Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?

Back in late January, I wrote (on my former blog, since handed over to a former colleague) about how Ecuador's struggling state-owned CDMA mobile operator Alegro PCS was the subject of reported offers for prospective strategic partnerships from Uruguay's Antel, and Venezuela's Movilnet, both of which are also owned by the Governments of their respective countries. I noted then that these offers both came from countries which, like Ecuador, have left-of-centre governments. This prompted me to mull over the subject of the possible telecoms sector links between politically sympathetic Latin American countries which I'd learned something about on my own travels in that part of the world. It's a topic I personally find quite interesting, so I took the opportunity to expand on this theme here in March.

Today, thanks to TeleGeography, I received an update on the news item which set this train of thought in motion - the state of play at the ailing Ecuadorean cellco. In January, I'd reported news that Alegro PCS was said to be 60 to 90 days away from reaching an agreement with a foreign strategic investment partner. This has clearly taken a bit longer than anticipated to play out. Today's news from TeleGeography suggests that the cellco is now still "approximately two months away from reaching an agreement" with a partner. The article does not clarify which company this partner is likely to be, simply repeating the ones mentioned at the start of the year, which included Telekomunikasi Indonesia (Telkom) as well as the Venezuelan and Uruguayan parties. The fact that this back on the news wires, however, might suggest that some progress is being made.

If a deal of this sort is not reached, it looks as though the Ecuadorean Government will force the sale of Alegro PCS, according to the country's President, as quoted in the TeleGeograpy article, which also notes that the CDMA operator has had to delay a plan to roll out GSM infrastructure due to a lack of capital and is instead currently using wholesale GSM capacity from larger rival Movistar Ecuador. This move has yet to make a significant impact on the operator's feeble market share. When I first visited this story in January, Alegro PCS had just 1.31% of the country's mobile subscriptions according to December 2008 figures from WCIS. That figure had improved only very slightly to 1.34% by March this year.

With high reported debts and such a tiny share of the market in a country of just 14 million people, I wonder how attractive Alegro PCS is going to look to any prospective buyer if a sale does become necessary in the view of the Government. The toughness of the competitive environment is compounded by the fact that in addition to Telefónica-backed Movistar, the Ecuadorean market is home to an MNO which is part of the powerful América Móvil group, a venture of Mexican multi-billonaire Carlos Slim Helú. It gets worse. The country's 87.15% mobile penetration rate does not leave boundless room for growth, even for the two powerhouse-backed operators currently splitting the bulk of the market between them.

So it remains to be seen what the future holds for struggling Alegro PCS. I can't decide if rescue from a telco owned by the state agencies of some politically sympathetic government will ensure the long term survival of the MNO or just delay, at some cost to the friendly partner, the eventual demise of a company caught between the vastly superior resources of two powerful competitors. I'll have to have a look some time to see if there's a precedent anywhere else in Latin America for a cello successfully competing with both of the region's two dominant telecoms groups in a relatively small market. It sounds like a tough position to be in.

Ecuador's struggling CDMA MNO set to be rescued by a strategic partner?

Adventures in telecoms socialism

In January, writing an article for the Com World Series blog, I discussed the links apparently being formed across Latin America by state-owned telecoms operators from countries with left-of-centre governments. The starting point was the news that Venezuelan incumbent telco CANTV was considering a strategic partnership with Ecuador's beleagured CDMA MNO Alegro PCS. I mentioned my own enjoyable trip to Caracas in April 2008, during which I had the opportunity to visit CANTV HQ. The operator had been renationalised by President Hugo Chávez in 2007. The external affairs representative whom I met was keen to tell me about how the organisation was looking to develop partnerships with telcos in politically sympathetic states such as Cuba and Nicaragua.

At that point, I was only aware of Latin America as an arena in which state-owned telecoms service providers from countries with left-leaning governments might look specifically to markets run by political fellow travellers for new opportunities.

Last month, however, I learned from a brief Global Mobile Daily report that Vietnamese operator Viettel, owned by the nation's military, has selected Huawei and Ericsson to provide equipment for expanding its networks overseas into North Korea, Cuba, and Venezuela. The report notes that the operator has yet to enter any of these markets, and states that, according to Viettel Deputy Director Tran Phuoc Minh, discussions are planned with telecoms authorities in each country.

