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The recent price increase of Ecuadorian mobile challenger Movistar’s text message packages triggered the regulators Suptel and Conatel to ponder instituting lower ceiling prices for this highly utilized service. For a country with one of the highest rates of text messaging in Latin America (only Venezuela and Costa Rica overshadow SMS use per capita), this is a relevant issue, affecting potentially approximately 14 million messages per day. Telefonica’s Ecuadorian mobile operation decided to reduce the number of messages included in packages from 150 to 110 for the price of US$2.54. As a result, the cost per message increased 36.6 percent, from US$0.017 to US$0.023 for Movistar’s users package. The current ceiling price defined by Conatel is US$0.25 per message, which is well above current market rates. However, based on the recent price change for messages, the regulators are planning to reconsider this figure, which if enabled could have large effects on text message usage and operators.
According to Suptel, between January and May 2005 the daily average of messages sent was 13.9 million, translating to an average of 417 million per month. Porta is the clear leader in the mobile sector with 61 percent market share, Alegro has the highest average SMS per user in the country—152 messages a month. In terms of volume, Movistar found its way to become the leader in text messages, with 50 percent subscriber participation. Driving the growth of SMS is the low cost of messages versus voice and a low median age (23) who view messaging as an innovative and cost-effective way of communicating.
Considering previous behavior by the regulators in Ecuador, Pyramid Research believes they will likely come up with a new ceiling price that is lower than current levels, benefiting the users and promoting the use of text messages. The dilemma for operators is either keep prices low—luring more customers to this service—or increasing prices to obtain higher margins. The answer will be based on the elasticity of demand that Ecuadorians will have as a result of a price variation and the level of cannibalization between voice and text messaging. We expect stiff operator opposition to any new price change, as text messaging comprises a significant portion of ARPS in the country.
To read further analysis of the Ecuador mobile and SMS markets, please purchase the latest issue of the Americas Market Perspective in our online store.
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