Cellular Operators in Latin America

Demand for bandwidth intensive mobile services is increasing across the board in Latin America. This is presenting significant opportunities for satellite companies in the backhaul arena. We assess the opportunities for satellite players in this vibrant market.

Latin America is hot market for satellite right now. But, it is not just in the areas of broadcasting and pay-TV. The cellular backhaul market is a vibrant one, and many telcos are now turning to satellite as part of their backhaul solutions.

When you drive down the roads in rural, remote Peru, there are a few omnipresent structures. They’re not basic services such as sanitation or paved roads, but a Claro antenna on the top of every rustic, dilapidated building. This is a very good metaphor for the role of telecoms services in Latin America.

It is a developing region with significant potential, however one that lacks basic infrastructure in many areas. But people everywhere, though they might not have access to basic public services, are demanding broadband as part of their telecoms services. Among its 570 million inhabitants distributed through an area of 21.069.501 km² — roughly 15 percent of the earth surface — there is a growing need for connectivity to very remote areas, often where there are no proper roads.

“Cellular backhaul via satellite remains one of the key drivers of satellite capacity and ground system sales in Latin America. Though most countries make use of satellite-based backhaul to a larger or lesser degree, the lion’s share of demand comes from Peru, Brazil and Colombia. These three countries share a common set of conditions enabling large-scale satellite-based backhaul deployments: Geographically challenged terrestrial infrastructure, large and distributed populations, active USO government policies and general economic growth,” says NSR analyst Carlos Placido. “The large majority of cellular operators already make use of satellite-based backhaul in areas without proper terrestrial access and there is a fairly concentrated marketplace of players in South America, with the Telefonica/Movistar and Telmex/Claro groups leading this space.”

Claro in Peru, Vivo in Brazil and Comcel in Colombia, according to Placido, are three of the most progressive companies using satellite backhaul in Latin America. “One of the most interesting cases is Telefonica in Argentina, which has carried out one of the most pragmatic network optimization projects in the region. Telefonica has relied on link and application-aware technologies to squeeze more bits per hertz of satellite capacity, maximizing its return on investment. To maximize throughput and free up capacity, Telefonica has selectively incorporated Advanced Coding and Modulation (ACM) technologies such as DVB-S2 ACM, Flexible LDPC coding, outbound carrier cancelling and GSM protocol optimization,” comments Placido.

Growth of Mobile Services

Telefónica-Vivo is one of the biggest telecoms players in Brazil and provides almost 90 million connections in the country, both in mobile and fixed services. The demand for backhaul services is increasing. José Antonio Guerra Expósito, manager for satellite services, Telefonica-Vivo, says, “The growth of mobile telephony services is overwhelming, and we are overcoming coverage gaps in remote areas thanks to satellite. Satellites are a key element for Vivo to reach every populated area in Brazil, especially in a society where mobile has become a basic element. In that sense, satellites guarantee an important growth for us in the next few years,” he states.

Hybrid solutions seem to be a good way to go among Latin America satellite customers. “We have made a strategic bet on a solution based in C-band for cellular backhaul connections, VSAT in Ku-band for corporate networks and projects of digital inclusion and VSAT in Ka-band for corporate networks in urban zones,” says Guerra Expósito.

Guerra Expósito also says that satellite solutions allow Telefónica to do multicast and transmit content to several users occupying the bandwidth that traditionally only one user would consume. “Our satellite hubs are connected to Telefónica’s MPLS network. Since we are a provider that offers VPN with MPLS connectivity, this leads to higher quality and security for our corporate customers,” he says.

Only Solution

Hermán Camilo Mariño Montoya, network planning manager from Tigo, a Colombian service provider, says that satellite backhaul is the only solution in Colombia in areas where fiber and microwave technologies are not options due to the country’s topography. “The current demand is superior to 1 Mbps, the initial capacity for this kind of technology. The needs for bandwidth has increased due to the rise of mobile phone usage, and also to the changes in mobile network,” he says.

