Monday, March 15, 2004


Telecommunications – Latin America market

Spain: Telefonica swoons to the Latin beat

Following its recent US$5.8bn purchase of the Latin American assets of Bell South, Spain’s Telefonica is not only the largest mobile operator in Latin America--it now stands alongside Vodafone, China Mobile, China Unicom and Deutsche Telekom as one of the top five mobile operators in the world. In the ultra-competitive mobile sector, however, it is not yet proven that big is best, says Business Latin America
Although the global telecoms market recovered last year, the sector’s biggest players still bear the scars of the downturn of 2001/02. For most companies, balance sheets remain stretched and margins have yet to return to their former strength. Telefonica’s long-term debt, for example, built up during the group’s big expansion during the last boom, is now shrinking. But at E19.2bn, it still tops shareholders’ equity of E16.7bn. And while the company stopped losing money last year, its net profit margin in the last quarter of 2003 was only 2.5%.
Still, it is not difficult to see why the company is betting on its mobile-phone business. As the company itself points out, this part of its business became the biggest contributor in terms of the group’s profits before interest and tax last year and now accounts for nearly a third the company’s total sales of €28bn. However, despite the fast growth in this area of the business, with the number of new subscribers jumping by a factor of five in the fourth quarter alone, Telefonica’s margins were lower in the fourth quarter than for the full year.
In addition to the competitive nature of the mobile-phone market, Telefonica’s latest deal also increases its exposure to Latin America where the political and economic climate are less stable than in Europe. Indeed, although the company enjoys a A/A-1 credit rating from Standard & Poor’s, the ratings agency recently announced it was placing the company on its CreditWatch list with negative implications following its decision to buy BellSouth’s Latin American mobile businesses. The rating agency cited the "economic, financial and political risks of operating in Latin America and the investments necessary for the future developments of these operations" as reasons for issuing the warning.
Learn the limbo?
For Telefonica, however, Latin America offers a great deal of opportunity that is simply unavailable in the developed world. According to recent market statistics the number of mobile subscribers per 100 in Europe is 84, while in Latin America the number is just 27 per 100. And while Latin America’s economic performance has been poor since the beginning of the decade, growth picked up last year and recorded an overall expansion of about 1.6%, according to the Economist Intelligence Unit. The EIU also forecasts annual economic growth for the region should average nearly 3.4% through 2008.
Given these statistics, the company should easily be able to see its mobile phone sales grow by 4.5% a year through 2006, which is a higher growth rate than any other European telecoms company is predicting. The problem, however, is that Telefonica will be winning that growth in countries with high currency risks, high political risk and with non-investment grade markets. Argentina, for example, cost Telefonica more than €3bn by ending the peso’s link to the dollar in 2002.
And even if it does negotiate these risks, longer term it remains unknown whether demand for mobile phones in the region will expand as it has elsewhere in the world. In Venezuela, for example, 80% of the country’s population is living in poverty. And as in other developing countries, pay-as-you-go phones are proving to be the most popular. However, this kind of account is the least lucrative for the phone companies as pre-paid phone customers are less likely to purchase the more profitable add-ons, such as picture and video-phones or Internet-linked services.
Against this, however, remains the fact that the mobile phone can also put even the smallest entrepreneur in touch with customers and clients across the country. Should Latin American entrepreneurs adopt mobile phones as they have been in China, where small, family-owned businesses are the norm, Telefonica’s bet could well pay off. In the meantime, however, the company will need to stay ruthlessly focused on the bottom line if it wants its Latin American gamble to pay off.
Source; Basic data from BLA, March 2004

IT – Wireless

WiMAX, NLOS and Broadband Wireless Access (Sub-11Ghz)

Market Trends
Fixed broadband wireless market (sub-11Ghz) will grow from $430 million in 2003 to more than $1.6 billion by the end of 2008. In 2003, BWA shipments increased 45% over 2002. Vendors have announced both multi-million dollar contracts and hefty growth earnings compared to 2002. Technology news editors are now talking about a BWA come back with the emergence of millions of WiFi access points connected by more flexible and less costly fixed wireless solutions.

Despite the 2001-2002 market slowdown, the steady demand for bandwidth, coupled with wider access to the Internet and data in general, provide sound fundamentals for expecting future growth in both telecom services and equipment sales in the first/last mile. In other words, both residential and business subscribers worldwide are demanding faster connections for their applications and operators are struggling to give them that access. According to the ITU, there were almost a 100 million broadband subscribers worldwide at the end of 2003. Although DSL and Cable are poised to remain the dominant broadband access technologies worldwide, wireless access technologies are becoming a reliable and cost effective complement or alternative to providing data, voice and video services. Governments worldwide are also driving the growth of Broadband through continuing frequency allocation and programs to subsidize broadband deployments in order to reduce the digital divide between regions of high and low density areas.

Some Key Findings include:

- There were over 10,000 PMP BWA (sub 11Ghz) base stations and 1.2 Million CPEs installed worldwide providing 256Kbps+ broadband services to over 1.5 million subscribers.
- Alvarion is the market leader with about 25% market share followed by SRTelecom with 12% and Proxim with 9%; ZTE is the market leader in the fast growing Chinese market with about 30% market share;
- EMEA which represented 32% of the overall market in 2003 continues to represent the largest market opportunity but Asia will outpace it by 2005;
- The carrier and private networks market segments represented respectively 85% and 15% of the total market in 2003;
- The access and backhaul applications represented respectively 84% and 16% of total sales in 2003. However backhaul will represent 30% of equipment sales by 2008;
- 3.5Ghz, the most allocated frequency band for BWA, represents the largest opportunity for BWA representing 40% of total sales followed by the 5.2-5.8Ghz band. We believe the 2.3 and 2.5-2.7Ghz market share will grow to 25% of the market by 2008
Already 12 vendors offer a 3.5Ghz product and 4 more players will offer a 3.5Ghz product in 2004, which will render that band market even more competitive
Among Plug & Play, NLOS, portable systems, IPWireless is the leader in shipments and revenues, followed by a small group of companies, which include Navini, NextNet Wireless, or SRTelecom (Angel). It is however difficult to sub segment the whole market on system capabilities.
Shipments of OFDM based product already represent 39% of all shipments and that proportion will grow with the adoption of 802.16d to close to 60% by 2008 Shipments of 802.16e will grow exponentially after 2007 to 1 million units and will be dominated by Intel deployments.
Source; Data from Maravedis Inc., March 2004


IT – M&F

BayStar Confirms Microsoft Connection to SCO Investment

The cat is finally out of the bag: Microsoft Corp. acted as the matchmaker for the $50 million investment led by BayStar Capital into The SCO Group Inc. last October.

Internet – Entertainment

George Michael to offer songs for free online

Singer George Michael plans to quit the music business after his latest album and issue any of his new creations for free on the Internet.
Source; Internet Magazine

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