The Migration to the NGN A Latin American Perspective

By Ronald Gruia (News - Alert)

Futurecom is the largest telecommunications show in Latin America, bringing together more than 8,000 attendees from network equipment vendors (selling both enterprise and service provider infrastructure and spanning the entire alphabet, from Aastra to ZTE), service providers (including Brasil Telecom, Telemar/Oi, Vivo, Claro, TIM, Nextel and Intelig Telecom, among others), VARs, system integrators and government (including Brazilian telecoms regulator Anatel).

It was certainly interesting to hear perspectives from the local operators, who were boasting the impressive growth numbers in the Brazilian telecom market, particularly in the mobile segment. While the number of fixed lines remained in the 39 to 40 million range, the amount of wireless users almost tripled from 2002 (when it was around 35 million) to 2006 (once it reached 99 million). Estimates presented by Vivo indicate that as a result, the mobile penetration in Brazil has almost reached 55%. The Brazilian telco market has surely come a long way since the 1998 privatization of the local government owned PTT (Telebrás).

Getting over the 100 million subscriber plateau is a significant result, and indicative of the push of the local government to increase that figure even more. (Consequently, Brazil now ranks as the seventh largest market in the world, measured in terms of wireless subscribers. By 2008, Mexico will join Brazil among the world’s top 15 mobile markets.)

This mandate is further reinforced by research such as a recent study co-authored by the GSMA and Deloitte (News - Alert) Touche, which suggests a strong correlation between wireless communications and economic development: a 10% increase in mobile penetration can boost GDP growth by as much as 1.2% in emerging markets. (For more details, please reference the report entitled “Global Mobile Tax Review 2007” at http://www.gsmworld.com/documents/tax/tax_report.pdf.)

Hélio Costa, the Brazilian Minister of Communications, warned in his keynote address that operators should reduce prepaid service tariffs, which are regarded as being too costly for Brazilian standards. Operators currently manage an installed base of 110 million subscribers in Brazil, and prepaid services account for roughly 80% of that market. Mr. Costa’s speech was countered by operators’ requests to lower the big tax burden that they are still faced with (Brazil has the fourth highest telecom tax burden of the world, pegged at 42 percent).

Despite the above dispute, the overall consensus being presented was fairly optimistic for countries such as Brazil. For instance, according to one forecast presented by mobile operator Oi, the overall teledensity (including fixed and mobile) will increase from 74% (or 39.7 million homes passed) in 2006 to 82% (or 53.4 million homes passed) in 2016. A priori, those numbers are indeed impressive, however one major issue is that the next few million customers in the region will be low earners and therefore only command a small ARPU.

Doubtless there will be a need for fundamental innovations in both infrastructure and business models to make deployments in rural regions catering to low-ARPU users (in the $4-5 range) more viable. Furthermore, operators are also pondering how they can provide new sticky bundles (triple and quad play, including voice, video, data and wireless services) to the consumer segment, offer seamless access to these services and also introduce new offerings in a quick and cost effective way. Hence, not surprisingly, these service providers have begun their journeys in transitioning to the NGN. Futurecom provided them with a good venue to articulate their visions, and to showcase some offerings that are already available in the marketplace.

For instance, Brasil Telecom (News - Alert) (BrT) had an exhibit of its Telefone Único (which literally translates to Unique Telephone) FMC offering. BrT had introduced its FMC service in the first semester of 2006, and is an active participant of the FMCA (News - Alert) (Fixed Mobile Convergence Alliance, a global consortium of telecom operators focused on accelerating the development and availability of convergence products and services). Telefone Único (see the stand photos) allows subscribers to receive fixed and mobile calls in only one device, which shares their contact lists. Similar to the BT (News - Alert) Fusion offering, the service embraces the ABC (Always Best Connected) model, automatically choosing the most economical network, and leverages WiFi and SIP technology. Interestingly enough, BrT is already a step ahead of some of its FMCA peers, as it will rely on VCC (Voice Call Continuity) as opposed to UMA (Unlicensed Mobile Access) to perform the handover of the calls from the GSM to the WiFi (News - Alert) network. WiFi network connectivity is provided via a SIMCARD authentication. BrT has already sold 21 thousand Telefone Único terminals in 2006, a figure that surpassed the company’s own expectations.

IMS Perspective

From an IMS standpoint, Futurecom revealed that Latin America is ripe to begin embracing both pre-IMS and IMS solutions. BrT ran several pilots in 2006, including one with Lucent’s MLife services platform, including various elements of its IMS solution. The key goal is to enable Brasil Telecom to deliver new multimedia services in regions such as Brasília, Curitiba and São Paulo. In addition, Claro is also currently trialing IMS, with an RFP and possible decision expected in 2008. Telefonica and Vivo have also been quite active: on the fixed side, Telefonica is considering an IP Centrex IMS deployment, whereas on the mobile side, Vivo has a VCC RFI currently out. Further south in Argentina, Telecom Argentina (News - Alert) has an RFP for IP Centrex.

However, despite this ongoing activity, the hottest item at Futurecom that will probably still be at the forefront of most telco RFPs in early 2008 is billing/OSS. With the migration to 3G, many operators in the region have the need to improve the processes across their entire billing chain, with the goal to lower costs and improve their performance.

Also, other service providers such as Telemar (the largest wireline carrier in South America) are taking a more gradual and pragmatic approach, choosing to implement services that can be accessed by subscribers regardless of whether they are being served by NGN or legacy infrastructure. In one interesting discussion, José Henrique Zilberberg (Senior Telecom Architect from Telemar’s Network Planning Division) introduced the Telemar NGN transition strategy, called 7IP. (For more details, please refer to a joint Tekelec-Telemar IEC White Paper (News - Alert) entitled “The Return of the Legacy - The Role of Pre-IMS in Operator Networks and Business Evolution” and available at: http://www.iec.org/newsletter/july07_1/ analyst_corner.pdf). This pre-IMS approach enables the carrier to separate the timing of investments in NGN/IMS access layer infrastructure from the timing of introduction of new services. Hence, the emphasis is on OPEX savings and not necessarily on service capability, which echoes a similar message from Stu Elby (Verizon (News - Alert) VP of Network Architecture).

The 7IP solution was implemented in a production trial held this year at Telemar. The idea is to reuse existing wireline and mobile service platforms and complement them with a new core network intelligence engine having elements on both the signaling/SS7 and the IP sides of the network, thereby giving the origin to the name “7IP”. The merit of this solution is its more gradual migration, and many believe that the resulting incremental “pay-as-you-go” buildout will resonate well with other service providers in the region. More importantly, another important benefit is that the 7IP approach helps bridge the gap between the legacy IN (Intelligent Network), where most of the revenues are currently generated and pre-IMS/NGN/IMS networks, where future revenues are expected to be generated.

In conclusion, Futurecom provided a good insight into how the local service providers have begun to evolve their networks. While some have been a bit more avant garde than others, the overall consensus was that a more sound gradual migration makes more sense, enabling operators to focus on more immediate needs (such as billing) and to incrementally roll out their NGN architectures. But one thing is certain: the local carriers can certainly match and even in some cases surpass offerings from other providers around the world, judging from the innovation demonstrated in some approaches such as 7IP and the sophistication of some RFPs. This bodes well for Latin America and makes it an interesting and highly competitive market.

Ronald Gruia (News - Alert) is Program Leader and Principal Analyst at Frost & Sullivan covering Emerging Communications Solutions. He can be reached at rgruia@frost.com.

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