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Business News Americas
Accessing The Puerto Rican Mobile Market
by Jose Otero, Independent telecoms consultant
May 15, 2003
(A complete version of this report can be found in the BNamericas research center)
A few months ago in Puerto Rico a local publication, Zona Comercial, sponsored a roundtable discussion on the development of the mobile sector on the island. This column reviews some of the points that were brought up in the panel, with the objective of continuing a constructive discussion on the evolution of the mobile telephone sector in Puerto Rico.
LEVELS OF MOBILE PENETRATION: LEADERSHIP?
Historically, discussion about the Puerto Rican mobile sector has been centered on statistical comparisons with both Latin America and the United States.
Puerto Rico has one of the highest penetration rates in the region - measured at about 39% at the end of 2002. This puts the territory well ahead of most of Latin America, but still some distance behind the US and Canada.
Unlike most Latin American countries, the mobile telephone is not seen in Puerto Rico as the one-stop telecommunications solution for most people, who already have access to a fixed line - over 60% household penetration. As a result recent growth in the sector has been slower than that experienced in much of Latin America. Rather than being a sign of something wrong this reflects the greater maturity and closeness to saturation of the Puerto Rican mobile market.
OVERPOPULATION OF MOBILE OPERATORS
Puerto Rico has six mobile telephone operators that compete against each other. This number is more than any other country in Latin America, and has forced operators to adopt increasingly aggressive and innovative strategies to acquire new customers.
The empirical evidence indicates that a market as small as Puerto Rico cannot generate sufficient demand to justify the existence of six mobile operators. This position was confirmed by the consultancy Booz Allen Hamilton, which carried out several economic studies leading to the conclusion that in order to not record losses and therefore allow for a return on investment, the number of operators in a competitive Latin American mobile market such as the Chilean market should not exceed three.
With a population of 3.8 million inhabitants with an average annual income of about US$23,000, Puerto Rico should not be able to generate the amount of demand to sustain six profitable operators.
However, the late arrival of Sprint PCS as the sixth operator at the end of 2001 suggests that there are other factors at play, that have encouraged the proliferation of carriers in the local mobile market.
CONSOLIDATION LED BY OVERSEAS DECISIONS
Puerto Rico offers a very interesting case study in consolidation of the global telecoms sector. The island's six operators can be grouped into three different groups defined by their role and business strategy.
Nationwide coverage: The operator seeks to maintain an active presence in the local market as a consequence of its objective to have full nationwide coverage in the US. This group includes the US big four mobile operators Verizon Wireless, AT&T Wireless, Cingular Wireless and Sprint PCS.
Vertical integration: The portfolio of services offered by the operator includes long distance, mobile, cable TV, Internet, fixed line, broadband and datacoms services. Centennial Wireless fits this category, as does the Verizon Wireless, when taking into account that Verizon also owns the local incumbent telco PRT.
Latin American presence: Puerto Rico is seen as being part of the Latin American presence of the operator and many of its services offered on the island replicate strategies implemented elsewhere in the region. Telefonica Movistar is the example of this situation in Puerto Rico.
THE DIFFERENCES OF THE LOCAL MARKET
The two leading operators in the Puerto Rican market are Verizon Wireless and Cingular Wireless. Both companies have recognized the island to be an ideal place to trial new services and technologies befor