Market Time in Latin America

The Latin American marketplace is burgeoning with large populations concentrated in urban areas such as Sao Paulo, Brazil, Santiago, Chile, and Buenos Aires, Argentina. Considering the low telecommunication penetration rate of about eight to nine main telephone lines per 100 inhabitants, the markets in Latin America become increasingly attractive for carriers and companies in the telecommunications supplier chain.

Opportunity is amplified by pent-up demand, operating licenses yet to be awarded and auctions on the way. Moreover, there is a comparative lack of network and information technologies -- along with a scarcity in high-tech manufacturing. Both Latin American and foreign companies envision this area lit up with wireline and wireless networks -- telephony, CATV, Internet -- voice, data and video.

Outlook and Opportunity

Latin American markets are expected to reach a staggering U.S. $60 billion to $70 billion in service revenues by the year 2000, less than two short years away. A market such as Brazil is expected to serve 22 million wireless subscribers by the year 2000 (see Figure A), up from 2.5 million at year-end, 1996. "Growth rates averaged over 140 percent in 1997 for many Latin American markets," reports Juan Fernandez, research analyst for Latin America at Frost & Sullivan. "This boom year may be unparalleled going forward, but the market will still experience rapid growth."

Country by country, a significant amount is now being spent for network deployment and upgrade. "For 1998, we expect to finish off the year with a couple hundred million dollars spent in Colombia on network development," added Fernandez, "which is at the lower end of spending. Nearly a billion dollars will be spent in Brazil."

No collective spending estimates across all vertical market segments are available for billing/customer care (BCC) solutions, operational support system (OSS) solutions and other front- and back-office applications solutions. However, G2 Research in Mountain View, California, projects that just for wireless billing spending will reach $199 million by the year 2002. Incumbent carriers, such as Movilnet in Venezuela, are already assessing the competitive capabilities of their legacy billing and customer management systems to determine whether an upgrade or replacement is due.

"Customers are asking for new features and rate plans," according to Evelyn Chirinos, billing manager at Movilnet in Venezuela. "With existing capabilities, at times it is difficult to create and add new services and bill for them, but we can readily handle standard features such as Caller ID."

IBS, a provider of statement processing services well known in the U.S. billing market, has entered into a partnership with TECHINT, forming IMPRIPOST TECNOLOGIAS. Initially entering Argentina, Chile and Uruguay before 4Q 1998, the joint venture is targeting other South American countries, as well. Tom Roberts, vice president of sales and marketing at IBS estimates the market opportunity, in Argentina alone, at 15 to 20 million statements per month. Chile and Uruguay represent another 25 to 30 million statements.

The global demand for telecommunications services is sparking opportunity, and it is no different in Latin American. In the period from 1996 to the year 2000, Brazil expects to see wireline net additions of 14 million lines, and Mexico anticipates 9.5 million additions during the same period. The conjecture is that wireline penetration will in part be accelerated by wireless local loop (WLL), thus expediting local loop build-outs, but the remainder of the network and business system infrastructure would function as wireline. WLL would usher in opportunity for vendors with business and network system products, such as integrating element managers for performance monitoring and configuration management.

In the cable TV (CATV) segment, in contrast to the United States, Latin American regulatory conditions will probably continue to favor the broadcast networks. Along with foreign investment, it will be Latin American broadcast money that accelerates the penetration of CATV in metropolitan areas. Although there are no pointed indications that a push into cable telephony is on the horizon, opportunities exist as evidenced by U.S. BCC vendors, who began in cable, and have been active in Latin American markets for some time.

The Opening Door of Liberalization

Mexico and Chile have already liberalized their telecom markets, while Argentina, Brazil and Venezuela are well on their way to fully opening their markets. North American companies, primarily U.S.-based carriers, have established solid footing in Latin America because of early investment and existing penetration (see Figure B). Some U.S. carriers, aligned or not with the large consortia, e.g., World Partners, GlobalOne and Concert, are establishing a multinational footprint, as opposed to seeking collection and distribution points for international traffic. This bodes well for North American telecommunications companies such as carriers seeking new operating licenses and investment mixes, and billing and customer care (BCC) and operational support system (OSS) vendors seeking new market opportunities.

Joining, if not leading, U.S. carriers into Latin American markets are the large equipment vendors from around the globe: Alcatel, Lucent, Siemens, Ericsson, Motorola, Nokia, Samsung, Nortel and others. Some of these vendors are not just deploying networks, but are or have already established manufacturing facilities. Brazil requires that 10 percent of equipment be made in Brazil. Spain's Telefónica has the greatest European advantage, aided by cultural and language ties. They are invested or active in most Latin American markets.

