The combination of new licenses for personal communication services (PCS) and the continued network expansion in the cellular sector will enhance competition in Argentina's mobile wireless market and ultimately create tremendous opportunities for investors, service providers and equipment suppliers. Despite recent economic difficulties, Argentina ranks third in Latin America, after Brazil and Mexico, in terms of cellular subscribers. In early 1996, only 1% of the total population, estimated at 35 million people, owned cellular phones. By the year 2000, Argentina's mobile wireless (cellular and PCS) penetration rate is expected to climb to 1.75 percent. In Buenos Aires, which has a population of about 13 million people, the mobile wireless penetration rate could reach 4% by 2000. Even at that level, the wireless market will have significant room for growth as new and existing operators enlarge their networks, migrate to new technologies and develop new marketing tools and services.
PCS will play an important role in the growth of Argentina's mobile wireless market. Recently, the Ministry of Communications has reinitiated plans to license PCS in the Buenos Aires region. To explain the process, the Minister of Communications, Germ·n Kammerath, has held a series of informational conferences regarding the PCS licensing procedure. While no exact timetable was given, Kammerath clarified and outlined the general rules governing the authorization of licenses. The Ministry will initially issue two licenses covering a 100 square kilometer region in and around Buenos Aires. Each license will extend to Zarate in the north and La Plata in the south. The total coverage area has a population of approximately 12 million people. In addition, the Minister stated that PCS licenses for the interior will not be considered at this time.
According to the government's plans, the Ministry will reserve 120 MHz of spectrum for PCS in the 1.8 GHz frequency range. Each new licensee will be awarded 40 MHz of spectrum. However, plans for the remaining 40 MHz have not been clarified. The Ministry has also approved a long-standing request by CRM MOVICOM, the B-band operator in Buenos Aires, for more spectrum. The company, a joint venture between BellSouth and Motorola, petitioned for 30 MHz, but received only 20 MHz. MOVICOM now controls 40 MHz of spectrum.
The government also has defined several basic principles for the licensing process. First, Argentina will neither auction the PCS licenses nor impose licensing fees. In this respect, Argentina has followed the progressive lead of Chile, which recently awarded three nationwide PCS licenses free of charge. The government is also seeking the participation of operators without holdings in Argentina in order to prevent the concentration of spectrum in the hands of a few wireless companies. Moreover, the government will not dictate any technological standard. Instead, the first licensee will decide the nationwide standard.
The proposals for PCS licenses will be reviewed in a two stage process. The first set of criteria includes the background of the bidder; financial resources, number of subscribers elsewhere, etc. The second stage will review the technical specifications of the proposal, including roll-out schedules, coverage and other technical parameters. The screening process will be detailed in the bidding package, which will be available early in 1997. Interested parties may purchase the bid package for $35,000 and will have 90 days to respond. Any questions and/or recommendations should be forwarded to:
The Ministry of Communications
Attn.: Dr. Pablo Arancedo
Fax: (541) 318-9448.
Kammerath has stated that the Ministry will not complete the PCS tender document until the end of February 1997. At that point, the Minister will visit several U.S. cities to recruit bidders. According to this timetable, the Ministry will evaluate bids in June 1997. The new PCS operators will not roll-out services until the beginning of 1998 at the earliest.
Companies Represented at PCS Information Meetings
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AirTouch AT&T Benito Roggio Ericsson Grupo Clarin ImpSat Itochu NEC |
Nokia Qualcomm Siemens TCI Telia SES US West VCC |
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Source: U.S. Department of Commerce
Obstacle to PCS
While PCS offers tremendous business opportunities, the new PCS operator must be wary of competition from the two entrenched cellular operators in the Buenos Aires region. CRM MOVICOM services first appeared in Argentina in 1988, when the company completed its first cellular call. Its network became operational in 1989. The company holds the B-band license for the Federal District and the greater metropolitan Buenos Aires area. Although an additional player, Movistar, has since entered the cellular marketplace, MOVICOM remains the country's largest operator and controls approximately 58% of the market in the Buenos Aires area.
