Regulatory changes authorise quadruple-play telecoms services in Argentina



Although Argentina has some of the most advanced telecoms infrastructure in Latin America, scarce competition in broadband and mobile services has restricted sector dynamism. Since assuming office in 2015, President Mauricio Macri has introduced several laws enabling licensed operators to provide multiple services as part of efforts to attract investment, increase competition and enhance connectivity. At the same time, the regulatory framework is being revised to allow for sector consolidation, which should bring down prices and step up the quality of service.

Regulatory Framework

Regulatory improvements began in December 2014, when the legislature passed a telecoms regulation, Digital Law No. 27.078. This replaced former Law No. 19.798 and Decree No. 764/2000 to boost ICT and merge telecoms with media. The most significant change is that telecoms providers are permitted to offer audio-visual communication services, such as broadcast and cable television, and radio. However, they still cannot provide satellite television.

In January 2016 President Macri issued Decree No. 267/2015, merging the former Federal Authority of Information and Communication Technologies with the Federal Authority of Audio-visual Communication Services – both considered to be inefficient – into the National Communications Commission (Ente Nacional de Comunicaciones, ENACOM), which is in charge of telecoms and audio-visual communications. As noted by The Economist Intelligence Unit, the government claimed that the old regulators and their leadership were politicised under former President Cristina Elisabet Fernández de Kirchner, who had a difficult relationship with the media and was particularly combative towards media conglomerate Clarín.

The same decree installed a special committee in the Ministry of Modernisation to draft a unified and updated bill to replace the separate ICT and audio-visual communication laws. As of mid-2018 a date had not been set for the legislature to vote on the measure.

Furthermore, in early 2017 the authorities relaxed regulations to allow for more telecoms competition and boost internet penetration rates. The change permits companies to simultaneously provide cable TV, internet, fixed-line and mobile phone services. Published in the official public bulletin, the legislation states the government will support the convergence of networks and services under competitive conditions, while promoting the deployment of next-generation networks and increasing broadband internet penetration. These so-called quadruple-play services, comprising landlines, mobile phones, paid television and internet, were authorised in January 2018.

Recent Perfornamce

According ENACOM figures, telecoms contributed AR248bn ($12.8bn), or 2.3% of GDP, in 2017. Mobile services comprised the majority (55%) of the market, followed by subscription-based television (26%), broadband (10%) and fixed-line telephony (9%). Penetration levels vary widely, with cable TV and mobile having the highest rates of 79% and 76%, respectively. Meanwhile, fixed-line telephony is mature and shrinking with 62%, and broadband still has significant potential for expansion with 45%. The competitiveness of the latter segment will depend on the development of fibre-optic networks, which will require more investment than recent years have seen.

Argentina has lost ground relative to neighbouring countries in the past decade, with one of the lowest fibre-to-home penetration rates in Latin America in 2018. Customers increasingly demand higher speeds and better connections in communication, information and entertainment. Fifth-generation mobile connectivity is on the horizon, which will necessitate more spectra, new and progressively more complex infrastructure, and a robust fixed-line network.

Industry 4.0 – marked by increasing automation and data exchange in manufacturing – means that economic and social development will be largely dependent on connectivity (see Industry chapter). To accommodate these changes, the Agency of Investments and International Trade forecast $5bn in private investment opportunities will avail themselves in telecoms in the lead-up to 2022.

Investment Climate

There are very few restrictions on foreign investment in the sector, with international players permitted to establish a local subsidiary or acquire a share of an existing domestic company. In efforts to bolster these investments, Argentina has forged bilateral agreements with several countries. The only exception to this generally open market is the foreign satellite segment: to operate in this field, international investors must have a reciprocity agreement between their principal international jurisdiction – typically the International Telecommunications Union – and the Argentine government.

Local operator Telecom Argentina revealed in early 2018 that it planned to invest $5bn between 2018 and 2020 to expand its mobile and fixed-line networks. The three-year transaction will see an increase in the number of mobile base transceiver stations, broadening of next-generation networks and preparation of infrastructure for multiple-play services. According to Reuters, Telecom Argentina plans to invest one-quarter of the total sum, or $1.25bn, in 2018. This initiative came on the back of the firm’s merger with domestic broadband rival Cablevision on January 1, 2018, which was prompted by their mutual shareholder, Grupo Fintech. Resulting from ENACOM’s updated regulatory framework allowing fixed-line and mobile phone operators to enter the paid-television market, the deal was designed to assist the integration of Telecom Argentina into subscription-based television services.

With regards to the mobile telephony segment, the government is looking to double the number of active mobile towers, which stood at 15,000 in 2017, to step up the quality of coverage and services. Deloitte reports that there is a shortage of neutral infrastructure operators in Argentina, with no domestic mobile sites built or operated by non-network players in 2017, compared to 62% of cell towers worldwide.

Similarly, Argentina is planning to tender 90 MHz of 4G spectrum to mobile telephone and internet companies in 2018, which could raise $800m. A spokesperson for the Ministry of Modernisation told international media in March 2018 that this would be split between private telecoms firm Arlink and state-owned Empresa Argentina de Soluciones Satelitales (ARSAT), with the former receiving 60 MHz and the latter 30 MHz. However, under the regulatory framework at the time of the announcement, the government was not permitted to auction off ARSAT’s share. Considering the potential revenue from such a deal, the authorities planned to update the law to accommodate this in late 2018.

