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Venezeula Telecommunications Report Q1 2008Product Type: Market Research ReportPublished by: Business Monitor International Published: January 2008 Product Code: R302-2698 Description The most significant development in Venezuela’s telecoms market is the government’s renationalisationof incumbent operator CANTV, 16 years after it was first privatised. BMI was surprised that PresidentChávez’s threats to renationalise the incumbent if the pension dispute was not resolved were carried out -and so swiftly. Indications that Chávez was looking to the telecoms sector in his drive to nationalise keyindustries came just a month after he won a second term in office. In early February the agreement forMexico’s Telmex and América Móvil to acquire US carrier Verizon Communications’ 28.51% holdingin CANTV was terminated and the government agreed to acquire Verizon’s shares. By early May, thegovernment had concluded a tender offer and increased its stake in CANTV to over 86%. While the rapidprogress has removed uncertainty in the market, a return to state ownership is an unheard of event in theglobal telecoms industry and could spell disaster for CANTV in the longer term if its profitability suffersas a result. In the short term, we have therefore reduced Venezuela’s scores for competitive environment andlicensing/regulation in BMI’s business environment ranking to take into account the increased stateownership of CANTV and greater intervention in the sector. So far, government action has been limitedto mandating price cuts and setting targets for expanding services to underserved areas, both of which canonly be good news for Venezuela’s telecoms market as a whole. BMI believes the risk of furthernationalisation will be a deterrent to future foreign investment in Venezuela’s telecoms sector. Investorsshould be wary of major long-term changes to the constitution as well as high levels of corruption and thegovernment’s heavy influence on the judiciary. Chile’s Entel closed its operation in Venezuela in January2007. Although the company has not disclosed reasons for the decision, the deteriorating politicalenvironment is almost certain to have played a part. However, Telefónica does not seem to have been putoff, announcing that it will double the number of GSM base stations this year, following the Januarylaunch of Movistar’s GSM network. The fixed-line market grew by an impressive 15.5% in 2006 to over 4.2mn lines, a penetration rate of15.4%, slightly faster than BMI’s most recent forecast. In light of this, and the government’s statedintention to bring services to more rural areas, we have raised forecasts going forwards and expectanother year of double digit growth to raise penetration to 16.7% in 2007. Penetration should reach 18.2%by 2011 with some 5.5mn lines. Revised data from Conatel puts the internet user base in Venezuela at3.35mn in 2005, growth of 52% on 2004. Although the market slowed in 2006, we have made marginalupward revisions to our forecasts, anticipating that new government ownership at CANTV will drivedeployment of infrastructure to previously underserved areas as well as usage of services.The broadband market grew by 50.4% in 2006, relatively modest growth given the low penetration rate(2.0% at YE). CANTV has set a goal of 88-104% growth in ADSL lines for 2007, which we feel is overlyambitious unless prices are reduced drastically. This could still happen given the new governmentownership, but the company’s Q107 performance, while good, bears out our view. However, we do nowexpect the broadband market to grow more strongly in 2007 than in 2006 and forecast that growth of 72-75% will push penetration up to 3.3% by YE07. Venezuela’s mobile market grew by 50.4% to 18.8mn subscribers in 2006, a penetration rate of 68.8%,just missing our forecast of 70% after growth slowed in the second half of the year. We expect that thetwo larger players Movistar and Movilnet will continue to lose lower revenue-generating customers toDigitel, although we are not convinced that the latter can keep up its Q107 performance (when itaccounted for over 46% of net additions). We anticipate that the launch of GSM services by Movistar andMovilnet will drive good subscriber take-up, but have amended forecasts for 2007 and beyonddownwards in light of the slower growth in 2006 and the expected growing focus on the postpaid sector.Furthermore, we predict greater emphasis on fixed-line services by CANTV, which could slow themobile substitution rate. We expect penetration will rise to around 78% in 2007 and to just over 95% by2011. Table of Contents
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