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May 16, 2008

Jon Arnold Talks IPTV with TVTelco Latam's Ariel Barlaro

By Greg Galitzine, Group Editorial Director

Ariel Barlaro is the Editor of TVTelco Latam, a portal dedicated to covering the IPTV and video markets for Latin America. Aside from staying close to the latest developments in this region, his group has just published a report examining the outlook for IPTV (News - Alert) and pay TV in Latin America from now through 2012. In the following Q&A interview, our very own Jon Arnold asked Ariel to share some of the research highlights, as well as his overall perspective on the trends and realities around IPTV and video in Latin America.
JA: Before focusing on IPTV, let’s talk about the state of the cable television market in Latin America. Your study begins with an overview about the slow growth and small base of cable TV subscribers. Tell us a bit more about why the penetration of cable is low relative to other markets.
AB: There are two major reasons. The first one was the lack of cable networks. The cost of infrastructure generated doubts on ROI, because EBITDA margins in Pay-TV are lower than telephony. Pay-TV’s OPEX is high in Latin America because the main cost is the cost of content, and it is an international cost, paid in US dollars, in spite of incomes are in local currency. When devaluation crisis arrives, Pay-TV companies are in trouble. Because of that, DTH company DirecTV (News - Alert) Latin America focused on high level customers with high prices, and Sky Latin America merged with DirecTV to avoid bankruptcy.
In addition, the cable TV international boom was in the 80s, and that was called the “lost decade” for Latin America because of the lack of economic growth. Besides, when cable TV was taking off in the early 90s, a series of crises (“Tequila” crisis, in 1994 in Mexico, “caipirinha” crisis, in 1998, in Brazil, “Tango” crisis, in 2001, in Argentina) brought economic depression to the region.
Now, the arriving of triple play, brings a more solid ROI model for investments in Pay TV infrastructure. And, above all, the boom of commodities prices is generating high economic growth, more employment and less poverty in Latin America since 2002. Pay TV penetration is growing at the same time. Big players like Telmex (News - Alert) and Telefónica are fighting in each country.
JA: Latin America is a large and diverse region. What are the key regional differences for cable adoption, and what are the factors behind these?
AB: Argentina has been a high developed market since the 80s. Argentina reached 50% CATV penetration in homes in the beggining of 90s. It was one of top 5 developed pay TV markets worldwide. The main reason was a strong media entrepreneurship environment, and a lot of speculation: little companies added customers based on low subscription fees and broad channel packages, because they sold the operations to new MSOs at high prices per subscribers.
Venezuela has a strong TV culture and big media companies, with high DTH penetration. Colombia is growing so fast: 70% more subscribers in 2007. Chile has a new DTH competition. Brazil has had a very popular free-to-air TV and a low Pay TV penetration. It’s the biggest potential market for IPTV.
JA: Your report forecasts that the Latin America cable TV subscriber base will grow from 27 million today to 59 million in 2012. Of those 59 million, you project that 13 million will be for IPTV. That’s about 20% of the market, which is relatively low. Why don’t you expect it to be higher?
AB: Because Telefónica and Telmex, the biggest IPTV players, are deploying DTH operations too. Besides, Telmex has CATV operations in Central America, Brazil and Colombia. Big media groups like Televisa in Mexico and Groupo Clarín in Argentina are strong competitors with CATV.
JA: You indicate that four countries in particular have notable impediments for adopting IPTV. These countries are Mexico, Brazil, Colombia and especially Argentina. What are the circumstances around each of these markets?
AB: Mexico and Brazil banned incumbent telephone operators to enter to pay TV when they privatized the state-owned monopoly telephone companies in the 90s. Both are changing these regulations in 2008. Colombia allows IPTV but has a closed Pay TV market. Licences were auctioned in 1999 per 10 years, so the market is opening in 2009. Argentina banned all telecom companies (ILECs and CLECs) to get TV licenses because the Broadcasting Law was released in 1980, when telecom companies were monopolies. The government is trying to change this law now.
JA: Why are these countries so highly regulated? Latin American markets are generally less competitive than in North America, but that’s beginning to change. How do you see these regulations evolving over the next few years and how will this impact the growth of IPTV?
AB: Brazil and Mexico are opening in 2008. Both are the biggest countries in Latin America. Brazil counts 40% of Latin American population. To see the growth of IPTV you must see first these two countries. Colombia will open the later at the end of 2009. Argentina is still a question, but because it now has a high penetration of CATV, it isn’t a key market for IPTV. Venezuela and Ecuador are. Both have nationalist and populist governments, with state owned telephone companies, and both want to deploy IPTV as part of a mass communications policy…
To read the rest of this interview between Jon Arnold (News - Alert) and Ariel Barlaro, please visit the IP Convergence (News - Alert) TV Web site.

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