Argentina is on everyone’s radar in the CALA tower industry. It’s a huge untapped market, trailing only the lucrative Brazilian and Mexican tower markets in terms of potential. But Argentina is untapped for good reason. TowerXchange asks: is the risk worth the reward?
First, let’s look at the positives.
Competitive operator landscape
Argentina is host to one of the most balanced, competitive operator markets in CALA, and that’s always good news for the tower industry. Three operators vie for market leadership: America Movil’s Claro, Telefonica / Movistar, and Telecom Personal (the mobile arm of Telecom Argentina, which itself is controlled by Telecom Italia, which in turn is in the process of exiting Argentina in spite of several delays in the sale process involving Fintech). Nextel has a small market share.
Mature subscriber market, growing smartphone penetration drives demand for data – LTE being launched
In 2013 the GSMA recorded 52.9mn SIM connections in Argentina, representing active SIM penetration of 128% but multi SIMing leaves room for growth, given that there are only 28mn unique subscribers among a population of 41.5mn (unique subscriber penetration of 67%). 3G penetration had topped 40% in 2013, with smartphone penetration in the low 20s. GSMA Intelligence suggested ARPUs in Argentina, at around US$14 in 2012, were higher than the fertile tower markets of Mexico and Brazil.
During the 3G and 4G spectrum auction held in November 2014, operators’ bids exceeded the floor price of US$1.97bn by 13% and invested a very healthy US$2.23bn. As a result, LTE is now being launched by major operators, with Telecom Personal and Movistar both in the process of launching services across major cities.
You can see why there’s so much interest in Argentina. Smart towercos have prospered in Brazil and Mexico – Argentina could be next. But the towercos haven’t entered Argentina yet – why? Let’s look at the negatives.
Sovereign and currency risk
Argentina is host to many of the same challenges one sees elsewhere in CALA, only those challenges are compounded. The unstable currency, political instability and perilous condition of national debt create substantial macro concerns.
In January 2014 the devaluation of the Argentinean peso slowed economic growth while driving inflation above 30%, eroding purchasing power. The resultant widening of the deficit had a lot to do with Argentina’s recent default on restructured bonds.
The implications for upgrading communications from feature phones to smart phones are obvious, as are the implications for towercos to establish their presence in the country.
Corruption
Corruption is commonplace in Argentina. Transparency International ranked Argentina 107th on the corruption perception index in 2014 – interestingly just behind Mexico (103rd), where corruption hasn’t hindered the development of the tower industry.
Two different Argentinas
From a purely telecom perspective, it’s been noted how Argentina is home to two completely different markets: urban and rural. Urban areas are represented by Buenos Aires and literally a handful of other substantial cities such as Cordoba, Rosario and Mar del Plata which are now enjoying 4G LTE and relatively modern services while the rest of the country is affected by site scarcity.
In a recent conversation, a towerco executive commented how an investment could be theoretically possible in urban areas where cell site densification is trending. However, it looks like Argentina has a long way to go to ensure fair coverage throughout its territory and rural coverage hasn’t been legally enforced yet.
Conclusions
No matter how much we’d love to report on the opening of a new attractive tower market, we don’t foresee large towercos to make considerable investments in Argentina any time soon. However, we could expect smaller, entrepreneurial towercos to start looking at the country and the developments of its telecom industry.
At one point, cell site densification in urban areas will become a necessity and BTS focused firms could enjoy relative prosperity in a country still far from developed.
Improvement in macro-economic conditions, particularly the settling of the bond dispute, coupled with re-assurance that the spectre of nationalisation is removed, would transform Argentina into one of the world’s most attractive virgin markets for towercos, enabling local operators to capitalise their passive infrastructure assets and focus on the core business of selling minutes and megabytes. The Argentinian tower market may currently be frozen, but the usual suspects are monitoring Argentina, awaiting a time at which the political and currency risk settles to a level that meets their investment thesis.
