Chile Telecommunications Report Q2 2008

Developments in Chile's telecoms market in 2007 included the region's first WiMAX e launch by Telmex, and a roadshow by regulator Subtel hoping to attract a new investor when it auctions 3G spectrum licences later in Q108. Additionally, two mobile virtual network operators were licensed in Q307 to Blue Two, a WiFi and Bluetooth operator owned by alternative fixed-line operator Telsur, and Dotcom, a locally owned VoIP operator. The regulator has stated it will introduce mobile number portability (MNP) in 2010 at no cost to the customer as it considers this to be a right for subscribers.

We have kept our mobile forecasts after revising them in our Q108 report as growth for H107 was stronger than expected. Third-ranked Claro had a poor Q307, recording a loss of 132,000 subscribers and a worsening subscriber mix. Market share for the operator fell to levels seen in Q406, counteracting the strong growth Claro recorded in H107. Movistar remains the market leader with 43.1% of the market but Entel has put in a good performance in the first three quarters of 2007, with its share of net additions around 30%. MVNOs licensed in Q307 have not yet made an impact on the market, nor has Nextel Chile, which launched services in December 2006. NII Holdings, the operator's parent company, has not yet given subscriber figures for its Chilean operations, but BMI does not expect these to be especially strong given its limited coverage area. In our forecasts we now expect to see mobile penetration reaching 107.3% in 2012, passing the 100% penetration mark in 2010.

In Q108, Subtel intends to auction spectrum for 3G services and has reserved 20-30MHz to attract a new entrant to the market. Internet provider VTR has indicated it would be interested in the spectrum, possibly for increasing its bundled services to include mobile. Chile's anti-trust commission has recommended that existing operators' spectrum be limited to 60MHz, which would make Entel ineligible for the auction. BMI remains sceptical that a fourth player may be tempted into the market given the level of competition already seen.

Broadband and internet forecasts remain largely unaltered with growth in line with our expectations, as growth slowed in 2007 after high growth recorded in 2006. Penetration rates are slightly higher for 2007, with BMI expecting 8.7% penetration, showing slightly faster growth in 2007 than we had previously forecast. By 2012 we are expecting broadband penetration to reach 17.8% and internet penetration to just pass 40%, as government projects to expand internet coverage have been launched. The fixed-line market continues to decline, although triple-play packages have slowed the decline, with the market leader seeing only 2,000 less fixed-line subscribers in Q307. We still expect fixed lines to decline at the same rate, with our 2012 forecast being for 16.4% penetration.