Mobile Telecommunications and Broadband Market - Mexico · Mobile Telecommunications and Broadband Market [1] - Mexico. Sector Overview . The total number of mobile phone subscribers

The Canadian Trade Commissioner Service

April 2013 Produced by the Canadian Trade Commissioner Service

Mobile Telecommunications and Broadband Market [1] - Mexico

Sector Overview

The total number of mobile phone subscribers in Mexico reached 95.6 million in the first half of 2012; that's a penetration of 85.1 connections per 100 residents.

Millions of Mobile Phone Subscriptions, 2006-2011

Source: Secretariat of Communications and Transportation (SCT), November 2012

Although about 30 million smartphones are sold per year in Mexico (most as a replacement of other mobile devices), about 9.7 million mobile broadband connections are registered, according to information published in June.

The prices of mobile phone service have fallen drastically, but they are still high when compared to other countries. In 2012, mobile phone service prices were 65.2% higher than the average of countries of the Organization for Economic Cooperation and Development (OECD)[2]. Despite these rates, the introduction of prepaid services has maintained the demand.

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Mobile Telecommunications

This sector has been the primary driver of the industry, with a growth of 40% from 1996 to 2009.

The Mexico-United States Foundation for Science (FUMEC) said this segment is worth $17.8 billion[3] representing 53% of the industry's total revenue.

Penetration of Mobile Phone Subscriptions, 2006-2011


During the first half of 2012, mobile telecommunications grew 9%. It is estimated the sector's revenue will raise to $20 billion in 2016, equivalent to 80% of the total revenue for telecommunications services in that year.

SMS Sent

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Thousands of Minutes of Mobile Phone Traffic, 2006-2011


The Federal Telecommunications Commission (Cofetel) also reports that post-paid services continue to grow (15% of the current user base) thanks to more aggressive campaigns and promotions.

Short Messages Standard (SMS) are used by 83% of mobile device users, with a 25% annual growth and an annual consumption of 85 messages per month.

Mobile Broadband

Although Mexico falls behind other Latin American countries regarding mobile broadband penetration (7% vs 10% on average), the increase of tablet devices is leading to a growth of these services.

As of June 2012, mobile broadband subscriptions rose 73.9%; the number of users rose from 5.6 million in June 2011 to 9.7 million in June 2012, according to the Cofetel.

Currently, 7.5 million Mexicans have access to third-generation (3G) mobile data. Alcatel-Lucent reports that mobile broadband connections will surpass fixed ones by 2014, which will accelerate with the adoption of Long Term Evolution (LTE) mobile networks.

The dynamism of the sector is attributable to the diversification of value-added services (VAS), especially due to mobile broadband, which represents more than a quarter of the revenue from VAS.

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According to Cofetel, in October 2012, 17% of cell phones in Mexico were smartphones, 60% were under a mobile broadband plan and represented 8% of mobile operators' revenue.

According to The Competitive Intelligence Unit (CIU), in Mexico 58% of cell phone users had a low level of mobile broadband service consumption (2% had smartphones), while 31% corresponded to the medium-connectivity consumer and just 11% to intensive users (61% had smartphones).

The CIU says that Mexicans' use of mobile broadband are most often for entertainment purposes: 85% to check social networks, 73% to check email, 64% for chat or instant messaging, 58% to search for information, 50% to watch videos and download music and 27% to read news.

Smart Devices

Based on more than 2,000 interviews of mobile users, the International Advertising Bureau (IAB) of Mexico says that 45.2% of such users connect to the Internet through their smartphones. The IAB also says that 87% of interviewees have cell phones, 22% have smartphones and 6% have tablets [4]. Fifteen percent of these mobile device users are under a post-paid plan.

According to the Mexican Internet Association (AMIPCI), smartphones are one of the most widely used devices Mexicans use to connect to the Internet (26% in 2010 vs 58% in 2011), followed by tablets (29%).