Although Asian influence has been diminished somewhat by the economic crisis in the Asian Pacific region, countries such as Japan continue to engage in business in the same markets as the North American and European firms. And for good reason - outside of Japan, Sao Paulo has one of the largest Japanese communities in the world.

"Even though the United States is in the same hemisphere as Mexico, South and Central America, our histories and ways of approaching business are much different," comments Cynthia Kemper, president of Edgewalkers International, a cross-cultural consulting and training firm in Denver, Colorado. "Unlike in the United States, where 'conquering the frontier' and 'manifest destiny' are deeply embedded into our thinking, our neighbors to the south fought constant invaders from the outside."

"Creating long-term bonds is vital to doing business successfully in Latin America over the long-term," added Kemper. "When viewed in a multi-cultural context, we in the United States often take the path of least resistance and seek to establish relationships within our own cultural constructs. When compared to how other cultures approach relationship building, we fail more than we succeed."

Kemper explains, "When doing business in Latin America, relationships almost always come before the bottom-line. Friendship is more often than not the pivotal basis for building business. Business gets done - just in a different way, and in a different order. Today, as a result, trust and time are very critical components of building relationships in Latino cultures - something that comes naturally to Asian business people, helping to assure their success in the region."

Japanese equipment vendors have established and are ramping-up manufacturing operations in Mexico. And as in Peru, Japan has been building strong diplomatic ties and business relationships throughout the Latin American region, with South Korean companies following suit.

Economic Snapshot

Latin America has undoubtedly felt the Asian economic crisis, not as a ripple effect, but as a strong breaker that decreased the competitiveness of Latin American product exports, and reduced capital inflows. Latin American countries have been quick to react, taking many fiscal measures in order to slow the economic deceleration. Many believe that the recent changes in the banking and finance sector has kept Latin America from getting sucked into the whirlpool of Asian problems. After the banking problems of the 1980s and early 1990s, along with the Mexican peso crisis of 1994, Latin American fiscal policy mixes are now better balanced.

Some speculation is afloat that Latin America will be hurt as Asian countries such as South Korea wade into the world capital markets in search of new loans. However, since Latin America's democratic governments continue to develop, stabilize and mature, it should attract some of the capital once intended for Asian countries.

The Service Delivery Process

The Latin American service delivery process (SDP) differs from a more competitively mature environment, but less than may be expected. Latin American carrier personnel involved in business development can sketch an SDP flow chart akin to those at U.S. carriers.

Heavyweight carriers are not yet going after the same customers 'round the clock. Therefore, processes and supporting system capabilities such as sales and marketing applications are not as in evidence as in the U.S. Some speculate that the frenzied scramble for customers may never reach the intensity of the U.S. market because of cultural differences. Currently customer acquisition is more a function of capacity and activation speeds, which can be slow, even though the demand is clamorous.

"The differences in credit screening and approval may mean a physical visit to a subscriber's house," says Greg Opie, functional architect, mobile industries, at Kenan Systems. "Functionally, interfaces to credit bureaus or credit scoring applications are not standardized yet." Kenan is currently involved in implementations at two BellSouth carriers, Tele2000 in Peru and Otecel in Ecuador.

Credit checking and credit screening occur during the subscriber approval process. Latin American markets, in general, do not emphasize credit-worthiness the same way we do in the United States. A rigid screening process, such as that found in the United Kingdom, would be too exclusionary. However, even with the less rigid approval processes, the Latin American markets have given rise to prepaid wireless as a means of providing service to non-qualifying market segments.

"Prepaid wireless is on the rise in most Latin American countries," notes Frost & Sullivan's Fernandez, "because fewer people can meet the credit requirements. Now carriers are concerned with getting their prepaid subscribers into customer information and billing systems so as to understand the demographics and psychographics of these customer segments."

Market management, lead management and bid management, with the accompanying churn analysis, retention campaigns and promotional campaigns, have not yet developed into the need for a complex kit of data mining and analysis tools, nor for qualifying scripts, lead list scrubbing, bid templates, proposal systems, and so on. However, customer management practices and applications do include customer query response capabilities such as trouble resolution, service modifications and adjustment processing.

Provisioning and activations are universally similar, given interfaces into Nortel, Ericsson or Lucent networks. The provisioning-specific vendors have yet to penetrate Latin America.

Functionally, the billing milieu looks the same as elsewhere: data collection, rating, calculation, formatting, production and distribution. Even bill audit-related functions are similar, although the time lapse between revenue assurance steps may differ.

