Latin America's Path to 3G
By Joachim Bamrud, Thu Jul 26 00:00:00 GMT 2001

A low penetration of PCs, combined with higher and fast-growing penetration of wireless telephony, promises strong demand for 2.5G and 3G services.


Mexico's infamous Subcomandante Marcos - the leader of the Zapatista rebels in Chiapas - does it. So does the leader of Bolivia's coca growers and so do cabinet ministers in Ecuador, businessmen in Buenos Aires and car mechanics in Lima.

You guessed it - they all use wireless phones as their key communications tools. In fact, largely thanks to a combination of factors, a growing number of Latin Americans are purchasing mobile handsets.

Those factors include years of decaying fixed telephony (resulting in everything from scandalous quality of existing lines to long, long waiting lists for installing new ones) and recent market reforms that have made it attractive for US and European wireless carriers to set up shop in the region, building new base stations and "dumping" phones on the market.

At the same time, PCs have also been selling in growing numbers. But, unlike the wireless phones, the desktop machines have typically retailed at prices ten times higher or more, making them out of reach for the average Latin American consumer.

As a result, the strongest future growth in Internet access is expected to come from wireless phones rather than desktop PCs in a pattern similar to other developing or lower-income areas of the world and even Japan, by far the most advanced wireless Internet market today.

Strong growth prospects


"If people are given access to the web through cell phones, which are considerably cheaper, they will certainly go for that," says to Marcus Arvellos, senior Latin America analyst at US market researcher The Strategis Group.

The number of wireless Internet users in Latin America is expected to jump from 1.4 million today to more than 47 million by 2007, according to Strategis.

"This is going to be a way to quickly and affordably get Internet access," says Jeffrey Belk, senior vice president of marketing at US-based software developer and phone producer Qualcomm.

While 3G - and even 2.5G - still seems far off, operators throughout the region are already busy preparing for next-generation services.

Just last month, Nokia announced a $680 million deal to supply a GSM-GPRS network to Telemar, Brazil's largest fixed telephony operator with 96 million customers. The carrier plans to launch both GSM and GPRS next year, becoming the first operator in the South American country to do so.

"We'll be building ...the technical solutions to be able to offer the highest speed and always-on service, which is made possible by GPRS, to our clients next year," Telemar president Manoel Horacio Francisco da Silva said in a statement. "We know that after WAP, GPRS is another important step towards multimedia services."

Rapid change on the continent


Meanwhile, Brazilian carriers Telesp Celular and Vesper have announced plans for a fourth quarter launch of cdma2000 1xRTT, a technology that will enable users to download data at speeds up to 144 kbps. It is referred to as a 3G technology by the International Telecommunications Union, although it's closer to the 2.5G than 3G technology deployed in Europe.

Telesp, a subsidiary of Spanish telecom giant Telefonica, is South America's largest CDMA operator with more than five million subscribers. It launched wireless Internet services in July 2000 (using Phone.com's browser) and has reportedly sold more than 1.2 million WAP phones so far.

"Telesp Celular's decision to use CDMA2000 (1x) for its 3G service delivery places the operator at the forefront in bringing advanced services to wireless consumers in Brazil," Perry LaForge, executive director of industry association CDMA Development Group, said in a statement in April.

In Mexico, Pegaso PCS (partly owned by US carrier Sprint PCS), is also planning to launch cdma2000 1xRTT during the fourth quarter this year.

Mexican TDMA carrier Telcel, which boasts some 12.5 million subscribers, is scheduled to launch GPRS, although it is unclear when. An initial phase, offering basic GSM for the first time, will be launched during the third quarter, according to a spokesperson for Ericsson in Mexico. Telcel will become the first operator in Mexico to launch GSM and GPRS. "The move is particularly important as we look ahead to third generation services and the future implementation of EDGE with UMTS as a next step," Telcel CEO Daniel Hajj said in December when the deal was announced.

In Bolivia both Entel Movil and its rival Nuevatel are both in the process of deploying GPRS. Entel, a Telecom Italia subsidiary, is using network equipment from Ericsson, while Nuevatel, a subsidiary of US operator Western Wireless, is using equipment from Nokia.

In Venezuela, Telcel is testing cdma2000 1x, but has yet to announce whether it will implement it or not.

