Smartphones are no longer luxury accessories for upper-middle class consumers who don't blink at a $500 price tag—even in parts of the world where the average consumer's yearly salary is just two or three times that amount. As smartphone adoption grows and related services become more affordable, Latin America's telecom market is outpacing its neighbors to the north and breeding a generation of consumers more married to mobility than their peers in more developed economies.
"There's a middle class that's been building [in Latin America]," said Tim Matula, managing director of corporate communications at ChinaTel Group, which will launch wireless broadband services and 4G-capable devices in Peru next month. "All of a sudden, they can afford a car, they can afford a dishwashing machine and they can afford a TV. This is the first generation that can afford these things, and along with that comes a smart device."
While feature phone sales in Latin America have flattened to single-digit growth numbers, smartphone adoption is growing rapidly, according to Tuong Nguyen, principal analyst at Gartner Inc. Smartphones accounted for only 6% of mobile communications devices in Latin America in 2009, but that figure should jump to 20% by the end of this year, Nguyen said. About half (49%) of Latin Americans will be smartphone owners by 2015.
I think the surprising point for a lot of people is despite working with a smaller disposable income, [Latin Americans] spend a lot more on mobile than we do here.
Principal Analyst, Gartner Inc.
Carriers are luring consumers with more affordable data packages and cheaper smartphones, bringing connectivity to a population that have historically had no affordable access to residential wireline phone and Internet services, he said.
"I think the surprising point for a lot of people is despite working with a smaller disposable income, [Latin Americans] spend a lot more on mobile than we do here," Nguyen said. "The [mobile] phone is really the only point of contact for [many consumers there]."
Smartphone adoption drives Latin American wireless market
ABI Research dubbed Latin America the "rising star of the telecommunications market" in a recent market analysis, ascribing the region's healthy mobile market to growing affluence among consumers, greater smartphone adoption and the rising popularity of social networking applications.
First quarter revenues for all telecom services in Latin America grew 17% year-over-year, as compared to 8.9% in North America, according to ABI. Latin American wireless revenues surged, with carriers enjoying 40.3% growth year-over-year—about double the worldwide average (20.3%), ABI reported.
"The mobile device is their access to the world," said Daniela Perlmutter, director of market strategy at OSS/BSS vendor Amdocs, which recently commissioned a study about consumer wireless trends. "Here specifically, the fixed or wireline broadband infrastructure is somewhat scarce, versus the more mature, developed markets of North America and Europe. For [Latin Americans], the mobile device is not just another device they could browse the Web with. It's an enabler."
Latin Americans are more bullish about converging devices, with 82% saying they expect their PCs and mobile devices to converge into a single device, as compared to 58% of North Americans, according to the Amdocs study, which surveyed 4,300 wireless consumers worldwide.
Meanwhile, Latin American consumers are more than four times as likely to own multiple handsets as consumers in North America. Two-thirds of Latin American consumers said they would be willing to pay a premium for new wireless services—mobile access to TV content, higher-quality networks and "cross-connectivity," or syncing all devices and content—as compared to one-third of North American consumers surveyed.
When asked what they'd like to see in the future for wireless services, the top item on the wish list for Latin American consumers was cross-connectivity, followed by home services, such as wireless-enabled home security or alarm services and multiscreen entertainment services, Perlmutter said. North Americans said they would most like to see a service for backing up their contact lists, followed by cross-connectivity.
ChinaTel will launch a WiMAX wireless broadband service Aug. 1 in six Peruvian markets on the Pacific coast—Tumbes, Piura, Cajamarca, Trujillo and Chimbote—with plans to pursue the capital Lima as well under its Perusat brand. Perusat will sell tablets, USB modems and other "smart devices" with a standard 1 Mbps service or premium 3 Mbps service.
"There's a huge pent-up demand," Matula said. "If you go anywhere in the world [to] a developing country, a lot of people go to Internet cafes because that's [the only way] they can get Internet access. But [that changes] if you can sell a [wireless] device that's cheap enough and a plan that's affordable enough."
Smartphone adoption makes market attractive, but challenges remain
Although Latin American consumer surveys and market analysis promise a boom for wireless operators in the region, penetrating the market will be difficult.
About two-thirds of the market is dominated by Spanish operator Telefόnica and Mexican carrier América Mόvil—the latter owned by multibillionaire and telecom mogul Carlos Slim Helú—making it difficult for carriers outside the region to enter the market, according to Gartner's Nguyen. Complicating the issue is that many markets in Latin America also have a handful of competitive carriers in the mix, regulators limit spectrum allocations to improve competition, and foreign investors have backed away from the region, he said.
However, there's still a large untapped market in Latin America that remains viable for smaller carriers—more viable than the U.S. wireless market, according to ChinaTel's Matula.
"We don't want to compete in the United States against AT&T and Verizon. I'd rather go into a country that has a 10% Internet penetration rate," he said. "We're not trying to take market share from Telefόnica ... [because] we are creating new market share."
Mobile virtual network operators (MVNOs) have tried to enter the market but with little success, Nguyen said. Virgin Mobile, a Sprint MVNO, recently announced it would launch wireless services in Latin America, which may see more success due to its backing by billionaire Richard Branson, he said.
Wireless carriers may find that the best way to cash in on rising Latin American smartphone adoption is through partnerships with mobile application developers, mobile gaming companies and video content providers, Nguyen said.
"[I] live in the U.S., and I'm a little reluctant to throw down $400 or $500 for a PS3 [PlayStation 3 console]. Now imagine if [I live in Latin American and] make $50 a month. I'm skeptical those consumers would have gaming consoles or even a [portable Nintendo] DS, so this would be the first gaming platform for all of those consumers," he said. "From what we've seen doing our surveys, there's a huge demand for all of these types of value-added services."
Instead of trying to profit from the consumer sale of those services, Latin American carriers should target the developers and content providers by selling those partners aggregated usage data or prominent placement in a carrier's portal, Nguyen said.
"You might know about the iTunes store and you might know about the Android store, but not all of us are in tech and not all of us are 16 years old. The operator [portal] is front and center—it's the Walmart that shows all the goods," he said. "That's another value-add for the operator: They're the centralized hub for all things mobile."
Let us know what you think about the story; email: Jessica Scarpati, News Writer.