Emerging Markets: The View from Argentina

By Monica Zlotogorski, Vice Chair, Latin American Advisory Board, TM Forum & Editor, Inside Latin America

Argentina is known for its great meat, wine, the tango, and for having one of the most successful national soccer teams in the world. But it’s also the third largest economy in Latin America and one of the G-20 major economies. Argentina’s economy grew at around 9 percent annually between 2003 and 2007 and close to 7 percent in 2008. Argentina is now facing slowing economic growth in light of an international financial crisis, but the World Bank forecasts that Argentina’s economy is expected bounce back 1.9 percent in 2010.

And this is where TM Forum delivered its second event in Latin America last month and its first-ever event in Buenos Aires. I have to confess that I was looking forward to attending this event more than any other TM Forum event this year, because Buenos Aires is an amazing city (probably one of my favorite places in the world), its architecture is quite unique (combining elements of Paris and Madrid, with very modern architecture and tall buildings), the food is great, the wine delicious, and the porteños (inhabitants of Buenos Aires) are some of the nicest people in the world.

But leaving personal preferences aside, the communications sector in Argentina has been growing at a fast pace in recent years, and that’s why we decided to deliver our second Regional Spotlight in that market. The event was a complete success, drawing almost 110 delegates and including case study presentations from ICE (Costa Rica), Telecom Argentina, CableVisión and IPLAN that discussed the use of TM Forum standards and best practices.

The Competition Heats Up

There are only 22.7 fixed-line phones per 100 inhabitants in Argentina, but Broadband and Pay-TV reached 35.5 percent (corporate and residential) and 61 percent (homes) respectively last year. Mobile penetration is even higher, achieving an impressive 117 percent penetration rate last year (90 percent of them prepaid). Some sources estimate that by 2013 the mobile market will reach a penetration rate of almost 130 percent.

If I have to summarize two or three of the most important recent developments in the Argentine communications sector, I would pick the fact that Argentina’s fixed-line incumbents will face additional competition from cable TV operators, such as CableVisión, as they offer voice services. Triple-play in Argentina will imply a potentially serious threat to telcos, and if there’s a market where the telco-cable competition is most apparent (at least to me), it’s in Argentina. The other element that will probably further shape up  the landscape for Argentina’s communications sector is the recent announcement of Telecom Italia to sell its stake in Telecom Argentina (if the price is right and depending on antitrust rulings) and who will bid for the stake. Another important element is the arrival of number portability, which will present an additional set of challenges for Argentine service providers.

Strategies for a Growing Market

Penetration reaches the market saturation point at 70 percent, and Argentina’s mobile market is well beyond that point (I take wireless penetration as the indicator of market maturity/saturation). The country has a highly urbanized population, which contributed to the growth of Argentina’s telecom services. The introduction of more advanced services will continue to help boost revenue for operators and will help increase ARPU as subscribers boost their use of value-added services. Clearly, the focus for operators in Argentina should be on raising their ability to offer additional value-added services, bundle of services, triple/quad-play offerings, pricing strategies and postpaid strategies in order to guarantee future revenues.

But as markets approach maturity, the investment required to capture new customers also becomes higher. Organic market growth opportunities decrease, and expanding the customer base starts depending on the acquisition of other operator’s customers (as the existing pool of customers gets smaller), which makes the whole customer acquisition process a lot more expensive (and customers are much harder to keep as well). This is why operators in Argentina must provide a stronger focus on developing the value of the customer base and not simply the number of customers (customer acquisition is often the most costly and least profitable component of the overall customer experience).

But in the event of Argentina, that strategy is not enough. Argentina is characterized by a significant income inequality, which leaves a reduced market segment with higher purchasing power to target with added-value services. Therefore, Argentine operators should also focus on alternative strategies in order to be able to also attract and retain subscribers in a segment of the population with lower purchasing power, where costs are of greater importance.

That is why the reduction of internal operational costs to improve margins is key to offsetting market trends (that is, slowing customer acquisition and market saturation). Service providers in Argentina are challenged to transform themselves into leaner, more cost effective, agile and customer-focused organizations. As the Argentine market reaches saturation, operators are finding out that innovation through more advanced services is necessary, but no longer sufficient, as other operators are also increasingly offering the same types of services to the same pool of customers. Greater operational efficiency, combined with smart/differentiated branding and an enhanced customer experience, are essential to avoid the risk of getting squeezed out of the market.

In essence, it’s no longer a matter of one or the other, but achieving both, and Argentine service providers are already going through that path (see presentations by Telecom Argentina, CableVisión and IPLAN). Many of them have been looking into TM Forum’s technical work for solutions. Consequently, it’s no surprise that the event in Buenos Aires was so well attended.