VAS: the path for growth in Latin America

In terms of mobile market evolution, Latin America has always been the younger brother of far more mature markets such as Europe, US and South East Asia. For many years the region showed low levels of adoption and ARPU. It was not until 2007 and 2008 that there was a rapid growth of mobile adoption and some countries of the region, such as Argentina, Chile, Colombia and Venezuela, but also most of the Caribbean started to show levels of penetration similar to those of Western Europe and South East Asia. By the first trimester of 2009, Argentina and Venezuela had exceeded 100% percent of mobile penetration, while Chile and Colombia had reach over 90%. But it is not until the end of 2009 and beginnings of 2010 that will see the two largest economies, Mexico and Brazil, reach a penetration level over 80 and 90 percent respectively.

For the last years, the strategy used by operators in the region was to promote mobile communications to every corner of the continent, from all major cities to the most recoded places in south Patagonia, Atacama Desert, to the Amazon jungle, and the Caribbean seas. This strategy, based on aggressive price competition was extremely successful. Operators achieved its objective of mass adoption of mobile phones. However now that penetration is reaching saturation, operators will have to find a new way to keep growing. In some countries, operators will continue pursuing for new clients, and number portability is a new tool that governments are promoting to keep the market competitive. Mexico, Brazil, Colombia and Ecuador will be the first countries to face this new competitive scenario. But, this is not enough in order to keep growing.

In this new scenario, mobile operators are migrating the core of its strategy towards increasing clients spending, particularly in value added services. While there is an idea that mobile voice communications will start replacing fix communications, most operators in the region keep promoting the advantages of using mobile voice communications, especially among users of the same company. In some cases, such as Movistar Argentina, Tigo Colombia or Claro Brazil, the company offers a reduced price per minute for the communications among lines of the same company. On a more aggressive strategy, companies such as Telcel in Mexico, Oi in Brazil or Tigo Colombia offer pre and post paid plans with an amount of free minutes (local or long distance) for any number of the of the same operator. This strategy can be compared with some operators in North America and Western Europe that have unlimited free minutes for calls to lines of the same operator.

In most countries, national regulations set limits to the prices operators can charge the users for interconnection calls. In this sense, operators see more and more interest in increasing data revenues but only at this stage of development two basic conditions to promote data usage are given: the Latin American mobile user is mature enough to take advantage of the mobile data services and mobile content; and secondly, there is a technology capacity and a handset market that support mobile data.

Not every user behaves the same way. Latin America is a mixture of cultures, it can not be expected that the entire region will be interested in the same VAS, however, it is possible to identify some trends that are aligned with international trends.

On one hand we have VAS that are used in everyday life by all kind of users, on the other hand we have VAS that target business users and are originated to increase productivity and support the core business of different industries.

The latest introduction in the mobile VAS market in Latin America is mobile broadband. Operators all over the region are deploying 3.5G networks to boast the adoption of mobile broadband, and along with it, the usage of mobile content, particularly music and games.

What can we expect from Latin America for the years to come? Is young Latin America growing? Certainly, Latin American mobile market has moved into a new stage of its life, it has easily left the childhood years in the past to become a teenager with a great future to come. The region is eager join its older brothers’ in grown up life, however it is up to itself to find its path, other regions experiences can only work as a guide.

By Andrés Sciarrotta, Consultant, Frost & Sullivan Latin America