Venezuela Telecommunications Report Q2 2008

One of the largest developments in the Venezuelan telecoms market has been the renationalisation of incumbent CANTV. Returning to state ownership is unheard of in the global telecoms industry and could potentially be disastrous for CANTV if profitability suffers in the long term. However, the state-owned operator has made increasing telephony services coverage one of its main focuses, which has boosted subscriber growth in both the fixed and mobile markets. In President Chvez's most recent shake up of his ministers, CANTV's president was made the Minister for Communications but there has been no indication thus far of him leaving his role at CANTV.

The fixed-line market showed strong growth for the first nine months of 2007, reaching 4.7mn subscribers as the market continues to defy regional trends with penetration rates rising. We have raised forecasts for this market to take into account the increase and the government's projects to bring telephony services to rural areas. We now expect penetration to peak at 18.6% in 2011 before slowly declining in 2012. BMI estimates that penetration was 17.5% at YE07.

The internet and broadband markets grew slower that previously forecast by BMI. Despite CANTV's intention to increase broadband subscriber numbers by up to 104%, the market grew by 60.1% in 2007, behind our own forecasts. Internet users increased to 19.4% penetration adding 1.1mn users in the first nine months of 2007.We made slight adjustments to our forecasts to take into account this slightly lower than expected growth, but we continue to monitor government projects to increase internet usage in rural areas. Broadband growth is unlikely to increase dramatically unless prices are reduced drastically. This could still happen given the new government ownership of CANTV, but penetration rates for the year were 3.1%.

The Venezuelan mobile market showed exceptional growth in 2007, with penetration rates passing 80% in Q307. We have revised forecasts upwards as mobile net additions continued to be high. While Movilnet and Movistar continue to lead the market, Digitel is increasingly taking market share from both operators and is the sole GSM-only operator in the country. The proportion of prepaid subscribers in the market continues to increase. Movistar launched its GSM network and reports that 62% of net additions are GSM subscribers. GSM now makes up 28% of its subscriber base. Movilnet has finally announced the launch of its GSM overlay, which will operate alongside its CDMA network and will be launched in May 2008. Both operators were granted additional spectrum in November 2007, while Digitel has requested spectrum in the 900MHz and 2100MHz bands. We expect mobile penetration to reach 98.5% by 2012.