Latin America Stepping Up
Cable Broadband Efforts

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By Juan Pablo Conti

Juan Pablo Conti, the former editor of UK magazines The IEE Communications Engineer and Cable & Satellite Communications International (CSCI), is an independent technology journalist based in Buenos Aires, Argentina.

After enduring a miserable start to the new millennium, cable broadband technology is finally making progress in Latin America. The region's total number of subscribers (less than 2 million) still pales almost into insignificance when compared to those registered in North America, Europe or Asia. But with most of the macroeconomic troubles that so severely hampered network investments in the early 2000s now firmly behind them, Latin America's largest MSOs are busy playing catch-up.

When looked at as a whole, Latin America is a region where cable penetration has traditionally remained low. But there have been a few exceptions, notably in Argentina (where 50% of homes are subscribed to cable television services), Brazil, Mexico, and—in the last few years—Chile.

With such high penetration levels, everything seemed to indicate during the late-1990s that Argentina's cable networks would enjoy equally extraordinary broadband demand. A rush of mergers and acquisitions took place, in which practically all domestic operators participated, with a strong investment interest also present in the shape of companies such as TCI or Liberty Media.

“Even before the socio-political and economic crisis of 2001 ensued, this ferocious M&A activity had led all local operators to practical bankruptcy,” says Ariel Barlaro, director of research with telecoms analyst firm Convergencia Latina. “Nearly all of them were forced to enter into debt restructuring schemes. At the same time, there was an urgent need for a serious network upgrading process, since the majority of the infrastructure deployed was so obsolete that, in order to offer new services, it directly needed to be removed and replaced with new technology. However, because of the financial difficulties facing operators (which was compounded at the end of 2001 by a sharp local currency devaluation), they simply couldn't afford these investments.”

When Argentina's economy started to recover in 2002/2003, operators slowly carried out their debt restructuring processes, a task they have only recently completed. As the first wave of fresh investment began to reach the networks, subscribers showed strong demand for broadband services. Cablevisión, Argentina's largest operator, saw a 250% jump in the number of cable modem customers to its FiberTel service between 2002 and its latest figure of 250,000 subscribers.

Gonzalo Hita, operations manager with Cablevisión, is confident the growth can only improve as the company moves forward: “The cable modem industry is increasing its market share year by year with respect to ADSL technology. Both two-way hybrid coaxial cable and fiber networks are currently being deployed to expand our coverage into new cities in the country, which can be seen as the prelude to strong, sustained growth.”

Widening Gap

Just as in any other broadband market, ADSL technology provides the biggest obstacle to cable modem's ambitions in Latin America. The region's cable industry seems to already have paid too high a price for its long hiatus on infrastructure development—ADSL leads cable modem penetration in every single country.

Convergencia Latina estimates show that the region's seven largest broadband markets (Brazil, with 41% of the pie; Mexico, 16%; Argentina, 11%; Chile, 8%; Venezuela, 4%; Peru, 4%; and Colombia, 3%) accounted for 9 million high-speed data subscribers at the end of 2005. Of these, 7.2 million opted for ADSL, while only 1.5 million chose cable modem and 0.3 million for wireless and satellite solutions. A study completed in June by Research and Markets suggests this gap is even widening. While during 2005 cable modem customers in Latin America grew by a healthy rate of 50%, ADSL services offered by large incumbent telcos easily outpaced them, growing by 88%. However, within Chilean operator VTR's two-way footprint, the MSO has 65% market share while overall in the country, VTR has 45% of the total broadband market, including commercial services.

The most obvious explanation for this is the overall poor penetration they enjoy in the region. But, worryingly for them, even in those markets where cable networks are competing head-to-head with incumbents (namely Argentina and Chile) ADSL is also increasing its lead. And as Barlaro points out, things are about to get worse: “At the end of 2005,” he notes, “DSL penetration over the total number of Latin American telephone lines was only 6%. This shows the scale of growth potential that lies ahead for this technology, which doesn't demand as high investment levels as those required by cable networks to deploy a broadband service.”

