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As Fixed-Mobile Convergence Stalls In Latin America, Oi Sees Quad-Play Growth

The following post comes from Kagan, a media research group within S&P Global Market Intelligence. To learn more, please request a call.

Embattled Brazilian telco Oi SA, currently under bankruptcy protection and negotiating a recovery plan with creditors, had reason to celebrate this month as its convergent offers hit the one million mark. It has been less than a year since the company relaunched its Oi Total bundled offers, which include a complete quadruple-play solution with fixed voice, broadband, pay TV and wireless services, a residential triple-play bundle and a "connected" triple-play offer, which replaces pay TV with wireless services.

Oi is one of the few operators in Latin America to currently offer a quad-play bundle, which the company first launched in 2012. Claro Brasil and NET, América Móvil SAB de CV's wireless and cable operations in Brazil, had launched the Combo Multi the previous year, while Claro Colombia launched its quad-play bundle in January. Brazilian telco Telefónica Brasil's Vivo also briefly offered a promotional quad-play bundle in 2013, but the bundle was eventually discontinued and mobile services are now only sold separately. During its fourth-quarter 2016 conference call, the company stated future fixed-mobile convergent offers would focus on benefits rather than discounts.

Latin America selected quad-play bundles, as of February 2017

Over the past decade, as big groups such as América Móvil and Telefónica S.A. began acquiring and merging fixed and mobile operations across Latin America, it seemed that the telecommunications market in the region was bound to lead the global trend for fixed-mobile convergence and quad-play bundles. Steep prices, limited coverage of fixed services and an economic downturn driving consumer demand for slimmer packages have all stalled adoption of this strategy by both operators and consumers. Regulatory restrictions on telcos offering pay TV services in key markets such as Mexico and Argentina, where the ban will be lifted in 2018, have also limited the emergence of fully convergent offers in the region.

Expectations were also driven by cable operators across the region which, lacking wireless networks of their own, entered agreements with mobile carriers to launch their own services as mobile virtual network operators, or MVNOs. Mexican cableras such as Megacable and Maxcom TV, while the latter still maintains a handful of legacy subscribers, have long abandoned the offers, although both have discussed the possibility of relaunching.

Latin America pay TV operators mobile strategies, as of February 2017

Chile's VTR has proven to be the sole success case, having steadily increased its mobile subscriber base since transitioning from its own network to a full-MVNO model on Movistar's network. However, the company does not offer a convergent quad-play bundle, although the vast majority of its mobile sales come from existing cable customers. As of 2016, VTR's wireless subscribers represented only 12.5% of the company's fixed customer base, and triple-play penetration fell to 41.7% from 45.8% in 2015 as customers dropped fixed voice in favor of mobile-only telephony solutions, which are sold by VTR individually.

The diminishing relevance of landlines in today's mobile environment has contributed to the reduction of demand for a traditional triple-play, and thus for quad-play bundles as well. This is especially apparent in Latin America, where mobile penetration exceeds 100% in many countries, due to the rapid expansion of wireless coverage compared to fixed networks, as well as to multiple SIM card ownership. Because of historically high mobile termination rates between carriers, many consumers in the region own multiple prepaid SIM cards in order to talk to their contacts on different carriers with discounted on-net rates.

Another obstacle to the development of quad-play services is the difficulty of marketing convergent bundles to households as fixed services can be shared by everyone in the home, while mobile services are usually personal. Whereas the quad-play offers emerging in advanced markets such as Europe offer choices of multiple mobile lines, the quad-play offers currently available in Latin America are limited to a single mobile line. Shared family plans are also uncommon in the region's predominantly prepaid wireless markets.

The rise of over-the-top video has given telcos an opportunity to offer video services without very costly investments in their own pay TV platform or to circumvent regulatory pay TV restrictions. Some operators in the region, including Telefónica Argentina and Telecom Argentina, have already introduced OTT services in their bundles, either by launching their own services or partnering with third-party OTT players. Although this trend may further slow down the development of traditional triple- and quad-play in Latin America, a new breed of fixed-mobile OTT "skinny" bundles is likely to emerge in the near future. Wider reach of mobile networks compared to fixed, as well as low affordability of traditional pay TV in most countries should position such alternative multiplay offers for success.

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