Telcos in Latin America: What is Their Satellite Play?

The demand for communications and video services is placing pressure on telcos in Latin America to come up with creative solutions to meet customer needs. Satellite is becomingly an increasingly attractive option for telcos, whether in the enterprise space, or the progressively crowded video markets.

Internet connections are growing at a quite a rate, especially in Brazil, where the mobile market is in the middle of a boom period. According to research conducted by Ibope NetRatings last September, Brazil is the most connected country in Latin America and has earned the title of the fifth most connected country in the world with around 83 million Internet users, a large portion of which is now moving towards a high mobile broadband usage. The situation could have ramifications for the satellite industry, given the pressure it is likely to put on terrestrial networks. Cellular backhaul has long been a market targeted by satellite players and Brazil could offer rich pickings for satellite.

The trend of high mobile Internet usage is mainly due an increase of cheaper smartphone options in the market. A recent report from the International Data Corporation (IDC) states that smartphones under $350 are pushing the market in Brazil and will make up 64 percent of the total smartphones sold in 2012. In the second half of 2012, the industry sold 65 percent more smartphones compared with the same period in 2011. IDC expects a growth of 78 percent in the market by the end of this year and by 2014, these phones will surpass the selling of regular mobile phones in Brazil. “The market has more competitors and that’s what’s increasing the options for the consumer and lowering the prices,” says IDC in its latest research on the market.

Huge Demand

Recently, this huge demand has directly impacted the public image of one of Brazil’s biggest players, the mobile data and telephone services provider TIM, which was handed a severe punishment by national telecoms regulator Anatel. After a number of users’ complaints, Anatel accused the company of dropping customers’ calls on purpose to preserve bandwidth and increase charges per call.

The final decision has yet to be determined in the courts, but the scandal has already led to a major change in Brazilian communications law. No carrier can charge for consecutive calls originating from and designated to the same numbers in an interval of 120 seconds. “If a call is interrupted for any reason and the user tries again in 120 seconds, the second call will be considered part of the first one as if it wasn’t interrupted in first place,” Anatel said in an official statement issued at the end of November.

This scenario is a reflection of the good economic situation in Brazil and it also changes the products and services that the carriers are offering. All the big mobile players in Brazil – Oi, TIM, Claro, Vivo – have launched pre-paid Internet solutions for their users in the last 18 months, targeting this growing market. They cost from approximately $.25 to $1 a day and greatly increase the mobile Internet bandwidth needed to provide services. Events such as the World Cup and the Olympic Games – both of which are set to be hosted by Brazil over the next four years – will likely see an explosion of Internet mobile usage. Given the bandwidth demands, satellite may well come into the mix.

Even though Brazil leads this already stable growth in demands for satellite services in Latin America – especially due to its large territorial areas – the whole region still has a lot of room for growth. In 2011, the average household penetration of pay-TV market in the region was 32.1 percent. It grew 69 percent in Argentina, 50 percent in Puerto Rico and 45 percent in Chile. Mexico, Argentina and Colombia are also drivers, according to data by Pyramid Research Analyst Eulalia Marin-Sorribes. Pay-TV services via satellite is still expected to see strong growth until 2017, according to Marin-Sorribes.

While there are likely to be strong demands for extra satellite capacity from wireless operators, some of Brazil’s telcos need satellite to boost their video offerings. One such operator is GvT – one of the youngest Brazilian broadband Internet and pay-TV providers. Its DTH solution is different from other players’ because it uses a hybrid formula, but satellites are still fundamental to their services of delivering linear channel content.

“We use satellite mainly for DTT/DTH channels and in our specific model, which demands for large amounts of satellite on one single satellite. But an increase in the demand, motivated by the World Cup and the Olympic Games, is definitely going to take place soon,” explains Juan Claros, GvT’s vice president of engineering and operations. The company acquires a great deal of satellite capacity, but it has noted that it needs more capacity than is currently consumed. “There’s a strong movement towards migrating SD to HD, and that will definitely force DTH operators to up their bandwidth usage,” he says.

Level 3

Level 3 is another telco in the region that is a big acquirer of satellite capacity, both for video and enterprise. The advantage of Ku-band is that it provides services for video transmissions directly to users, and is able to deliver these Internet and telephone services to remote locations, which is key to Level 3, according to the company’s satellite & video transport and IP-VPN product manager Guillermo Zapata.

