This section features reports of the research conducted under the WDR umbrella by research centres around the globe.
Market Structure & Penetration in Latin American Mobile Print E-mail
Written by Judith Mariscal   
Thursday, 21 December 2006

DIRSIThe objectives of this newly released working paper are two-fold. On the one hand, the paper analyses the process of consolidation that the region is currently experiencing in the mobile market; and on the other, identifies the impact of this market concentration on mobile penetration. The ultimate intention of this analysis is to understand how trends in market structure can impact use of mobiles by low income sectors of the population in Latin America. 

As for other regions of the world, the use of mobile telephony in Latin America increased dramatically during the last decade surpassing all expectations for the industry. Mobile telephony was initiated as a premium service used mostly by professionals and during the mid-1990s it became a device used by very low income groups.

In Latin America, mobile telephony provides the only source of access to some of the poorest segments of the population and has become the predominant mode of communication. Mobile networks will provide coverage to 90% of the world's population by 2010, compared with 80% in 2005. In the region, despite several economic slumps, the number of mobile subscribers increased from four million in 1995 to close to 300 million in 2005. The pro-poor accessibility of mobile services makes this industry’s expansion an interesting area of study as a possible channel towards development. Mobile companies are beginning to address the bottom of the pyramid as an important market to serve; adapting business models to serve the needs of low income consumers.

The fast market growth of mobile services arises through a dynamic technological innovation that promises to offer increasing opportunities for development.  The technological progress this industry experiences constitutes a crucial source of growth. The shift from analog to digital technology, standardization and market competition increased mobile subscription diffusion (Grueber, 2001). Indeed, compared to fixed telephony, mobile services arose in a relatively more competitive environment with more firms operating in the market since its inception. .

Competition between mobile carriers promoted diffusion, encouraged innovation, expanded the network and reduced prices (Rouvinen, 2004). Innovative pricing strategies such as prepaid subscription and calling party pays have contributed very significantly to the dramatic growth in mobile subscription. However, the literature on industrial organization concludes that the mobile industry sustains only a few number of firms in the market (Valleti, 2003; Gruber, 2005). Because entry to the mobile market is restricted by the available spectrum, this industry is inherently oligopolistic (Sung, 2006). Moreover, in Latin America today we observe a consolidated market; the Spanish firm Telefónica and the Mexican corporation Grupo Carso Telecom, owners of Telmex and América Móvil, have operations in twenty six countries of the region and together service sixty four percent of the regional mobile market.

This study is intended to evolve as a foundational piece of background research which will inform the Regional Dialogue on the Information Society (DIRSI) larger project on the mobile sector in Latin America. The objective in this paper is twofold. On the one hand, it seeks to analyse the process of consolidation that the region experiences today in the mobile market and on the other, identify the impact this market concentration has had on mobile penetration. The ultimate objective behind this analysis is to understand how the trend in market structure may impact the use of mobiles by low income sectors of the population in Latin America. 

The findings in this paper are mixed. They do not identify a clear association between market concentration and mobile penetration. It suggests firms in the mobile market are competing for a regional position and not colluding; for example, the ARPUS in the mobile industry are decreasing. In accordance to results in other studies it finds that the most significant variables that have had an impact on mobile penetration are pricing strategies.

The first section of this paper will offer an overview of the process of consolidation in the mobile market in Latin America and the business strategies that mobile firms have followed. The following section will identify its market structure and the last section will explore the links between variables associated to market concentration and known to influence mobile penetration such as pricing and spectrum allocation. The final comments will identify the knowledge gaps and suggest new lines of research.

 

 

This research forms part of the Mobile Opportunities project being undertaken by DIRSI.

Diálogo Regional sobre Sociedad de la Infomación (DIRSI)

Regional Dialogue on the Information Society (DIRSI)

This research is supported by the International Development Research Centre (IDRC).