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Argentina: Telecoms and technology profile(IndustryWire Via Thomson Dialog NewsEdge) FROM THE ECONOMIST INTELLIGENCE UNIT Profile articles provide a concise overview of an industry in a particular country. They are designed to brief senior executives on key local players, on demand and consumption, and on supply and production. 2001(a)2002(a)2003(a)2004(a)2005(b)2006(b)Telephone main lines ('000)8,7138,2638,1348,3108,8929,150Telephone main lines (per 100 population)23.522.021.521.723.023.5Mobile subscribers ('000)6,8426,5537,65113,53522,15630,500Mobile subscribers (per 100 population)18.417.520.235.457.478.3Internet users ('000)3,8044,0914,9136,12710,00012,860Internet users (per 100 population)10.210.913.016.025.9(a)33.0Broadband subscriber lines ('000)1051302364607571,400Broadband subscriber lines (per 100 people)0011(b)24Personal computers (stock per 1,000 population)87100105111190220Packaged software sales (US$m)368166250313(b)349386IT hardware spending (US$m)1,938362671928(b)1,2001,347IT services spending (US$m)1,086462547461(b)528592Total IT spending (US$m)3,3929901,4681,702(b)2,0772,325(a) Actual. (b) Economist Intelligence Unit estimates.Sources: Pyramid Research; IDC; Economist Intelligence Unit.Overview Telecommunications were privatised in the early 1990s and liberalised in 2000, leading to a doubling in the number of fixed lines on a per-head basis between 1990 and 2001, and an improvement in the range and quality of services offered. The telecoms industry employs well over 20,000 people at a conservative estimate, not including distribution and sales personnel. As in other markets in the region, recent growth has been in mobile telephony rather than in fixed lines. In 2005 the number of installed fixed lines reached 8.9m lines, equivalent to a penetration of 23 lines per 100 people, similar to the pre-crisis peak. Penetration is higher in the mobile sector: in mid-2006 it reached 68 per 100 people, the highest rate in Latin America after Chile (69 per 100 people at end-2005). As a result of the 1998-2002 economic crisis, Argentina did not experience the rapid growth in mobile penetration that took place in most telecoms markets then. However, mobile penetration took off in 2003 and has since risen by 350%. A number of the main mobile telecoms operators have changed ownership since 2002 and the market is competitive. In the Economist Intelligence Units 2006 e-readiness rankings, which measure the development of markets for e-business by looking at the legal environment and rates of connectivity, among other indicators, Argentina ranked 42nd among the 68 countries rated, and was fourth among the eight largest Latin American economies, behind Chile, Mexico and Brazil. In terms of personal computer (PC) ownership, with 190 PCs per 1,000 people in 2005, Argentinas PC penetration has exceeded that of Chile, which is 119, but it is still lower than Brazil, which has 150 personal computers per 1,000 people. Demand Privatisation and new investment led to an expansion in telecoms coverage in the 1990s, although prices are still relatively high. Cellular phone coverage grew from two mobile phone lines per 100 inhabitants in 1996 to 18.4 in 2001. The recession caused the number of fixed telephone lines in service and the number of mobile subscribers to fall, but the industry soon made up the lost ground. Growth has been led by mobile telecoms. The number of mobile phones in service rose from 20 per 100 in 2003 to 57 per 100 in 2005, and to 68 per 100 in mid-2006. Fixed telephone lines have grown at slower rates. Fixed lines calls have been led by interurban calls: they rose by 16.8% in 2005, according to the Instituto Nacional de Estadistica y Censos (INDEC, the national statistics institute), and by 16.7% year on year in the first nine months of 2006. By contrast, urban calls on fixed lines contracted by 0.7% in 2005 and rose by a meagre 3.7% in the first nine months of 2006. Internet usage has grown strongly in recent years and proved relatively resilient to the recession. It has also given a new lease of life to the fixed-line operators, whose voice traffic has partly moved to mobile operators. Home use of the Internet has been stimulated by the availability of cheaper PCs and reductions in internet access fees. Internet users are migrating from dial-up services to broadband subscription access. Telefonicas Speedy service is the leading brand. According to INDEC, the number of broadband connections increased by 25% in the year to June 2006, reaching 1,178,194. In the same period, dial-up