“Because of the need to have applications that are increasing in demand, and because of the need of convergent services, we are observing a trend that points to using different types of capacity,” says Zapata, who thinks because of Level 3’s ability to combine terrestrial and satellite infrastructure and platforms, its resources have not been stretched. “Transmission platforms are more efficient these days and offer mechanisms to speed up traffic and allow savings on capacity,” Zapata adds. “But that didn’t surprise us at all – the demand (for satellite capacity) has only been going up in the past couple of years.”

The demand [for satellite capacity] has only been going up in the past couple of years.
­— Guillermo Zapata, Level 3

Level 3, bought by Global Crossing around a year ago, has 20 years of experience in delivering telecoms services in Latin America. “For us, the benefits that our coverage, using satellite, provides beyond existing terrestrial infrastructure are very clear, especially in such a diverse region spread over a large geographical territory. Here, productive urban centers and small towns can be so far apart,” says Zapata.

The challenge is to keep prices viable for companies present across the region. “The technical difficulties are to keep enough satellite capacity to cover the whole region and to make these projects doable,” Zapata adds.

The current satellite usage of Level 3 fulfils corporate needs in the transport of IP traffic both for private networks, such as IP-VPN, and for Internet connections. In the case of services that are oriented toward private networks, such as Extend IP-VPN, they also permit managing the quality of the transport, which allows all sort of converging applications: data, voice, video, collaboration etc., besides allowing connection to the root IP-MPLS (Multi Protocol Label Switching) terrestrial infrastructure. “Yet, due to the aforementioned last generation platforms we use to accelerate IP/TCP traffic, we can minimize the satellite connections appropriately, making possible the transport of applications that are more sensitive to weather conditions, such as voice and video,” says Zapata.

Telefonica

Telefonica is present across many countries in the region and uses satellite in a variety of ways. Last year, Telefonica del Peru signed a deal with iDirect to launch VSAT services based on iDirect technology. Senior Satellite Product Manager Martin Cabellos Gomez says new satellite solutions are a key component for its service chain. “We manage a scale economy scenario to acquire complete transponders in several bands,” he says. “Our biggest challenge is to reach the most spectral efficiency possible when offering these services.”

In Peru, Telefonica focuses on platforms in Ku-, C- and Ka-band, with their most important partners being Satmex, Intelsat, SES and Telesat. “The improvement of traffic engineering and of the QoS of the satellite platforms is helping to alleviate the stress caused by the growing bandwidth demand in our networks,” he says. Gomez also says that over the next couple of years, the company intends to broaden its portfolio. Currently, Telefonica del Peru works mainly in SCPC mobile backhaul, VSAT services for broadband Internet and mobile backhaul, VSAT for broadband in Ka-band, VSAT IP VPN and SCPC for enterprises etc.

Peru, which has a population of about 30 million, is a market that is seeing an economic upswing. Telefonica del Peru works with around 2000 companies in the country, from which the highest demand for satellite services is coming from the mining, construction and health service industries. However, there is also a demand from the public sector as they look to inter-connect their offices across Peru.

“Peru is the country with the largest growth in the region, in a sustained an incremental way. Our economy grew in 6.1 percent during 2012 versus Colombia (with 4.9 percent). Opportunities are in every vertical segment of the market. We are expecting 15 percent growth this year,” Gomez adds. “We estimate we have around 80 percent marketshare of the 2012 corporate VSAT services market. The growth we expect to see over the next year will reflect the economic growth that is taking place in Peru and the increased confidence of our corporate customers. Our satellite corporate solutions are an extension of Telefonica’s MPLS backbone so we aim to offer a range of corporate solutions.”

Telefonica is present all across the region, and is one of the world’s largest telcos. According to Telefonica Argentina Consultant and former Director of Engineering Leonardo Gabriel Arce, there’s a big market for satellite communications in Latin America. “Telefonica, for instance, is working on an ambitious project on a regional level with Media Networks, its unit based in Peru, using satellites in Ka-band, reaching not only Latin America, but also the United States,” Arce comments.

He agrees with Gomez regarding the main challenge for the local providers being the ability to find a viable economical solution that provides customers with low cost, technically efficient 3G and 4G solutions. “Satellite technology has reached a very important mature stage. Nowadays it’s possible, with a VSAT TDMA platform, to provide connections that are almost SCPC, which keeps high levels of service quality,” Arce says.

It is this explosion in mobile applications that means the satellite industry can be optimistic going forward in Latin America, and shows more than ever, that telcos in the region, whether industry giants like Telefonica, or new operators like GvT, will continue to include satellite technology in their roadmaps. Arce is somewhat amazed with the recent demands – not with their size, but with their nature. “The explosion of available applications continues to be surprising, and the modern need to have everything available wherever one is, is naturally leading to increased demand for satellite, which is key for reaching any sort of location,” he says.