This study, created using 2,329 interviews performed, shows that mobile device users primarily use them to do essential activities (91%), for entertainment (70%), internet (38%) and specialized activities (21%)[5]. Forty-four percent of users who connect to the Internet through a mobile device have used GPS, and 66% have downloaded applications (47% social networks, 33% games).

Value-added Services

The wide use of smartphones in Mexico has been conducive to more widespread use of value-added services since users spend about 30% of their prepaid balance to access social networks, localization services, broadband or sending multimedia messages (MMS). These value-added services, along with games, ringtones, music and images and mobile marketing make up 19% of operators' revenue – the largest portion of their revenue.

The Mexican mobile applications market is worth $232 million (FUMEC, 2012). A report from the consultancy firm Select indicates that the mobile applications with the highest number of downloads in Mexico are games (38%), social networks (15%),

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productivity (11%), utilities (10%) and leisure (7%). Other applications of interest are music, lifestyle, travel, business, weather, multimedia, books and others.

Electronic Banking

A survey by PriceWaterhouseCooper in 2012 showed that more than 80% of Mexican banking customers between 20 and 30 years old prefer making transactions and queries on the Internet, and 6 of every 10 use their cell phone. One of five users would change banks that offer a more complete lineup of services via cell phone. In Mexico, all banks are working on incorporating mobile services.

E-commerce

E-commerce from mobile devices will exceed in sales volume compared to that done from computers in 2014, according to the study Comercio Electrónico 2012 (2012 E-Commerce) from AMIPCI. The Director of Google Mexico said that 70% of accesses in Mexico to make online purchases will take place from mobile devices in 2016.

According to the AMIPCI,[6] 47% of internet users evaluated have made purchases on their mobile devices, up from 26% in 2011. Of this percentage, 29% have bought through iTunes, 29% using Android Market, 7% through text messages (down from 16% in 2011), 15% on the cell phone browser, 16% using bank applications, 3% through the Blackberry Store (12% in 2011) and 1% through OVI (10% in 2011).

Digital Marketing

AMIPCI also reported that 28% of businesses evaluated had advertising for mobile devices and 23% used geolocalization tools to promote their business.

The IAB México study says that 45% of users receive advertising on their mobile phones and 65% would like to receive it on their mobile devices in exchange for some benefit. Seventy-three percent have received advertising through SMS, 16% via email, 13% through social networks and 12% on mobile portals. Fourteen percent participated in promotions through their mobile devices (for example, answering trivia questions, sending a certain number of messages to win). Ninety percent of those who received advertising remember seeing it.

Virtual Mobile Operators

This market niche already has the first initiatives, and in the opinion of the consultancy firm Signals Telecom, there is opportunity for growth in Mexico during the next few years, even though there are still obstacles for entering the market (high investment costs in network deployment and marketing of services, high taxes, heavy investment in subsidiaries necessary for acquiring customers, a weak regulatory framework, among others).

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The Maxcom Company operates as an MVNO, offering cell phone service over the Movistar network. As of the first quarter of 2010, the company had 39,824 residential customers.

Megacable recently announced its intention to enter as an MVNO. Although it has not revealed its product, it will continue to market it among its customer base, including value-added services.

Distribution Channels and Business Models

1. Solutions related to e-commerce, web development and e-marketing are marketed through local partners who can implement these solutions directly with end customers and provide consultancy.

2. Applications stores of large telecommunications operators and mobile device manufacturers are the distribution channel for applications and mobile solutions directed primarily at the consumer market. Another channel is direct sale of mobile solutions for companies or large corporations, whether through files that can be downloaded on the provider's website or through a local partner.

3. Regarding infrastructure solutions for offering mobile or broadband services, one must directly approach telecommunications operators.

