Analysis: Equipped with Mexican money Telecom Argentina looks at expansion into Uruguay

RIO DE JANEIRO, BRAZIL – Telecom Argentina has conditioned its investments in Uruguay upon that nation’s government updating its regulatory framework to allow everyone in the industry to offer all fixed-mobile interconnected services, because, right now, Telecom Argentina can only provide restricted TV, and that only in very specific regions of Uruguay.

Telecom Argentina, which is partly owned by the Clarín Group and Mexican investor David Martínez, aspires to become a regional operator in the south of the continent. In Argentina, the company is the leading pay TV operator and holds a third of the country’s mobile business and the fastest 4G-LTE network; in Paraguay it has reached 2.2 million mobile customers and it wants to expand beyond its licenses that authorize a limited provision of cable TV service in Uruguay.

Mexican David Martínez once owned 100% of Telecom Argentina and its personal mobile sector brand. Following a partnership between Telecom Argentina and the Clarín Group, controller of the Cablevisión brand, Martínez became owner of 41% of the new company, which is now looking to expand more strongly in Uruguay.

The company identified a business opportunity in Uruguay, where the government of President Luis Lacalle Pou pledged to open the telecommunications market to interconnected services. But the intentions of the new Uruguayan government for Telecom Argentina and other operators to be able to sell packaged services in the mid-term or enter into niches in which they are not currently participating with offers, are currently stalled by a post-pandemic economic context.

In addition to the regulatory framework that needs to be updated according to the market reality, and the fact that there is an opportunity to buy Uruguayan Movistar in light of equally challenging regulatory difficulties that América Móvil would face with Claro in this same endeavor, ANTEL is the major obstacle. A state-owned operator like few others in Latin America, as it is entirely responsible for the fixed broadband market and half of Uruguay’s mobile telecommunications, and has also started to offer 5G technology coverage.

“Uruguay’s market has a different reality in the regional context due to the presence of ANTEL, a state-owned operator that dominates some segments, such as mobile service, and is a monopoly in others, such as landline telecommunications, which has achieved a significant network rollout, quality services and positive indicators in terms of citizens’ access to connectivity. This market reality is based on a regulatory framework that has not been updated for years and is working in favor of the state. These factors strongly condition any investment decision to be made,” explained Oscar M. González, an expert in regulatory policy analysis.

“Last year, Uruguay regulated number portability, a segment provided in a competitive system, although with clear advantages for ANTEL in terms of network rollout. Decisions such as this could be part of a public policy course different from that of recent years, leading to a modernization of the regulatory framework with the possibility of initiating a path toward service convergence and enabling greater competition in the different market segments,” said Oscar M. González, also a former Undersecretary of Regulation at Argentina’s SeTIC.

Although the issue is not one of nationalism, in Uruguay there is resistance to ANTEL being forced to share its infrastructure with third-party private sector operators, because 70% of its networks are now built on state-of-the-art fiber optic cables.

ANTEL is a state-owned telecommunications monopoly, but it has done a fairly good job in terms of service provision: 72% of its fixed customers are happy with its products. This government-owned company concentrates all landline, mobile and broadband services.

According to Uruguay’s Communications Services Regulatory Unit (URSEC), 65% of the country’s landline traffic travels over ANTEL’s networks, and 96% of international long distance traffic also goes through its networks. In Uruguay, 59.3% of the radio bases belong to ANTEL and the company has 46.3% of all mobile lines, compared to 33% for Movistar and 21% for Claro.

Uruguay’s URSEC statistics also show that 61% of mobile broadband subscriptions also belong to ANTEL, 27% to Movistar and 11% to Claro. Another interesting fact: ANTEL serves 60.6% of postpaid users nationwide, twice the base of Movistar and four times more than Claro. In addition, ANTEL holds 99% of the fixed broadband business in the country.

Uruguay is far from being the most important market in Latin America, despite its proximity to giant Brazil, but it is a logical place for an operator with regional aspirations, as Telecom Argentina is now trying to be, seeking a natural expansion of its operations.

The nation has a population of only 4 million, but has one of the highest per capita incomes in the region, at US$15,650, twice that of Paraguay, for example, where Telecom Argentina is progressing more rapidly with its expansion plans. Uruguay’s GDP totaled around US$60 billion in 2019.

“The idea of expanding our business outside Argentina is underway, but we are closely and very sensibly analyzing the possibilities, because there are still some issues that the Uruguayan government must solve,” Roberto Nóbile, director of Telecom Argentina, recently told financial analysts.

If convergence is not allowed (in Uruguay), value generation is different,” added Telecom Argentina’s Roberto Nóbile.

Telecom Argentina is interested in the bundling of landline/mobile packages with Internet and pay TV, but the legal framework in force since 2014 does not allow companies to offer these services from their own networks. This complicates Telecom’s plans to potentially buy Movistar Uruguay, seeking to offer both telecommunications and mobile Internet.

Enrique Carrier, consultant at Carrier y Asociados, agrees that the delay in reviewing the regulatory framework is more related to the potential impact on ANTEL’s performance than a simple update of public telecommunications policy.

This is because the reform proposal presented in 2020 by President Lacalle Pou would force ANTEL to share its infrastructure with the private sector, open the convergence of services, eliminate the limit on the holding of pay-TV licenses, and also put an end to the ban on cross- ownership between Internet and pay TV providers.

Uruguay is also examining how the development of a new regulatory framework could affect ANTEL’s ability to invest in the deployment of 5G technologies, the first operator in Latin America to do this.

“Any investor will not want to enter a market where access to fixed broadband is forbidden, because the evolution of networks involves broadband and to provide broadband, you need access to fiber, owned or rented, which can also be used to support mobile services (…) The amendments presented by President Lacalle are pending and this regulatory framework then becomes a deterrent for anyone who wants to enter Uruguay’s telecommunications,” said Enrique Carrier, from Carrier y Asociados.

“The Clarín Group is confident, because it knows to whom it is delegating its strategies for Uruguay and the rest of the world; they are not going to leave in haste nor are they going to risk the company and its strong participation in Argentina because it is a regional player. On the other hand, David Martinez is also confident, because he knows how to choose good partners. The core of this whole issue is ANTEL and how the new regulation may affect Uruguay’s state-owned company.”

Source: El Economista