Colombia Telecommunications Report Q3 2007

Colombia's mobile market continues to slow down more quickly than expected as market leaders Comcel and Movistar put a stronger focus on postpaid services and third-ranked Tigo fails to live up to expectations following the August 2006 investment from Millicom International Cellular. Furthermore, increasingly stringent policies on the discounting of inactive subscribers are in force. As Movistar recorded a net loss of 215,000 additions to its subscriber base during Q107 - resulting from the disconnection of low-value subscribers signed up during aggressive promotions a year ago - the market expanded by just 2.7% q-o-q and 26.2% y-o-y.

BMI had already forecast a dramatic slowdown in mobile subscriber growth in Colombia for 2007, but we have been obliged to revise forecasts downwards still further in anticipation that the major players Comcel and Movistar will stick to their goals of improving their subscriber mixes. However, Movistar's fortunes should have picked up in Q2 with April promotions to celebrate two years since the launch of the Movistar brand, although we expect the main thrust of these will be to promote contract and GSM services over prepaid. We now forecast 2007 growth will be closer to 18% than the earlier expectation of 20%, increasing penetration by around 10 percentage points to just under 70%. We anticipate 2008 growth will be in the region of 12-14%, although we continue to expect the penetration rate to hit 80% in H109 and 90% by YE2010.

However, there is some positive news for the sector with indications that Comcel is planning to launch 3G services in Q108. This should prompt rival Movistar to follow suit and should provide good opportunities for equipment supply contracts and better prospects for ARPU growth and take-up of value added services.

In other news, competition in Colombia's nascent triple play market is being stifled before it has even begun. Mexico's Telmex has made an aggressive foray into Colombia with the acquisition of up to seven cable companies, but CNTV approval for the purchase of five of these is now being investigated by Colombia's public services regulator (SIC) to determine whether the regulator took into account regulations governing market competition. If the SIC finds this was not the case, it could revoke approval of the acquisitions. As previously reported by BMI, a CNTV ruling that cable TV companies would be allowed to expand their coverage beyond their original concession areas has already been overruled by Colombia's state counsel. Telefnica Telecom launched Colombia's first triple play service in Q107; Telmex's plans for the sector are now in limbo pending clarification of the various regulatory uncertainties.