"If traffic cut-off is on the 15th, bills are in the customers' hands seven to 10 days later," says Movilnet's Chirinos. "Every three days we run a bill cycle, and every cycle is put through a rigorous audit by our control groups." Some carriers such as Movilnet apply more intense scrutiny on closing traffic gaps than do others, but this revenue drain is witnessed in other regions, too, including Western Europe.

According to Kenan's Opie, a notable exception for some carriers is the need for currency conversion in billing, primarily in international roaming, where bills are priced in a consistently stabilized currency, then converted into local currency.

Fraud does not yet preoccupy Latin American carriers. Foreign carriers and vendors plan to establish a basis for combating subscription, airtime, and other types of fraud as it occurs. Experts warn that Latin American carriers should take pre-emptive action now.

Product and Life Cycle

A sampling of product development life cycles can be observed at Venezuela's Movilnet. As expected, and as seen in the United States and elsewhere, the life cycle is based on product complexity, prioritization and other factors.

"While a rate plan change to offer free weekend calling may only take a few weeks to implement, or should," says Movilnet's Chirinos, "a project such as interfaces to a clearinghouse for international roaming may take over a year because of the complexities." Some complexities are functional, such as currency conversion issues and processes, while others are found in defining business relationships.

Product mixes and features may be basic compared to the United States and Western Europe, yet they indicate a demand for services and growth that is consistent with more competitive environments. Latin American carriers recognize their need to compete, and they are equipping themselves to do so.

"Many Latin American carriers are not as bound to existing system infrastructure as are U.S. carriers and other markets," says Janice Jenns, mobile industries marketing manager at Kenan Systems. "They can leap frog to the latest technologies, and they have very bright people leading the charge." For example, Argentina's Movicom not only offers wireless service with three way conferencing, call waiting, call transfer, but also voice dialing, interconnection to the Internet and caller ID.

But products only go so far. The struggle to understand the value of branding does not seem quite as difficult for Latin American carriers as it did for many U.S. local carriers. Awareness of the importance of branding, and how this is expressed from advertising out through billing (as the recurring point of sale), is more evolved than it was in the U.S. market until a few years ago in a number of vertical market segments. And companies such as IMPRIPOST intend on leveraging this carrier appreciation of the recurring point of sale, in addition to leveraging the obvious financial value of expediting the accounts receivable cycle.

U.S. carriers such as BellSouth have been quick to underscore the significance of strong branding in the developing markets. BellSouth markets under the BellSouth brand in Chile and in Ecuador, while maintaining the momentum of the Movicom brand in Argentina.

Latin American customers are becoming more sophisticated, with the highest penetration and usage rates in the urban areas (for all vertical market segments), but with wireless penetration extending into the out-lying areas despite the lower per capita incomes. In addition to luring new subscribers, the Latin American carriers understand the need to increase network minutes, as evidenced by the implementation of wireless calling party pays.

"Calling party pays billing has resulted in a meteoric rise in wireless subscription rates," says Frost & Sullivan's Fernandez. "This is smart business. Argentina went from 700,000 to 2.1 million subscribers in 11 months. Colombia went from 501,000 to 1.2 million in one year. Venezuelan growth has been high. Chile and Mexico will be moving to the same model."

The network and business systems infrastructure found at Latin American carriers is not unlike that in countries around the globe. Wireless protocols or air interface standards are not indicative of major differences in the business processes and business system functions radiating into and out from the networks in Latin America.

Beyond Geographic Boundaries

The $7.5 billion dollar Latino market is attracting attention from within and without. Telmex, allying with Sprint, has eyed this lucrative market for both cross-border traffic and domestic usage, for quite some time.

While Telmex may not be a household name in the United States, it is for millions with ties to Mexico. But, then again, Avantel and Alestra are not either, yet these are U.S.-led telecommunications companies building infrastructure and competing in Mexico. Despite current difficulties in ironing out settlement rates and access charges with Telmex, in which MCI and AT&T have asked the Mexican and U.S. governments to intervene, early figures on subscribers selecting Avantel or Alestra over Telmex were promising. But now the U.S. carriers may decline to invest further.

Most are optimistic that the current dispute with Mexico will be resolved. This sole dispute does little to diminish the overall Latin American opportunity for carriers and suppliers. With liberalization and opening markets, stable economies, and pent-up demand, the business prospects are bright.

Frank Slavick is a telecommunications consultant based in Denver, Colorado, specializing in product development, new business development, and billing and customer care. He can be reached at 303/554-0958, or at fslavick@earthlink.net.