Key Players: Supply and Demand, Competitive Environment and Market Participation

During the first quarter of 2012, the primary competitors in the mobile telephony segment in Mexico included:

Primary Competitors in Mobile Telephony Operator Market Share Revenue Share Millions of Subscribers Telcel 70.0% 69.2% 66.7 Telefónica 21.8% 12.3% 19.2 Iusacell 4.4% 5.0% 5.7 Nextel 3.8% 13.5% 3.8

The main technologies used by mobile operators in Mexico include:

Operators with Their Own Network (Mobile Operator with Network-MON) • Telcel (subsidiary of América Móvil): GSM, GPRS/EDGE, UMTS (3G). LTE (4G)

launching in November 2012, • Movistar: GSM, GPRS/EDGE, UMTS (3G). LTE (4G) launching in October 2012.

http://www.americamovil.com/amx/en/

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• Iusacell (Grupo Salinas): CDMA (Digital), EV-DO (3G over CDMA) and GSM since 2010.

• Nextel México: iDEN and 3G planned for 2012/13.

Mobile Virtual Operators (VMO) • Maxcom operates under the Movistar network. • Telcel is the dominating operator in the segment. It reached an annual growth

of 12.3% in the second quarter of 2012 and accumulated revenue worth $6.39 billion.

• Movistar has had moderate positive growth with an annual increase of 1.7% in its revenue, reaching $1.02 billion. This recovery is mainly due to the increase in revenue for mobile services and the sale of devices.

• Nextel has a smaller subscriber base in the segment, although it ranks second in revenue. This is because customers tend to be business and executive type, with the highest Average Revenue Per User (ARPU) on the market, with revenue at nearly $1.06 billion.

• Iusacell is the smallest operator in the segment in terms of revenue, with a total of $508 million in 2012, although it maintains a positive growth (2.79% annual in ARPU in the first half of 2012 and 35% in the number of customers in the third quarter of 2012, compared to the same period the previous year), driven by the next-generation services that it offers.

Investment

In 2011, of the total investment in telecommunications ($4.9853 billion), the segment with the highest share was mobile telephony, with 36.1%, a result of higher investment in infrastructure for data and Internet services. The primary mobile operator only made investment for 14.3% of the total invested in the sector. This is because in 2011, 80% of its investment was used for its operations abroad. Investment of other operators reached a maximum historical level in 2010, with 75.3% of total investment. Projects in Mobile Telephony Nextel Nextel is developing a next-generation network, starting the first phase of the project with an investment of $1.4 billion, and with the goal of reaching full coverage between 2014 and 2015.

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This network (Nextel Evolution) already covers 34 markets and 50 million people. The firm will offer new services in the mobile broadband segment, for which it invested $3 billion, which in addition to the $7 billion the company has invested in its classical network, will allow it to expand its coverage. In an alliance with Motorola, Nextel will launch a line of Smartradio and tablet devices, as well as new versions of Huawei, Qualcomm and BlackBerry devices. In addition, the company will continue working with its iDEN network. Telefónica Movistar In 2012, Telefónica Movistar unveiled unlimited data service plans and a Long Term Evolution (LTE) expansion plan to have full coverage in highly concentrated populations in 2014. The network will require an investment of $240 million between 2012 and 2013 and will operate commercially beginning in October 2012. Its commercial strategy includes a mobile wallet in partnership with MasterCard, and an operating system for mobile phones based on open web technologies (Open Web Device, OWD), developed with the support of Mozilla, to reduce development costs and produce smartphones at a lower price. Movistar is currently unable to make major investment in infrastructure to support its operations, so it will seek allies. The company is seeking partners to expand its service to communities of 3,000 to 8,000 inhabitants and in exchange with the investment, will obtain exclusive rights to market its products and a percentage of the revenue for calls.