connections decreased by 13% to 497,200 subscribers. Between the end of 2002 and June 2006 broadband connections increased by seven times, while dial-up connections fell by 30%, a trend that is set to continue. The number of regular Internet users was estimated by a local consultancy firm, Prince and Cooke, to have reached up to 10m by the end of 2005. In 2004 around 30% of total internet users used public facilities, such as Internet cafes. This means that Internet access is no longer the preserve of the university educated or the rich. Around 12% are thought to have used the Internet to make purchases. As a result of the economic crisis, information technology (IT) spending declined sharply in 2000-02, but the market stabilised in 2003 and has since picked up. Sales of PCs are estimated to have grown by 23% to around 859,400 units in 2005, as small businesses and households take advantage of increased financing and purchasing power. However, it is estimated that only 19% of households have a PC. In 2005-06 the government offered small businesses subsidies to purchase IT equipment. Sales of software and IT services are estimated to have reached US$877m in 2005, with activity in real terms rivalling its peak in 2000. The financial sector has been the heaviest investor in IT, followed by industry. Among the areas to have grown fastest is IT security. 2001(a)2002(a)2003(a)2004(a)2005(a)2006(a)Nominal GDP (US$ bn)268.8(b)102.0(b)129.6(b)153.1(b)183.2(b)209.7Population (m)37.237.537.938.238.639.0GDP per head (US$ at PPP)11,83811,15212,09113,34914,87216,387Private consumption per head (US$)4,9861,6842,1632,5162,9123,267No. of households ('000)10,014(b)10,09110,17010,24510,32210,385(a) Economist Intelligence Unit estimates. (b) Actual.Source: Economist Intelligence Unit.Pricing ItemPrice (US$)% of monthly personal disposable incomeAffordability rankTelephone line, monthly rental (av)5.503.0335 out of 51Telephone, charge per local call from home, 3 mins (av)0.020.0119 out of 48Personal computer, 512 MB RAM (av)1,8901,04043 out of 57Note. Affordability rank: for each country the price of an item as a percentage of monthly personal disposable income is calculated. Countries are ranked according to these percentages. The most affordable country will have the lowest percentage and be ranked first.Supplytechnology Argentina benefits from having Latin Americas best educated workforce and a modern telecoms infrastructure. Historically, imports have captured two-thirds of total sales within Argentina. Domestic firms have been mainly involved in development, customisation, or integration of foreign-supplied packages, and lack the resources to develop their own software for large-scale applications. They are involved in low-cost management software, such as small Enterprise Resources Planning (ERP) packages, targeted at small and medium-sized enterprises (SMEs). The local software industry is the most advanced in Latin America and local firms have diversified, exporting software and consulting services to firms in the region. A forum established by the government to advise on policies towards the industry has over 600 firms as members. The software industry has attracted investment from global software producers including IBM, Motorola and EDS (all US). In 2005 Intel (US) announced that it would set up a major software development centre in Cordoba, one of the hubs of the software industry, near the campus of the Universidad Tecnologica Nacional (UTN, or National Technology University). The software sector has benefited from a special fiscal regime approved in 2004. Under the national software law, firms can claim tax incentives designed to encourage exports and research and development. Argentina is taking a growing slice of the world market for outsourcing of IT services, although it remains a small player by comparison with India or Russia. Key playerstechnology There are some small telecoms equipment assembly plants in the provinces of Buenos Aires, Cordoba, Tucuman and Tierra del Fuego, and most of the PCs sold on the domestic market are assembled locally. An Argentinian firm, NG, launched a self-designed mobile phone in 2005 designed to meet the soaring demand for basic handsets on the domestic market. It incorporates 70% locally-made components. Among the other domestic firms are BGH, Planex, Transistemas, Eastel and RT. The main telecoms equipment suppliers are Ericsson (Sweden), Motorola, Alcatel Lucent (France), Nortel Networks (Canada), Siemens (Germany), Nokia (Finland), Samsung (South Korea), NEC (Japan), Cisco (US), Italtel (Italy), Corning (US) and