According to Russell Ribeiro, regional vice president of sales for Gilat Latin America, fiber networks are not going to be able to get to markets where the carriers are already accessing with backhaul. “The market is huge in Latin America. It is definitely getting bigger, although it is hard to estimate. Also, I can see a growth in integrated solutions, such as VSAT with BTS and future exciting scenarios, where DAMA and SCPC work inside the same VSAT in the future,” says Ribeiro. “In Brazil, TIM and Vivo, Tigo in Colombia and Bolivia, also Entel for Bolivia, Claro in Nicaragua, Iusacel in Mexico and Telecom Argentina in Argentina are a few carriers investing currently in satellite solutions,” he adds.

Broadband Penetration

Mobile broadband penetration in Latin America is still relatively low — less than 15 percent — however in Argentina, 48 percent of mobile plans have a mobile broadband element. Brazil has 41 million users of mobile broadband and projections show an upward spiral. 4G Americas expect this less than 15 percent broadband penetration figure to increase to 57 percent in 2015.

The perception is that the opportunities to derive revenues from these areas is strong because most of the players assume that there’s a bandwidth shortage going on, specifically because of the increase of demand and the current lack of proper solutions. “Although, demand for data and video services contributes to this situation, at NSR we tend to view capacity crunch in Latin America as more of a supply rather than demand issue. Satellite capacity supply comes in multi-year waves and over the past years, supply has been lagging demand. Let us not forget that, as volatility characterizes emerging markets, global satellite operators have been cautious with regards to adding capacity promptly; a past scenario of oversupply in Latin America is still active in their memories,” says Placido.

Oversupply Scenario

Jorge Vilarreal, CEO of Mexican service provider, Elara, says the company has been using satellite since 2004. “We started operations in Mexico City in 2004. The idea at the time was to introduce new satellite technologies that could serve some specific unattended niches in Mexico and Latin America. At the time, there were not specialized service providers for these niches,” he says. Back then the idea was to provide turnkey services to specific vertical markets that were in need of high bandwidth and IP connectivity via satellite.

“We came to know about iDirect, implemented the first iDirect hub in Latin America and that was how the company was started. Today, we cover different vertical markets like retail, oil and gas, mining, construction, retail, corporate, finance and also several specific government projects in Mexico, using for example Wi-Fi and VSAT solutions for Internet and fixed telephone lines in remote locations. We operate our network using our teleport and carrier class SLAs. We cover the region using five different satellites,” says Vilarreal.

Brazil is a very good example of a rich market for the satellite industry since it has all the conditions that demand these kinds of solutions. It has a growing economy, barely impacted by the current crisis because of the social measures instituted by recent governments and offers an attractive scenario for foreign investors. More than 40 million Brazilians that have moved from lower to medium classes in seven years, going from just less than 63 million people to more than 103 million people in 2011, a growth of 64.3 percent, according to Brazilian research group, Cetelem BGN.

There are new opportunities to offer telecoms services to these dynamic new middle classes. They are potential consumers for fixed and mobile broadband services in Brazil. By the end of 2011, almost 80 million people of its 190 million people in Brazil were using the Internet in their homes or offices. Also, broadband currently reaches only 47 percent of the Brazilian territory due to the lack of cable infrastructure. “The usage of smartphone data plans is one of the determining drivers for expanding any telecoms business. In Brazil, satellite will help taking voice and data in 2.5G, 3G or 4G anywhere,” says Guerra Expósito.

Government Project

Brazil has an ambitious government project called Public National Broadband. The aim of this project is to provide 1 Mbps broadband services for $17 a month to households in remote regions. This also brings a new perspective to the market in Brazil. The Brazilian government has plans to launch two satellites to use as backhaul, one in 2014 and one in 2019, to supply broadband services in more than a 1,200 cities that cannot be reached by terrestrial infrastructure.