Market Opportunities

Perspectives Due to the drop in the costs of access and of mobile devices, penetration of mobile telephony will reach 106% in 2016. The market will begin to show signs of maturity, with an annual growth rate of 6.1% in 2012-2016. 3G networks will expand due to recent mobile spectrum auctions and the entry of new operators, but voice services will continue comprising the bulk of the mobile market. Pyramid Research estimates that by 2014, between 27% and 30% of cellular customers will use the mobile broadband service, so 32.9 million subscribers will have this service. A FUMEC study projects that the revenue from data traffic in the Mexican mobile market will grow 120% between 2010 and 2015. Opportunities In general, the greatest opportunities in the mobile telephony and broadband market in Mexico include:

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• Applications and tools for mobile phones and smartphones using the Android

platform, as well as for iTunes, primarily entertainment. • Applications for mobile banking and banking transactions through SMS. • Applications for digital marketing, mainly mobile social networks, SMS. • Mobile e-commerce solutions. • Tablets and mobile equipment. • Platforms for value-added services.

Canadian Government Contacts

Embassy of Canada in Mexico Contact: Guillermo Larios E-mail: [email protected] Consulate General of Canada in Monterrey Contact: David Valle E-mail: [email protected] Consulate of Canada in Guadalajara Contact: Fernando Baños E-mail: [email protected] Foreign Affairs and International Trade Canada Website: www.tradecommissioner.gc.ca

Bibliography

• Select - Seminario Soluciones y Servicios Telecom 1T2012, May 2012 • Market Report, Mexico, October 2011 • El Semanario- Operadores Móviles Virtuales, El negocio de mañana, 2011 • El Economista - Nuevos Operadores Móviles, September 2012 • El Universal - Nueva red de banda ancha móvil, September 2012 • IBTimes Mexico - Inversión sector telecomunicaciones en México se contrae

en 2011, January 2012 • CNN Expansión - México usa poco la banda ancha móvil, December 2011 • CNN Expansión – Telefónica se desinfla en México, October 2012 • CNN Expansión – Los mexicanos quieren más banca móvil, May 2012 • CNN Expansión – México, penúltimo de OCDE en banda ancha, July 2012 • CNN Expansión – Movistar con red 4G para México en 2014, September 2012 • CNN Expansión – La web ‘nómada’ se expande en México, February 2011 • CNN Expansión – La clave de los negocios en internet, May 2012 • El Economista - Valor del mercado móvil, August 2012 • El Economista- LTE: incrementar competencia en banda ancha, July 2012

mailto:[email protected]



http://www.tradecommissioner.gc.ca/

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• Mediatelecom Policy & Law – Banda ancha móvil proyecta indicadores del sector al 1T12, May 2012

• Intolerancia Diario - Aumenta el uso de internet móvil en México, November 2011 • El Economista, Banda ancha móvil despega, crece 74%, August 2012 • Azteca Noticias, Uso y hábitos de dispositivos móviles en México, December 2012 • IAB México, Estudio de Usos y Hábitos de Dispositivos Móviles, 2012 • Informador, Dispositivos móviles portarán triple de publicidad en 2015, 2012 • El Universal, México se rezaga en banda ancha móvil, July 2011

[1] The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information.

[2] PPP Methodology

[3] All monetary amounts are expressed in Canadian dollars, unless otherwise indicated. The conversion rate to Canadian dollars is based on IDD Information Services, Tradeline, February 2013.

[4] Information from Cofetel from 2012 indicates that 17% of cell phone users had smartphones, 83% had cell phones and 5% had tablets.

[5] Essential: calendars, notes, alarm, SMS, phone; entertainment: viewing photos, videos, listening to music, taking photos, playing, radio; Internet: looking for information, browsing, social networks, chatting, sending/receiving emails; specialized: news, office, bank transactions.

[6] Study done on 117 companies. For reference on the participating companies, one can access the full study, in Spanish.

http://www.amipci.org.mx/documentos/est_com_electronico2012.pdf

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Mobile Telecommunications and Broadband Market - Mexico · Mobile Telecommunications and Broadband Market [1] - Mexico. Sector Overview . The total number of mobile phone subscribers