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Luxembourg-based Millicom International Cellular (MIC) announced last week that it intends to formally bid on a fourth mobile license in Peru, offered by the country’s Communications and Transport Ministry. Should the operator win the license, as Pyramid Research believes it will, Peru will be the only market where the region’s four superpowers (Movistar, America Movil, Nextel, and now presumably Tigo) all directly compete. The confluence of four operators could quickly turn Peru’s wireless market—historically the least developed in the Andes—into the region’s next hotspot.
Pyramid Research believes that Millicom is now interested in entering Peru for various reasons. First, because Peru’s mobile penetration stood at only 16.54 percent as of June 2005, there is still considerable room for organic growth in the market. The country has a sizeable population of nearly 28m, and given that MIC only has 3.2m subscribers in the region, growth from Peru could help fuel economies of scale for the operator. ARPS remain very high in Peru due to high tariffs (Movistar’s in-network calls stand at a staggering US$0.40 per minute) and although ARPS will fall significantly in the coming years, there are good prospects for short-to-medium term gains. Finally, the market conditions in the country will likely allow MIC to enter the country at a low cost, as the 4th license they obtained in Peru was purchased at a near record-low price, and the costs of deploying a GSM network is continuing to fall.
While the Peruvian market offers potential opportunities to a potential 4th entrant, Pyramid Research believes that any new competitor will have a very difficult time competing in the market. Incumbent Movistar currently enjoys the overwhelming share of the wireless market and controls the local loop while Nextel has a solid grip on the corporate market and is the first NII subsidiary to venture into the prepaid space. If allowed, Nextel may even emerge as an alternate bidder to the license being auctioned. Finally, America Movil, which recently rebranded its new Peruvian acquisition to “Claro,” is planning to invest US$200m in the country over the next two years. Much of this funding has been targeted at increasing coverage in rural areas and marketing wireless service to low-income users.
If Millicom does indeed enter the Peruvian market, it will certainly be good news for regulators, as the added competition will drop some of the region’s highest tariffs and help increase teledensity. However, Pyramid Research believes that the market appears enticing at first glance but it will be very difficult for Millicom to take the battle to Movistar, America Movil, and Nextel. The former two have very deep pockets which they can use to innovate, leverage equipment contracts, and wage price wars. The latter has an exclusive technology which will help it maintain its leadership in the corporate niche. Millicom will also have to build a greenfield network, which in addition to the required capital investments, would also take significant time to construct, and would give precious time for competitors to prepare for Tigo’s arrival.
To read a complete analysis of Millicom's entry into Peru, purchase the latest Americas Market Perspective in our online store.
Related Products:
Peru Mobile Forecast
Peru Mobile Operator KPI Forecast
Peru Country Outlook
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