Peru: Telmex Goes Wireless  

Fixed Communications
By Omar Salvador, Analyst

In the fourth quarter of 2006, Telmex Peru launched “Explora”, a double-play offer which includes fixed telephony and broadband services using WiMAX. The bundle offer “Explora” is available in Lima and areas such as Miraflores, San Isidro, San Miguel, La Molina, Santa Anita, San Borja, and Los Olivos. “Explora” is a differentiated value proposition mainly targeting the business segment and the high-end of the residential market. The commercial offer leverages Telmex’s positive experience with the “Paquete Telmex” bundled offerings of local voice, long-distance, and broadband Internet services with discounted prices in Mexico.

Exhibit 1: Explora Packages Offered by Telmex Peru (March 2007)

• Telmex sees an opportunity in Peru, due to its low broadband penetration. The penetration of Internet broadband accounts in the business segment is just 24%, leaving ample room for growth. Other Latin American countries have evolved to higher penetration rates; this is the case in Mexico, where the broadband penetration in the business segment reached 47% in YE2006.  Telmex has stated its intentions to attack the business segment with WiMAX technology and the residential segment with cable platforms. Recently, the company announced the acquisition of Boga (Cable Express), a cable company with more than 20,000 subscribers distributed (for the most part) in Lima and Chiclayo. 

• Americatel, a smaller enterprise-focused player, reacted quickly to Telmex’s offer with its own commercial offer and WiMAX technology platform. Americatel (a subsidiary of Chile’s Entel) has launched two types of bundle offers called New Generation of Businesses (Nueva Generacion de Negocios, NGN) with characteristics similar to Explora, including two fixed telephony lines with local, long-distance, and broadband Internet services. While Americatel’s basic plan is not exactly comparable with Explora 1,000, it can be perceived as more economical. In addition, Americatel’s customized plans leave room to compete in the higher segments.
 
Exhibit 2: NGN Competing Package Offered by Americatel Peru (March 2007)

Source: Americatel, Pyramid Research.

• Telmex’s Explora and Americatel’s NGN will mainly expand in the enterprise market. The major impact will be on accelerating the migration to broadband from dial-up connections and the erosion of Telefonica’s market share in this attractive segment. The current Explora 1,000 bundle package represents around 11% savings for subscribers over the sum of Telefonica’s individually-packaged services. Additionally, Explora offers free installation (representing an additional 12% savings versus Telefonica), bringing total savings to 20%.

Exhibit 3: Telefonica Individual Offerings Close to Explora 1,000 (March 2007)

Note: Telefonica’s price calculated from the sum of individual services, since the incumbent does not bundle its services.  The calculation assumes that 10% of monthly fixed MOU will be long-distance.
Source: Telefonica, Pyramid Research.

• Through this new service, Telmex is maximizing its all-IP value proposition as one connection, one distribution channel, one cutting-edge technology, and one bill for various services. At the same time the company captures and drives the fastest-growing segment of the fixed market. Pyramid Research expects business broadband accounts to grow at a CAGR of 22% from 2006 to 2011, generating more than US$180m in 2011.

Exhibit 4: Peru: Business Broadband Revenues in US$ million (2005-2011)

Source: Pyramid Research.

• The Explora bundled offer in Peru is part of Telmex’s regional strategy of gaining cost-effective last-mile connectivity in the business segment and could yield additional benefits for the company. Telmex recently launched its WiMAX platform in its neighboring country Chile and is implementing similar commercial offers to the enterprise segment. Pyramid Research expects Telmex’s bundled offers will reach at least 20% of its existing fixed telephony base and expects Explora to reach 4,000 subscribers at the end of 2007. This growth projection considers the 1,000 subscribers Explora gained in three months and the current capacity deployed, which is 10,000 subscribers.

• Although we expect Telefonica to match Explora’s commercial offer in 2007, the incumbent now faces a focused opponent and greater competition from its regional rival, Telmex. Telmex’s Explora and Americatel’s NGN are two fresh brands, supported by a new wireless technology which will challenge Speedy in the business segment. We expect the incumbent to launch a competing bundled package soon and for competition to heat up in the coming months.

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