This is just the latest move in an international expansion strategy with which Viettel has already made progress. Last month, Viettel's subsidiary in Cambodia, using the Metfone brand, officially launched mobile services. The unit is said to have over 1000 base stations supported by a 5000km fibre-optic network linking all provinces in Cambodia. The new operation reportedly attracted 500,000 subscribers in its first three months of trial services. A Saigon Times article on the operator's foray into neighbouring Cambodia indicates that the new cellco will target low-income subscribers with a wide range of low-priced services and packages. Viettel Deputy General Director Nguyen Manh Hung is quoted as saying that this approach is not only about customer acquisition but is also intended to "contribute to society".

Viettel, the article states, also announced the provision of free Internet services for nearly 1000 Cambodian schools within the next five years. Rural rollout seems to be high on the Metfone agenda, with the operating planning to "extend its coverage to Cambodia’s remote villages and islands."

Meanwhile in Venezuela, CANTV's mobile arm Movilnet is set to launch a low-cost mobile phone on the local market. A Telecompaper report this Thursday states that the device, dubbed 'El Vergatario' is the first mobile handset produced in the country. According to Movilnet President Jacqueline Faria the device will be the cheapest available in Venezuela. To be launched for Mother's Day in May, the CDMA phone will be available for VEF 30 (USD 13.95). El Vergatario will be produced at the Venezuelan Telecommunications Factory (Vetelca), a joint stock company, in which the Venezuelan state holds an 85% stake, with the remaining 15% owned by ZTE. The article suggests that Vetelca hopes to sell around 600,000 Vergatarios this year.

Movilnet's subscribers seem to be a remarkably loyal bunch and the country's mobile market overall is one in which the three competitors' share of the subscriber base has remained largely unchanged for some time. Movilnet's competitors have not remained complacent. Movistar Venezuela has been steadily migrating customers from a legacy CDMA to a newer GSM network since March 2007 and has more recently launched W-CDMA services. Digitel, owned by Venezuelan businessman Oswaldo Cisneros, is also working to roll out 3G services in two stages, starting this month, according to local news portal Ciberespacio. The operator currently offers Huawei USB modems and by mid-2009 will integrate voice and data services.

OK, comrades. That's all I have on telecom-socialism for now.

Adventures in telecoms socialism

GSM vs. CDMA: the battle goes on?

One of the most rewarding aspects of being part of Informa Telecoms & Media's Com World Series team was having the opportunity to learn about regions which I had not previously studied or visited. Previously, while creating and hosting telecoms sector conferences for other companies, my travels had taken me to North America, Central & Eastern Europe and to Russia. My Com World Series brief took me further afield. In addition to already familiar territory, regions I covered in the Informa role included the Middle East , India/South Asia and Latin America.

In the last of these regions, my visits began at what felt like the relatively advanced stages of a protracted cellular network standard battle between the GSM and CDMA camps. A key partner in the delivery of the GSM Americas/Americas Com events in which I was involved was 3G Americas, an association founded in 2002, with a mission to unite "mobile operators and manufacturers in the Americas to provide a single voice to represent the GSM family of wireless technologies – GSM, GPRS, EDGE, and UMTS/HSDPA."

The 3G Americas President, Chris Pearson and the association's Latin America Director Erasmo Rojas led an Executive Briefing session at each of the Americas Com conferences delivered under my watch. They did a great job of rounding up CxO-level participants from key South American MNOs. I don't think they would mind me saying that on both occassions Chris's opening presentation really banged the drum for the GSM family in terms of describing advantages over rival standards.

I cannot be sure to what extent 3G Americas has been instrumental to the Western Hemisphere's migration away from CDMA technology in favour of the GSM flavour, but that migration has been significant. The graphic below, taken from the 3G Americas website (and drawn from Informa Telecoms & Media WCIS figures), shows how GSM has prevailed in the opening years of this new century:

It is worth pointing out that the non-GSM subscriptions are now, for the most part, in North America. In the USA and Canada, it is estimated that there currently exist around 153 million CDMA connections. GSM subscriptions across these two markets number around 104 million and W-CDMA lines have just reached the 20 million mark.

Looking further south, Informa Telecoms & Media estimated that in the 'Americas' region (all markets in the Western Hemisphere except the USA and Canada), there were almost 400 million GSM subscriptions and just 40.6 million CDMA subscriptions by the end of December 2008. Of these CDMA lines, the two most significant chunks were the 11.7 million connections in Brazil and the 15.8 million in Venezuela. In the case of Brazil, a single operator, Vivo, accounts for all the CDMA subscriptions.

When I looked up these figures today, I was a little surprised that Vivo, a joint Telefónica-Portugal Telecom operation, still has so many subscribers on its CDMA network. The last time I was looking closely at developments at Vivo, which was back in about May 2008, I was under the impression the company planned to shift all of its CDMA mobile subscribers to its newer GSM network. That process is certainly happening - but at nothing like the speed I imagined.

