Smartphone subsidies driving mobile broadband growth in Latin America

Mobile broadband connections in Latin America (Caribbean, Central and South America) are forecast to top 150 million this quarter, accounting for about one in five of the region’s mobile subscriptions. We expect the figure to reach close to 200 million by year-end, by which point mobile broadband – which we define as HSPA, EV-DO and faster - will account for over a quarter of the region’s total.

Growth is being driven by rising smartphone penetration, which – in contrast to the trend in some European markets (as discussed in last week’s analysis piece) - is being stimulated by local operators' increasing willingness to subsidise expensive devices. And there is plenty of evidence to suggest that local players see such strategies as a key differentiator in the market and a way to steal a lead in mobile data services.

"Our commercial investment in handsets subsidy is supporting growth in penetration and usage of mobile data,” noted Millicom CEO Mikael Grahne on a recent earnings call. He notes that in Colombia, the operator is commanding a market share in data that is almost twice as high as it has in voice: "[We get] very good, positive reactions from Colombian customers whenever we invest in subsidies."

This sentiment is echoed by America Movil, Latin America’s largest operator. "We’re moving a lot of the 2G phones to smartphones and feature phones,” says CEO Daniel Hajj. He adds that this year and next will be “really important in terms of subsidies."

Smartphone penetration is therefore growing rapidly across the region. In Brazil, market-leader Vivo noted that smartphones accounted for 78% of contract net additions in Q3, up from 55% a year earlier. Smartphone penetration at rival TIM Brasil doubled year-on-year to reach 39% of the total base over the same period.

Growth in smartphones and data has been achieved despite (in global terms) a relatively late migration to 4G-LTE. At the end of Q3 last year, just three markets in Latin America had commercially launched LTE: Colombia (via UNE), Puerto Rico (via AT&T, Claro, Open Mobile, Sprint) and Uruguay (via Ancel).

A further seven networks launched in five more countries in Q4 2012 – Antigua & Barbuda (Digicel), Bolivia (Entel), Brazil (Claro and Oi), Mexico (Movistar and Telcel) and Paraguay (Vox). We expect a further 16 to launch during 2013, notably across key markets such as Argentina, Chile, Ecuador, Peru and Uruguay.

America Movil’s Hajj has said that, in markets where LTE has launched, early adopters are consuming as much as 30% more data than 3G users. Ahead of the operator’s Mexican LTE network launching last November, he stated that "we’re not going to increase prices on LTE. It’s going to be exactly the same pricing plan, and if you have more speed, then you're going to consume more."

But despite the availability of subsidies and the new high-speed networks, device affordability remains a key issue. "I think the [LTE] handsets are a little bit more expensive, so you’re not going to see a big move from 3G to LTE,” admits Hajj, who sees LTE having more of an initial impact on data-only devices such as tablets and dongles.

According to our latest forecasts, total LTE connections in Latin America should come in at around half a million at the end of the current quarter (Q1 2013), rising to almost 2 million by the end of the year - which would represent less than 1% of total mobile broadband connections in the region.

Even as device ASPs start to decline, we expect to operators to retain their subsidy strategies in an effort to get affordable smartphones in the hands of as many consumers as possible. Indeed, the ability to offer smartphones further down the price tiers should offset the negative impact subsidies are currently having on margins.

Latin America: mobile broadband connections as a % of total (Caribbean, Central and South America)
Source: GSMA Intelligence