June 25, 2009
In terms of offering services for tight budgets, one of the pioneers in the video services market is DirecTV’s Latin American unit. In a recent presentation to investors, the satellite-TV operator disclosed some numbers that reveal how it is breaking out of its high-end niche.
On the cost side, DirecTV said the payback period on its net subscriber acquisition cost (SAC) for a prepaid user now is less than a year, despite its subscriber acquisition cost of $95. To estimate the SAC, DirecTV calculates its equipment costs at $135, plus $25 in commissions and another $25 for other sales expenses. It estimates the average hook-up fee (the price the subscriber pays for the installation kit) at $90, bringing the net SAC down to $95. This fee is still high for low-income households, but we consider the overall SAC payback period reasonable for the region, where year-long contracts are the norm for many fixed and mobile services. And if DirecTV needs to further encourage uptake, it should be able to reduce the hook-up fee.
Another factor in DirecTV’s expansion in the low-income market is its prepaid offering. The operator reported 4.03m Latin American subscribers at the end of Q1 2009 (excluding non-consolidated subscribers from Sky); I estimate that about 9.5% of the total – approximately 384,000 subscribers – were on prepaid plans. DirecTV has offered prepaid TV in Latin America since May 2008, when it introduced the payment model in Chile. During 2008, it added prepaid packages in countries such as Peru, Colombia and Puerto Rico. Since Q1 2008, DirecTV Latin America has added about 553,000 net subscribers, and prepaid has been important to client acquisitions in this challenging environment — my estimate is that more than 60% of the additions are prepaid.
DirecTV also said its monthly churn rate among prepaid subscribers is 4.7%, more or less in line with expectations. This is high compared with its 1.55% churn among postpaid users, but the cost is worth it considering the solid growth that the operator has enjoyed over the past year.
DirecTV’s experience validates the theory laid out in our recent Telecom Insider (Multiplay Services in Latin America) that low-income subscribers will become – and for some operators already are – critical to growth, and operators should look carefully at the economics of this market segment and adopt a creative approach to it. Due to the unequal income distribution in Latin America, most households remain underserved with services such as broadband and pay-TV, which means there’s a big opportunity for market participants if they can solve the equation of profitability and affordability.
— Jose Magana, Senior Analyst
Multiplay Services in Latin America: Operators Target the Mass Market
Telecom Insider published June 2009
Given Latin America’s moderate GDP per capita, operators must face the fact that to keep penetration of fixed services growing and meet revenue expectations, even saturating the highest-income strata won’t be enough. This report examines the multiplay strategies of several leading operators in Latin America and the rationale for engaging customers in the lower-income population segments. It compares the cost of multiplay services across several markets to demonstrate that there is potential in Latin America for costs to come down, which would boost penetration. Finally, case studies of two integrated operators — NET Serviços in Brazil and Claro in Central America — examine the strategic challenges and choices involved in expanding target markets through bundling.
Latin America Media Forecasts
Forecasts published quarterly
With telcos and mobile operators increasingly offering TV and video services, Pyramid Research’s Media Forecasts are designed to provide competitive intelligence on the pay-TV and mobile TV dynamics for 60 countries as well as regionally and globally. The Media Forecasts track demand patterns for free and paid TV services over terrestrial, satellite and mobile platforms worldwide, providing market share information at both the technology and operator levels as well as five-year adoption and revenue projections.
Mobile Broadband for the Masses: The Case for Bundled Netbooks
Research Report published May 2009
The netbook is a key catalyst of the changes reshaping the broadband access and mobile computing markets. This report analyzes the business cases behind bundling netbooks with broadband access for both operators and OEMs, discusses key performance indicators delivered by those operators that have embraced the use of netbooks, and assesses the value they have been able to extract from netbook sales. In Europe and the US, these operators include Orange, TMN, T-Mobile and Vodafone. We also look at early examples of netbook bundles targeting students and examine the potential for netbook bundle sales in the markets of Brazil, Russia, India and China.
IPTV in Latin America: Not So Fast
Telecom Insider published April 2009
Facing the same stagnation of fixed voice revenue seen on a global level, most fixed-line operators in Latin America have made IPTV a key objective in the past few years. We believe IPTV is underperforming in the region because of regulatory obstacles, technological difficulties and deployment delays. As the market has evolved, however, it has become evident that there is significant demand for pay-TV, which is pushing telcos to seek alternative strategies. This report examines the market for pay-TV services in general and IPTV in particular in Latin America. It analyzes the regulatory hurdles faced by IPTV and the progress telcos are making in pay-TV, as well as the various strategies they employ to make the most of the opportunity. The report also contains case studies of Telefónica and Telmex/América Móvil.