Other carriers are also planning to launch 1xRTT or GPRS, but have yet to make formal announcements that include specific dates.

Different strategies


However, many may also opt for skipping 2.5G and going directly to 3G. That will be the case in Venezuela, where the government has already announced plans for an auction of 3G licenses - sometime next year - becoming the first Latin American government to do so.

Argentina, Brazil, Mexico and Chile are expected to follow in terms of 3G launches, according to Arvellos.

Operators in Latin America have been weighing which 3G paths they should take. The region has until now largely been dominated by TDMA and to a lesser degree CDMA. GSM's presence in the region only started in 1998 - in Chile.

The cdma2000 camp has been pointing out that it would be less expensive to build out TDMA networks with CDMA 3G technology and that 1x RTT handsets are already available.

"If these TDMA guys cut to GSM, there won't be handsets [right away]," says Belk. "CDMA2000 have 13 different models already available."

The W-CDMA camp has been pointing to reduced handset costs by going their way, since that technology would cover all of Europe, most of Asia and parts of the United States.

"That's why there's so much pressure to choose GSM," says Arvellos. "By providing economies of scale, they will be able to ...reduce handset prices. A handset at a thousand dollars is no good."

So far, a growing number of carriers have chosen to go with the latter, partly under pressure from their European owners and partly drawn by the possibility to provide extensive global roaming.

The most recent example: Telecom Personal, Argentina's largest wireless operator, which is owned by France Telecom and Telecom Italia. The carrier announced in May that it would replace its TDMA 1900 MHz network with a GSM/GPRS network over the next couple of months.

"Because GSM is an open, internationally deployed standard, the vast economies of scale enjoyed globally enables a huge choice of competitive handsets and infrastructure," Marcelo De Carli, Telecom Personal's general director, announced in May. "In addition, GSM has a graceful evolutionary path to 3GSM [W-CDMA] services."

While he said GPRS would be launched "eventually," De Carli did not set a specific date.

And in Brazil, GSM is set to enter sometime early next year after the government decided to auction an 1800 MHz spectrum. Telecom Italia has paid $1.5 billion for four GSM licenses. Another five are due to be sold, but the government has been having trouble getting sufficient bids. The new GSM licenses are to operate side by side with the CDMA/TDMA networks of rival carriers.

The Telecom Italia subsidiaries are expected to launch GPRS concurrently with GSM, predicts William Nazaret, Chairman of the GSM Association's South American Interest Group.

The 1900 MHz frequency will be reserved for 3G, which should come some two-three years after GSM is launched, according to Brazilian government predictions used by the GSM Association.

Following recent decisions by operators in Brazil, Argentina, Peru and Mexico to adopt GSM, Latin America should see a tenfold increase in GSM users over the next 12-18 months, according to the GSM Association.

As a result, W-CDMA seems likely to become the dominant 3G technology in Latin America, reflecting the global picture.

However, how soon - and to what degree - Latin carriers launch 3G is another matter.

"As is the case in [the] rest of the world, the prospects for 3G [in Latin America] are promising enough to plan and position for, but not mature enough to forecast with accuracy," says Maria Schnabel, spokeswoman for BellSouth International, by far the largest US carrier in Latin America, with operations in 11 countries.

Latin American carriers will need to be prudent and cautious, according to Bryan Prohm, an analyst with Gartner Group Dataquest. They won't necessarily follow the lead from Europeans down W-CDMA or even take the cdma2000 path until some lessons in early-deploy markets like Europe and Japan have been learned, he says.

In fact, some carriers may choose to go from TDMA to EDGE without ending up with W-CDMA or cdma2000.

Brian O'Shaughnessy, vice president of technology development at Canadian operator BellMobility and a leading expert on 3G standards worldwide, predicts that Latin America should be implementing 3G services in the 2003-05 period, roughly the same as the United States.

"Latin America won't be much behind the US," he says. "There's a lot of pent-up demand."

But, unlike the United States, 3G may hold wider appeal, according to some industry officials.

"The total prospects for 3G-type services in Latin America may eventually exceed the US as a percent of users because PC penetration... is behind that of the US," says Schnabel.

Joachim Bamrud is an award-winning journalist with 17 years experience as a writer and editor in the United States, Europe and Latin America. Bamrud has worked for various print, broadcast and online media, including Latin Trade, Reuters and UPI.