators have been giving away handsets and wooing prepaid customers. Indeed, as a result, customers often bought a cheap second or third handset and failed to use them leading to pressure on operator margins, Magana warns.
In Magana’s opinion, mobile operators therefore need to attract current and new users to make more or longer calls and find ways to hike Average Revenue per User (ARPUs). To do this, some operators have made offers such as promotions for unlimited calls on a specific day if they pay one dollar, he says.
Wealth of opportunities
Although the economic climate will be “difficult in the short term” due to the global economic downturn, with remittances — money sent back from the U.S. — dropping sharply, Pyramid still see opportunities for telecoms operators to grow.
Pyramid expects that the Salvadorian telecommunications markets will see most growth from mobile data services, fixed broadband, and pay-TV, all of which are under penetrated segments as of 2009, the analyst explains.
Pyramid anticipates operators will focus their efforts on promoting data services as 3G handsets will account for 36 percent of the total base by 2014 from 4 percent in 2009, he says.
Mobile data will grow from a low penetration of around 1 percent of subscribers — around 20,000 users — and this should rise to some 200,000 subscribers in 2014, thanks to infotainment services such as music, ringtones, mobile video, and mobile internet, he says.
Pyramid also sees opportunities to grow in new services such as mobile TV, while mobile banking and content-related services such as mobile marketing have room for growth. Fixed pay TV can also expand and WiMAX is expected to gain traction, he predicts.
Magana says that major operators such as Spain’s Telefónica have made heavy investments in El Salvador and this means money is also available for equipment vendors.
Still, all operators face challenges as they enter further into less wealthy users’ class C social groups. This may further squeeze operators’ margins, he warns.
Claro, for instance, has launched pre-paid TV with a free installation kit and box. If these users don’t use the kit or don’t pay for TV programs then the promotions won’t be profitable, he warns.
But overall, Magana sees a bright future for the telecom market. “There are good opportunities,” he says..
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