Gathering speed

So how fast a connection are Latin America's cable broadband subscribers enjoying? The answer to that really depends on which specific country one is referring to, as there are huge variations between the most advanced and less experienced cable operations.

Chile, the country with the region's highest penetration of broadband lines, also boasts the fastest cable data throughput available today: a 10 mbps downlink / 512 kbps uplink package offered by VTR. The service is capped at 5 GB per month. Should subscribers reach that limit, the operator (which is 80% owned by UnitedGlobalCom) runs a top-up scheme offering another 5 GB or 1 GB bandwidth extensions for an extra fee.

Meanwhile in Argentina, while one of the top two cable companies there is currently offering a 6 mbps link (FiberTel), the other (Multicanal) is still stuck on 1 mbps, although the ISP that markets this broadband package (Flash, controlled by Grupo Clarín, the same company that owns Multicanal) also offers a 5 mbps service via ADSL technology.

FiberTel's Hita claims the operator is ready to keep boosting its data throughput “as new applications demand so in the future.” Ariel Barlaro notes the between 6-to-10 mbps top speeds currently being offered in countries such as Chile, Argentina and Brasil are “mainly targeted at corporate customers. For residential clients, the 1 Mbps package seems to be the standard access speed as far as the most advanced markets go. Still, for the vast majority of the region, 512 kbps is the average speed, and in less developed countries than can drop to 256 kbps or even less. I think that, in general, speed isn't the key factor for Latin America's broadband industry. Instead, availability—first—and price—then—are.”

The price of international bandwidth had traditionally proved a significant barrier for the region's telecommunications industry. But all that changed when, in 2000/2001, two large South American optical fiber rings were deployed by Global Crossing and Telefónica. In each of the countries where both of these fiber networks landed, strong competition forced the price of international bandwidth drastically down. “The only country that had a lot of trouble with this was Colombia,” says Barlaro, “because none of the two cables had landing points there (the Global Crossing one was scheduled to, but then the carrier filed for Chapter 11 bankruptcy protection and couldn't do it). So, for Colombia, bandwidth became a very expensive commodity. But, in general, as they started to incorporate new technology, both cable and ADSL operators in Latin America were able to gradually launch higher-bandwidth services to their customers.”

The upgrading dilemma

When it comes to network architecture, Latin America's cable operations don't differ much from those located anywhere else. Hita explains that Cablevisión's network consists of an HFC infrastructure with all hubs interconnected via Gigabit Ethernet backbone equipment from Nortel Networks. A mesh configuration featuring optical links between nodes was selected to provide greater redundancy, while all CMTSs are DOCSIS 2.0-certified.

Upgrading their networks to accommodate for new services remains a key challenge for all MSOs. Chile's VTR—a regional pioneer in terms of triple-play offerings—has recently launched a five-year investment plan to add two-way capacity, through which it will reach an extra one million homes.

However, as Barlaro notes, there is a big dilemma currently facing operators when it comes to prioritizing what parts of their networks need upgrading first: “Today there is considerable pressure to digitize their video distribution infrastructure. Cable companies' core business is still multi-channel television, and this market today is threatened by the potential arrival of IPTV services offered by the large incumbents.”

Both Telmex in Mexico and the omnipresent Telefónica in Chile are lobbying forcefully with regulatory authorities to be allowed to transmit TV signals through their phone networks. And, according to Barlaro, if it weren't for existing regulatory barriers, Argentina would have already seen the first IPTV rollouts—with Telefónica very interested in replicating the successful ‘Imagenio’ business model it implemented in Spain.

“So it's understandable why one of the cable companies' key priorities right now is to digitize their networks,” Barlaro says. “But on the other hand, while they know both their broadband and cable telephony investments would typically yield margins of around 40%, TV services produce much lower margins.” He says such margins today are 10% in the best of cases, while in the worst of cases it can be a negative margin. This is because, while the fundamental “supply” needed to offer pay-TV (the content) is mainly imported and paid for at the international going rate, collected revenues come of course in local currency, which in a number of countries in Latin America have been hard hit by depreciation.

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