In Venezuela, the vast majority of the CDMA connections are owned by renationalised Movilnet, which has an estimated 11.3 million subscribers - vs. the 4.5 million CDMA connections of rival Movistar. Unlike Movilnet, the Telefónica-backed Venezuelan MNO has been steadily shifting users to a GSM network since March 2006. However, the state-owned cellco is also, finally, making the move to GSM. In December last year, Global Mobile Daily reported that billing vendor Amdocs has deployed a billing solution to support Movilnet's new GSM network.

We can therefore expect continuing developments in Latin America to impact upon the next version of the above graphic. Look out for further erosion in the non-GSM networks' share of Western Hemisphere mobile subscriptions.

One might infer from all of this that CDMA is a technology in quick decline towards an inevitable demise. However, recent news items from India lead me to believe that the GSM-CDMA battle is very much a live one in that country.

Earlier this week, I spotted that Sistema Shyam TeleServices is potentially looking at more acquisitions in order to gain better access to the Indian market. The company, a joint venture between majority shareholder Sistema of Russia and India's Shyam Group, was among operators to get new licences in early 2008. The nascent cellco is aiming to offer CDMA-based mobile services across the country before the middle of 2010. A Business Line/Hindu Group article dated Jan 30th quotes Vsevolod Rozanov, President and CEO, Sistema Shyam TeleServices, who says "We are open to any opportunities for acquiring a mobile services company in India to speed up our roll out plans. However, there are not too many CDMA operators in the country who are looking to sell their business." Asked specifically about well-established CDMA MNO Reliance Communications, Rozanov said, "Yes we can look at Reliance’s business if they are willing to sell. However, I do not think that is the case." According to the article Reliance was, at some unspecified recent time "considering a merger deal with South Africa-based telecom player MTN."

When the full gravity of the global economic downturn started to become clear to us all last year, I sensed that one casualty might be the international expansion plans of Russia's leading telecoms groups. In that context, Sistema's apparent willingness to spend money on growing its Indian CDMA operation suggests to me not only confidence in the Indian market but also a belief that the CDMA standard is up to the task of supporting attractive, well-priced and future-proof services.

Another sign that CDMA is to be taken seriously in India is the recent, strongly worded response of the COAI (Cellular Operators' Association of India) to reported plans on the part of one operator to make EV-DO data cards available on the market. The COAI is a club of GSM operators, a group that must surely be frustrated by the ongoing delays in the licensing of spectrum for 3G and WiMAX services. Telecoms.com reported today that having already put the spectrum auctions off until this year, because of the government's failure to clear the relevant radio spectrum in all operating regions ('circles' in the local jargon), new delays are anticipated in the wake of proposals to double the base price of the licences.

India's GSM players, then, are clearly concerned about being outpaced by CDMA operators. An article in yesterday's Economic Times says that COAI Director General T.V. Ramachandran has written to the country's telecoms Minister to seek assurances that no private player should be allowed to launch EV-DO service without 3G being made available to all players. The article states that according to the COAI, the launch of EV-DO services would be unfair to the GSM operators as "CDMA operators have ample spectrum to offer both 2G as well as 3G services and this can result in [giving] unfair anti-competitive advantage to CDMA and tilt the playing field to the disadvantage of the private GSM operators".

I daresay Mr Ramachandran and his colleagues will make a strong and persuasive case. During my stint running the Com World Series Indian event I had the pleasure of meeting the COAI Director General several times. One memory stands out. In 2007 I was asked to have lunch with Mr Ramachandran and his guests from various Indian government agencies at the conference. One of the guests, on agreeing with a point made by the COAI head, gave me a useful piece of advice about keeping tabs on telco sector developments in India. "If you want to know," said my neighbour at the lunch table, "watch T.V." I will indeed keep an eye out for more on this story. I am interested to see if the COAI can indeed prevail in their argument that EV-DO gives CDMA operators an unfair advantage over GSM operators struggling with further delays to their own 3G plans.

All of this makes me look back and smile at a very simplistic remark made to me years ago by one of my first bosses at a telecoms sector conference company. It was one of his tasks to set me on the path of cutting through the then-forbidding tangle of telco jargon. "CDMA is dead," he told me. "You only need to worry about GSM". I don't think that can have been true then given that it's abundantly clear that it's not correct even now.

GSM vs. CDMA: the battle goes on?