By James Careless
Talk to many satellite operators in Latin America, and they will tell you the same thing: The Latin American market is not for the faint of heart. The combination of uncertain 'roller coaster' economies, political volatility and the continuing habit of incoming Latin American regimes to rewrite telecom rules as they see fit makes accurate forecasting of future business developments challenging at best.
As a result, "People trying to forecast near-term in Latin America never get it right," says George Kappaz, president and CEO of Comsat International. As for looking further into the future? That's even more difficult. With all the forces at play in this part of the world, long-term planning is nearly impossible. In other words, "Three years is an eternity in Latin America," says Mauro Wajnberg, director of space segment business for Star One SA.
This said, many satellite operators are weathering Latin America's economic storms; mindful of the opportunities offered by a population of 180 million that, in many ways, is woefully underserved. Despite all the risks, "Latin America represents the best opportunity in the near term for realizing double-digit growth," Kappaz says. "The economic recovery in the last three to four years has been impressive."
An Improving Market Environment
Latin America's recovery from its latest economic collapse is only the tip of the iceberg as far as satellite operators are concerned. What is really whetting their appetites is the apparent maturation of this region as an economic market, as governments and business literally begin to grow up.
Despite the fact that 12 presidential elections are scheduled to take place in various Latin America countries in 2006, the political situation is relatively stable, says Maria Velez de Berliner, president of Latin Trade Solutions Inc. She attributes this stability to a trend by the region's governments toward inclusion, bringing disparate social groups together rather than setting them against each other for political gain. The result is that regime change no longer necessarily means radical social change in Latin America. In turn, this creates a less volatile economic climate -- one in which investment is less vulnerable, and marketplace rules are more likely to be maintained from government to government.
Meanwhile, "Latin America is no longer depending exclusively on the U.S. market" for its export revenues, de Berliner says. Although the United States remains the region's largest customer, serving other parts of the world is making Latin American less vulnerable to U.S. market forces. This diversification is resulting in "demand for higher connectivity in Latin America; particularly in the countryside to bring it into the mainstream," she says. Projected growth in this market segment is running at 3.75 to 3.9 percent annually.
Challenges And Risks Remain
Notwithstanding the improving political and economic climate in Latin America, many challenges remain for the enterprising satellite operator. This is why companies will need deep pockets and the ability to endure business downturns if they have any hope of making their way in this region.
Adding to the challenges facing Latin American operators is what de Berliner called a "two-level market." Specifically, only 20 percent of the population in Latin America can afford the wide range of services satellite offers. Those customers often take advantage of those offerings, but the remaining 80 percent of the population that also could benefit from satellite services simply do not have the money to pay for them.
Beyond this ongoing economic divide, the differences among Latin America countries means constant bureaucratic headaches for satellite operators offering services across the region, such as having to collect fees in local currencies, says Wajnberg. "That sometimes creates a challenging environment for us whenever the exchange rate increases or decreases."
Then there is the excess of available satellite transponder space. Even though demand is growing, "there's still a huge oversupply of capacity," Wajnberg says. The result is that transponder prices "are still going down." This said, "there's an expectation that at the end of the decade, the price will recover slightly."
All told, these factors add up to continuing uncertainty for operators such as New Skies, for whom Latin America is an important player, says Dolores Martos, New Skies' vice president of sales for Latin America and the Caribbean. "Latin America is 13 percent of New Skies' global market," she says. "Six of our top 20 customers and seven of our top 20 video customers are in this region." Martos allowed that the Latin American economy is "the best it's been since the 1980s," but how much longer it will last is anyone's guess. "The growth rate hit 4.9 percent annually in the last two-and-a-half years," she says. "Our outlook is for 4.3 to 4.5 percent [growth] in 2006 with low inflation," assuming nothing goes radically wrong. Problems which could drag down growth include social inequality and unrest, poor education, unemployment, criminal violence, and corruption, "just to name a few," she says.