Venezuela Telecommunications Report Q4 2011

Includes 3 FREE quarterly updates

The mobile market in Venezuela continues its decline this quarter. According to Q111 data, there are 28.753 mobile subscribers in the country, which marks a decrease from Q410. The number of active subscribers totalled 27.192mn, a 2.4% decrease from Q410. These decreases reflect several quarters of subscriber losses for all operators in the market besides Movilnet, which reported marginal growth this quarter. This reflects Movilnet’s continued drive to increase penetration among low income segments of the Venezuelan population. In Venezuela, operators have to constantly discount unused SIMs, as users switch to different networks to take advantage of appealing tariffs and promotions. Movistar reports increasing net losses in subscriber numbers.

The mobile penetration rate in Venezuela has reached more than 100%, which means the protracted growth trend is likely to remain. Operators will have to identify new ways to generate revenue besides reliance on organic growth, which explains Movistar’s push for more data services, and the resulting increase in ARPU this quarter, despite the inflationary pressures pushing down the value of Movistar revenues.

Although there is little data available, BMI believes Digitel is also continuing to target high –end subscribers. BMI believes future revenues for Digitel and Movistar are likely to continue growing as a result, but we worry that by focussing so strongly on low-income consumers, Movilnet is likely to miss out on the high revenue segment of the population and such a strategy is unlikely to sustain revenue growth.

The fixed-line market grew this quarter, but we do not expect this trend to continue indefinitely. Like other Latin American markets, fixed-line telephony is being replaced with mobile telephony. We therefore expect to see some quarters of negative growth in the fixed-line market this quarter. Mobile services will be the driver of telephony in the long term.

Broadband continues to grow at an exceptional pace, with more than 120,000 new broadband connections in the country in Q111. BMI expects Venezuela will join its neighbours, with mobile broadband services taking off and driving growth. However, fixed-line incumbent CANTV, which owns Movilnet, has yet to push its 3G services and particularly mobile broadband. This is a concern for BMI as the operator has the potential to be a major driver of broadband connectivity over mobile networks, considering its strong status as the largest operator and its push into more rural areas.

Following reports of President Hugo Chavez’s illness this quarter, there is much uncertainty over the future business environment of Venezuela and the markets have rallied in the hope of an improvement in business environment should the president step down. However, BMI believes such moves are too premature to mark an improvement in the business environment. We continue with our bearish view for the economy and expect foreign investment in the telecoms sector to continue to be protracted.