Pirelli (Italy). Some US IT companies, such as Hewlett-Packard and IBM, supply the PC market in Argentina from their operations in Brazil. Supplytelecoms In 1990 the state-owned, fixed-line telecoms company, Empresa Nacional de Telecomunicaciones (Entel), was privatised through a competitive bidding process. The country (including the federal district) was divided into two parts for the winners. Telefonica (Spain) gained control of the southern part and Telecom (whose original investors were France Telecom and Telecom Italia) the northern part. Full market deregulation was achieved in November 2000, with all sub-sectors opened up to competition. Fixed-line operators suffered from the conversion of tariffs into pesos at non-market rates in early 2002, and a subsequent freeze in tariffs, causing massive losses in the wake of the devaluation. In February 2006 Telefonica and Telecom agreed with the government to suspend their claims against Argentina at the International Centre for Settlement of Investment Disputes (ICSID) in return for an adjustment in some tariffs by the government. However, the price of fixed-line telecoms services has yet to be adjusted fully. On the other hand, mobile services prices were left to be determined by the market. In the light of greater investment, technological advances and fierce competition, costs to users have been contained. Mobile services were first launched in Argentina in 1989 by a consortium led by BellSouth (US). The service expanded rapidly: in 1996 there were only 1.9 cellular lines per 100 inhabitants, but this had increased to 18.4 lines per 100 by 2001. The upward trend was broken by the recession and the decline in real incomes, but resumed growth afterwards and by mid-2006 mobile penetration reached 68 lines per 100 people. The only sub-sector that continued to grow in the difficult economic conditions of 2002 was Internet and e-commerce, in which Argentina is the leader in the Spanish-speaking world. It produces half of the Internet's Spanish-language content and is home to 11 of the top 15 sites in terms of traffic in Latin America and Spain. Nevertheless, e-commerce sales remain limited because of the economic crisis, security concerns and the inefficient postal service. The legal climate for e-business in Argentina has been supported by the passage of a personal data protection law in November 2000 and a digital signatures law in November 2001. Key playerstelecoms The two most important players in the market are Telecom Argentina and Telefonica de Argentina (owned by Telefonica of Spain). They are the two dominant forces in the fixed-line market, and each either owns, or is part of a wider group which owns, a cellular operator, as well as an Internet service provider. Telecom Argentina is 55% owned by Nortel Inversora, which was equally controlled by France Telecom (FT) and Telecom Italia. France Telecom sold its stake to Werthein, a local investment company, for US$125m in 2003. Having defaulted on its debts in 2002, Telecom obtained an out-of-court restructuring of its debts in 2005. Telefonica Argentina has a slightly larger share of the fixed-line market than Telecom. Telefonica Moviles, the mobile arm of Telefonica of Spain, the parent company, paid US$1bn to acquire Movicom BellSouth, the leading cellular operator, along with all other BellSouth assets in Latin America, in March 2004. It already owns Unifon. As of October 2006, the main players in the cellular phone market in Argentina are Movistar (the market leaders, owned by Spains Grupo Telefonica Moviles), Telecom Personal (the mobile unit of Telecom Argentina); CTI Movil (100% owned by America Movil, the mobile arm of Mexicos Telmex); and Nextel Argentina. Telmex also provides long-distance call services. The leading Internet service providers (ISPs) are: Ciudad Internet, owned by Clarin (Argentina); a media group, Arnet, owned by Telecom Argentina; and Advance, which belongs to Telefonica. Other ISPs include Impsat Fiber Networks; UOL Sinectis, a subsidiary since 2001 of a Brazilian ISP, UOL; and AOL Latin America, a joint venture between AOL (US) and Grupo Cisneros (Venezuela), which entered the market in 2001 both as an ISP and a content provider. Arnet launched wireless fidelity (WiFi) services at the end of 2003 and extended its network of hot spots in 2004, by which time several other firms had launched competing services. Useful web links Secom (government department responsible for policy towards the telecoms sector): www.secom.gov.ar CNC (the telecoms regulator): www.cnc.gov.ar Copyright 2007 Economist Intelligence Unit |