Fixed-Line & Mobile Telephony

Such investments are designed to accommodate the rising number of mobile users, growth of which represents the most significant change in the sector. Fixed-line telephone subscriptions fluctuated between 2008 and 2017, reaching 9.5m fixed-line connections and AR22.1bn ($1.1bn) in revenue at the end of the period, down from a peak of 10.2m users in 2013. The majority of fixed-line connections are located in the Buenos Aires area: the Federal Capital District had the highest penetration rate at the end of 2017, with 55.4 per 100 inhabitants, followed by greater Buenos Aires, with 25.6. Other provinces had much sparser service provision, with an average of 13.2 lines per 100 inhabitants. Telefónica de Argentina – a subsidiary of Spain’s Telefónica – and Telecom Argentina remain the two dominant forces in the fixed-line market, collectively accounting for 90% of these connections, with the remainder divided between cooperatives and new entrants.

While fixed-line penetration has declined, mobile connections rose by 27.6% between 2008 and 2017, from 48.5m at the beginning of this period to 61.9m at the end. This figure peaked at 67.3m in 2013 and has since eased. ENACOM reports that this trend is due to a change in methodology in 2015, when President Macri’s government worked to normalise administrative bodies. Despite this adjustment, revenue has steadily increased, more than doubling from AR59.8bn ($3.1bn) in 2013 to AR137bn ($7.1bn) in 2017.

Similar to fixed lines, mobile connections are heavily concentrated in the Federal Capital District and province of Buenos Aires, followed by Córdoba, Santa Fe and Mendoza. With a national penetration rate of 139.9%, mobile connections outnumbered the population at the end of 2017. However, it is important to consider the varying regional accessibility and quality levels of phone networks – inland provinces have the fewest connections, and there is substantial room for improvement in service provision. Three main players dominate the domestic mobile telephony segment, with each holding approximately one-third of the market: Claro (owned by Mexico’s América Movil), Telecom Personal (a subsidiary of Telecom Argentina) and Movistar (owned by Spain’s Telefónica).

Satellite

Another growth area is satellites, where Argentina is in a privileged position, being one of eight countries in the world – and the only nation in Latin America – with the technology and capability to build satellites of its own. ARSAT is the state-run entity responsible for providing telecoms services through the design, development and construction of satellites; their launch and placement in orbit; and the exploitation, use and commercialisation of related services.

The company’s headquarters are in the Benavídez ground station, approximately 50 km north of the Federal Capital District. Among its principal activities are monitoring the federal fibre-optic network, maintaining the domestic digital television technological platform, and enhancing ICT services and data storage centres. ARSAT’s data centre is considered the safest in the country and one of the most efficient in Latin America, having received Tier-III certifications from the Global Data Centre Authority – Uptime Institute for its design as well as its construction. The data centre has a surface area of 4200 sq metres and the capacity to store 600 racks of technological infrastructure. ARSAT’s total income in 2016 amounted to AR1bn ($51.8m), with a net revenue of AR77m ($4m).

As a result of internal restructuring, revenue is expected to increase in the coming years. ARSAT-1 and ARSAT-2, the first two locally designed and produced satellites, are now in operation. While plans to launch ARSAT-3 are currently stalled, this project will entail $200m of investment. This will further enhance the commercialisation of telecoms facilities, providing a range of services across Argentina and other Latin American countries. The satellite market offers significant opportunities to connect remote sites that are detached from traditional cable wiring.

Television

Audio-visual content consumption in the country has adapted in conjunction with the spread of digital formats: the majority of citizens not only continue to watch television, but also increasingly use platforms such as YouTube and Netflix. According to the Ministry of Culture’s National Survey of Cultural Consumption 2017, 95% of Argentines watch television on a daily basis, with little variation based on age, socio-economic status or geographic location. Also that year, 54% of televisions in circulation were smart TVs, demonstrating the integration of traditional and new media consumption. Subscription television rates further support this, with ENACOM reporting that there were 9.39m paid-TV connections in 2017. This translates to 69% of homes, meaning that Argentina has the third-highest number of television subscribers in Latin America, behind Brazil and Mexico.

This segment has also become increasingly profitable, with income from television subscriptions rising by 250% between 2014 and 2017, from AR26.3bn ($1.4bn) to AR65.9bn ($3.4bn). Average annual revenue per user grew at a similarly dramatic rate over the period, from AR2950 ($153) to AR7020 ($364). While TV subscriptions in Argentina are the most expensive in the region, with an average basic cost of $53 per month, the entrance of new providers could push down prices by stepping up competition.

Outlook

After more than a decade of outdated regulations, the domestic telecoms market is moving towards a modern investment and regulatory framework. These changes should create space for new entrants, thus reallocating market share and pushing down profitability of longer-established players.

The mobile segment accounts for the majority of telephony revenue, and – in accordance with regional trends – this proportion is set to continue rising at the expense of fixed-line connections. As such, mobile telephony is expected to remain the key driver of sector growth. In addition to legislative change, new investment will be required to further boost competition and increase connectivity. Moreover, expanding the recently authorised triple- and quadruple-play markets – including the lucrative paid-TV branch – will demand works to improve bandwidth.

Despite relatively high penetration rates, opportunities remain for entrepreneurs to develop usage, particularly regarding network quality among lower-and middle-income consumers in the inland provinces.