Telecom operators have only so many new revenue opportunities in mature markets like North America. They are desperately trying to drum up new services to compensate for a saturated market weighed down by sluggish ARPU growth. But poised for huge leaps in data consumption and subscriber growth, Latin America could be telecom's golden goose if carriers can overcome infrastructure challenges, including the lack of subsea cable systems.
"We continue to see really strong growth in Latin America," said Michael Wheeler, vice president of the global IP network business unit at NTT America, the wholesale arm of NTT Com. "We don't have any IP network in South America yet, [but] we've been looking at it very closely, and I think we'll be building out [infrastructure] … in less than five years."
NTT is hardly the only carrier that has noticed Latin America's revenue potential. Consumer and business IP traffic is expected to grow at a 51% CAGR between 2009 and 2014 -- faster there than in any other region of the world, according to Cisco Systems' latest Visual Networking Index, released earlier this year. The Middle East and Africa follow closely behind with a 45% CAGR through 2014.
Mobile data is widely expected to be the fastest growing category of IP traffic. Every region except Japan will more than double its mobile data and Internet traffic, according to Cisco's report. Latin America ranks fifth in mobile data growth with a 111% CAGR through 2014, behind Central/Eastern Europe (114%), Asia Pacific (116%), North America (117%), and Middle East and Africa (133%).
"In all of these countries, you've got the right combination. You've got a reasonably nascent market, particularly for prepaid services, and you've got an area where the local providers and local companies may not have a lot of capital to invest," said telecom consultant Tom Nolle, president of CIMI Corp. "You may be able to move in there entirely on your own if the country's regulations permit it, or as a partner of a local [provider], where there's still a lot of opportunity for subscriber growth."
NTT Communications has been operating private networking services for enterprises in Brazil through its São Paolo-based subsidiary, NTT do Brasil, since 1999. Hoping to expand its footprint further across the continent to support wholesale operations, NTT America and other operators looking to move in will face significant challenges, Wheeler said.
"Running a global network [means] we're not just looking at the US - we look at Asia, Europe and at connecting those three continents together, and the amount of undersea cable capacity [that exists today] is actually quite a lot," Wheeler said.
"One of the challenges that Latin America has as a whole is [that] there are not that many [undersea cable] systems that go down there, and a lot of the systems [only run up and down] the Atlantic seaboard."
Compared to the large amount of undersea cable between California and Japan or New York and the UK, the submarine cable system landing in South America -- particularly below the equator -- appears paltry. Central America and the Caribbean fare better, benefitting from their proximity to North America and the ample number of landing points on the various islands.
Around the world, undersea cable is owned either by individual operators, third-party lessors or consortiums. Latin America's biggest undersea cable systems are run by a few sole owners -- Global Crossing, Telefónica, undersea cable wholesalers GlobeNet (a subsidiary of Brazilian mobile operator Oi), and Latin American Nautilus, (owned by Telecom Italia).
"That makes [access to] those cables dramatically more expensive than when you have more competitors," Wheeler said. "I would say [access] is anywhere from eight to 10 times more expensive [than in other regions]."
For NTT America, that means carrier customers buying its wholesale services are purchasing less capacity - and therefore generating less revenue - but demanding more for their money in terms of uptime and performance, he said.
"That creates a higher requirement around QoS and reliability," Wheeler said. "If there are problems occurring and [carrier customers] only have minimal capacity available because of cost … the impact is much bigger than if the connection were between London and New York or Los Angeles and Tokyo."
Until market demand justifies more undersea cable and drives down prices, NTT America must be more efficient in its operations, he added. NTT recently began upgrading its legacy Cisco Systems Catalyst 6509 switches to Cisco's Aggregation Services Router (ASR) 9000 series, which runs on Cisco's IOS XR operating system (OS).
The more advanced platform enables NTT's engineers to repair or upgrade services without taking the entire platform down, which is akin to repairing part of an engine while the car is still running.
Part of what's hindering the expansion of undersea cable in Latin America is uncertain return on investment (ROI) inherent to developing economies, according to Nolle. Because submarine cable systems are such a massive investment, carriers and other undersea cable providers are waiting for the market to get strong enough to support businesses that need to communicate with colleagues, customers, partners and suppliers elsewhere in the world, he said.
Investment goes where the ROI is, and in order for carriers to be willing to provide communications services there, enterprise customers must be willing to pay because residential Internet services will not be enough, Nolle said.
"I just don't see how the return on investment could be developed unless there was a need for [business] relationships [to be] supported by communications," he said.
But throughout many parts of Latin America, undersea cable will be the best option to interconnect countries within Central and South America and to the rest of the world, Nolle added. Fixed line isn't always financially or logistically feasible and wireless is constrained by line of sight, Nolle said.
"If you're going through the jungles of Panama or northern Colombia, I wouldn't want to try to install cables through that mess," he said. "At that point, it would be cheaper to start at a place like Bogotá and [trench] undersea cable."
Jessica Scarpati is a news writer at SearchTelecom.com
This article originally appeared on SearchTelecom.com
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