The MOVICOM network was originally based on AMPS technology, but the operator soon migrated to digitally-enhanced NAMPS to meet growing demand. Recently, MOVICOM contracted Motorola to deploy its Integrated Dispatch Enhanced Network (iDEN) software. The equipment, when used with Motorola's i370 handset, is capable of integrating three wireless services ó voice communications, conference calling and alphanumeric paging with message delivery and call back service ó into one handset. The necessary equipment will be installed in 25 cell sites in order to cover all of Buenos Aires.
MOVICOM is also planning to install a CDMA-based digital network in Buenos Aires. The company successfully conducted CDMA trials in 1995 using Motorola equipment, including SC 9600 base stations and EMX 2500 switching equipment. Microwave Networks, Inc. was awarded a $3 million contract to provide cellular infrastructure equipment to support MOVICOM's planned expansion. The installation of a CDMA system would increase installed capacity to accommodate expected subscriber growth in the lucrative cellular market in the capital city. Due to technical and market conditions, the migration to a CDMA cellular system is expected to take several years to complete.
The company's customer base has experienced consistent growth since the introduction of commercial service in 1989. A five-fold increase in subscribers occurred between 1991 and 1994. MOVICOM currently has approximately 230,000 customers and is well positioned to continue expanding its subscriber base. The company posted 1995 revenues of around $270 million, slightly lower than the $280 million in revenues for 1994, but higher than the $220 million in revenues for 1993.
In 1993, an A-band license for the Buenos Aires area was awarded to Movistar, marking the beginning of competitive cellular services in Argentina. Movistar is a 50/50 venture between TelefÛnica de Argentina and Telecom Argentina, Argentina's basic service operators. In August 1992, Movistar awarded a $22.5 million contract to Ericsson to supply the cellular infrastructure equipment. Movistar, which markets its services under the Miniphone name, started service in March 1993. The initial AMPS system had capacity for approximately 10,000 subscribers using 19 cells. The current network uses dual-mode AMPS/digital NAMPS technology. The capacity of the network is around 200,000 subscribers, depending on average user time. The company recently received an injection of $28 million in capital from TelefÛnica and Telecom to expand the network to meet the continued demand.
Miniphone has shown consistent growth in subscriber levels since service began. By September 1994, Miniphone had approximately 78,5000 subscribers. One year later, the company registered nearly 114,000 subscribers. Subscriber growth has continued and Movistar now has over 180,000 customers, 80% of network's capacity. Despite starting service several years after MOVICOM, Movistar now controls approximately 42% of the Buenos Aires cellular market. The company's 1995 sales reached $160 million.
Movistar officials point to several competitive advantages the company has over its rival, MOVICOM, in the Buenos Aires region. First is the quality of Movistar's digital network. Secondly, the company is focusing on offering value added services to attract new customers. In October 1993, Movistar purchased Network Applications Programming from Unisys Corp., which allowed the company to offer services such as call waiting and voice mail. Future services in the Miniphone suite will include fax messaging and interactive voice services. Miniphone also uses a different tariff structure than its competitor. The company bills customers using 10-second increments, while MOVICOM bills in one-minute increments.
The introduction of PCS and the expansion of cellular services will provide additional opportunities for equipment manufacturers. Ericsson, Motorola, and Nokia currently dominate the consumer cellular equipment market. Ericsson's best selling handset in Argentina is the DH338 model. New equipment suppliers are also likely to enter the market, primarily from Brazil. The Korean firm Samsung, which is planning to invest up to $1 billion in its Brazilian operations, is preparing to enter the consumer telecommunications market. Equitel, a Brazilian affiliate of Siemens, will also likely attempt to enter the cellular handset market. Therefore, both wireless service providers and equipment suppliers must vie for market share in an increasingly competitive environment. (See Table on page 13.) >