GUEST COLUMN: The real potential of mobile roaming

By José F. Otero, President - Signals Telecom Consulting The telecommunications market liberalization process for most Eastern Caribbean countries was characterized by what could only be described as naiveté on the part of inexperienced regulatory entities. For example, the countries represented by regional regulator Ectel decided to issue two to three mobile licenses for new entrants to compete against incumbent Cable & Wireless. Undoubtedly, regional governments were betting on the large number of tourist arrivals to justify so many licenses as operators' would be able to capitalize on roaming revenues derived from visitors. Thus, even though no island in the OECS has more than 300,000 inhabitants most of them currently have three mobile operators offering service. During the 2nd Annual CariCam Mobile Congress held in Puerto Rico in 2003, I argued that no mobile operator in the Caribbean could justify its existence solely on roaming revenues and to be successful it would have to also pay attention to the local market to guarantee a monthly income that is not as volatile as the tourism industry. I also argued that even though the Caribbean was the last region of the Americas to liberalize, the markets' small size, combined with numerous mobile operators would create rapid saturation, forcing consolidation of the telecom industry. Market saturation is now a reality in the Caribbean. The challenges faced by mobile operators are now: how to create new revenue sources, how to retain profitable clients, and how to outperform direct competitors. This has led operators like Digicel to start considering the launch of fixed wireless services as well as forcing Cable & Wireless to better assess the type of synergies that it could obtain from its mobile and fixed operations without falling into what could be considered as illegal cross subsidies. In this new competitive environment, the three main pan-regional mobile operators - Cable & Wireless, Cingular Wireless and the Digicel Group - frequently resort to the courts to assure a competitive and fair marketplace regarding the legality of interconnection charges, long distance rates and the use of foreign HNIs for roaming. Underexploited Roaming Signals believes that even though mobile roaming was cited as the main reason for the award of 2 to 3 licenses in the Eastern Caribbean, this business has yet to be fully exploited by mobile operators. This is due to two main factors: spectrum allocations and the technology infrastructure chosen by the operator. Thus, in an island like Santa Lucia where Cable & Wireless operates a GSM network on 850MHz the operator misses around 32% of all roaming customers who are Europeans using GSM on 900/1800 MHz. Thus, the US$11.2mn in roaming revenues from these travelers will be divided by Digicel and Cingular Wireless. Furthermore, if potential CDMA roaming revenues (under the assumption that all problems are solved and operators are able to close roaming agreements with US and Canadian CDMA mobile operators) are considered, another US$2.7mn are lost as currently no mobile operator provides CDMA roaming in the Eastern Caribbean. It's a Visitors Market! The unsustainable mobile growth taking place in the Caribbean is characterized by subscribers having more than one cell phone service - typically prepaid - to be able to benefit from the lower rates offered by on net calls. This development depreciates the real value of any new subscriber and extends the time needed by operators to recoup their subscriber acquisition and maintenance costs. Under this scenario roaming increases in importance and mobile operators are forced to readdress their current strategies, perhaps deploying focalized networks targeted solely to the incoming visitors and not the local market. Thus, for a country like Bahamas that receives 5 million visitors each year with around 91% coming from the US and Canada the short term provides the incumbent monopoly with two clear choices: implement a focalized UMTS/HSDPA network in 1900MHz to target Cingular Wireless high-end and business travelers (at least until the local market is liberalized) and do a similar deployment for CDMA2000 1x as Signals estimates the potential roaming revenues for this technology to be US$31.4mn by year end 2005. Caribbean and the Proliferation of 3G Networks The Bahamas case serves to illustrate a phenomenon that is developing in the Caribbean: the need to deploy networks that could be used by visitors to fulfill their roaming needs. In other words, the arrival of UMTS/HSDPA into the Caribbean and the proliferation of CDMA2000 EVDO networks will be directly related to the percentage of visitors arriving from Europe or the US. For example, places like Aruba, the Bahamas, the British Virgin Islands and the Cayman Islands should see the deployment of CDMA2000 EVDO and UMTS/HSDPA on 850/1900MHz in the near future as the vast majority of their visitors arrive from the US. On the other hand, mobile operators in Antigua & Barbuda, Barbados or the French Antilles should consider deploying UMTS/HSDPA on 2.1GHz since the largest share of their visitors arrive from Europe. Caribbean mobile operators that wish to continue benefiting from European-generated roaming revenues need to consider that in a few years European GSM subscribers will decrease as migration to UMTS accelerates. New Opportunities & Too Many Vendors Contracts for the deployment of UMTS/HSDPA or CDMA2000 EVDO infrastructure in any of these countries would most likely be smaller than those granted for 2G networks since the number of required base stations and cell sites would be smaller. Nevertheless, this new opportunity for vendors could result in a reshuffle of Caribbean mobile infrastructure deployments, currently dominated by Nortel Networks. Competing infrastructure vendors such as Lucent Technologies or Ericsson (the main rivals in the region) could leverage the number of UMTS/HSDPA and EVDO contracts that they have gained in the United States and Europe in order to showcase to Caribbean operators their expertise in these areas. However, these three operators will have to face price competition from Chinese manufacturers such as Huawei and ZTE, which are aggressively seeking to expand their presence in the region. Future Outlook Caribbean mobile operators interested in increasing their roaming revenues will start considering focalized network deployments that allow them to provide roaming services to US & European visitors that utilize different technologies in their home markets. For example, Cable & Wireless is an example of a mobile operator deploying a GSM 1900MHz network in several of its properties just to target the roaming market. Signals believes that 3G technologies would be deployed in the Caribbean region faster than in Latin America as the deployment schedule will depend on the adoption of UMTS/HSDPA and/or CDMA2000 EVDO in the countries that provide the larger share of visitors to the islands as well as their willingness to do roaming. Based on this, Signals identifies Aruba, the Bahamas, Cayman Islands, French Antilles, Netherlands Antilles and the British Virgin Islands as the most likely market to offer commercial UMTS and CDMA2000 EVDO services before mid-2006. Finally, Signals considers that increased competition in network deployments will undoubtedly benefit the mobile operators as they currently hold the cards in what has become a war of attrition among the various infrastructure vendors. About the Author José F. Otero is President and founder of the international consultancy Signals Telecom Consulting. He has collaborated in projects for institutions such as the World Bank, the Inter-American Telecommunications Commission (CITEL), the White House and the US Department of Commerce. Mr. Otero has done projects for various consultancies including Informa Telecoms & Media, Gartner Group, The Strategis Consulting Group, and Mexico-based CIDE. Mr. Otero is frequently invited to speak at industry events receiving invitations to present at congresses organized by Colombia's regulator CRT, the University of Havana and the US Federal Communications Commission (FCC) among others. He can be reached at Jose.Otero@signalsconsulting.com.