There is relatively little information currently disclosed on this project, as official agencies are using fair amounts of discretion. But it is known that the satellite solutions could be able to provide solutions for those 1,000 to 3,000 remote cities, especially in the North part of the country. According to the Telecoms Ministry in Brazil, this solution should be able to help provide broadband to at just fewer than 25 million people in remote, not so populated areas.

The dilemma for the telecoms operator is that, according to them, it is impossible to offer a 1 Mbps service for roughly $17 and use an expensive backhaul solution. The state-owned company Telebras, responsible for phone services during the 1970s, was broken up in 1998 and brought back to life by former president Lula to manage PNBL, the National Broadband Plan.

A great number of end-users believe that mobile broadband services in Latin America are very expensive. In Brazil, for instance, it costs on average 24 times its price in the United States, which corresponds to 31.8 percent of the minimum wage . The companies say that it is hard to offer attractive prices when using backhaul satellite. “The client always wants more bandwidth capacity for a lower price, and that is naturally not so easy to provide,” says Guerra Expósito. “It is necessary to design our networks very carefully, optimizing information in baseband and communications in radiofrequency,” he adds.

For Vilarreal, satellite use, although very fundamental in the region, could lead to significant increases in the price of the services. “In some cases, as a request from the costumer, we need to control the applications being used by the end-user to control the bandwidth costs on the satellite. In terms of the mobile area, even though it is possible to provide satellite backhaul for 2G, 3G for reaching remote locations, what we have seen operators are more interested in is 2G when using a satellite solution. This is where the best level of cost/kb is reached,” he explains.

“As a result of tight capacity supply and high prices many players are increasingly putting focus on network optimization to make room for growth,” says Placido. Montoya says when the demand for broadband rises due to mobile technology development investments in satellite can diminish. “This is because of the very expensive costs of satellite segment and the very short opportunities to use this particular infrastructure. We are considering using fiber optic technology and restricting satellite usage,” he adds. But he also agrees that the need for backhaul should be three or four times bigger than the current scenario in two or three years.

Future Scenario

Even though there are still a few obstacles to overcome, the main one being the high cost of satellite usage in a region where services need to reach a low price due to social and economic circumstances, the whole market is emphatic when it comes to the potential growth of satellite as a backhaul solution, especially because of the shift of focus of the end-user, which previously demanded voice services, but now demands data.

“Latin America is the ideal arena for satellite expansion for a number of reasons. For Telefónica, it is the region in which we have the greatest penetration of services,” says Guerra Expósito. “Some places are impossible to reach with terrestrial infrastructure. In Vivo, we deal with capacities that overcome 1 Gbps, which is not surprising compared to the bit rates running through cables, but it’s huge if we are talking about satellite,” he adds.

Frost & Sullivan projected that the total amount of revenues derived from data communications services in Latin America, mainly in Brazil and Mexico, will grow from more than $4 billion in 2009 to more than $6 billion in 2015: a compound annual growth rate of 7.4 percent.

Villareal says the amount of capacity is increasing 20 percent to 30 percent each year. “And we expect this number to continue growing. There is a lot of room to grow and solve communications needs with satellite. Operators now see how easy it is to integrate and use these technologies seamlessly with their existing networks,” he says.

Placido agrees. He expects that a shift from a voice-centric to a data-centric mobile ARPU environment will be the main driver of the market in the oncoming years. “Backhaul of mobile data will shape satellite-based backhaul networks in the future, but the revenue per transport bit associated with mobile data is substantially lower than voice revenue, making it very challenging for operators to match data revenue with the cost of traditional FSS transport. Recognizing this, regulators are imposing more relaxed conditions with regards to the expansion of data access towards new locations or municipalities,” he says.

Placido believes data backhaul will mean more focus on the scale of satellite networks, on the use of optimized technology and potentially, HTS capacity. “HTS could indeed come to the rescue of the mobile data backhaul business model and push cellular backhaul further towards outsourced managed offerings. Currently, satellite service providers like Telespazio are offering outsourced backhaul services to operators in Brazil and Argentina and this trend may be emphasized in the future as more emphasis is put on IP data backhaul,” says Placido.