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					Latin America’s Telecom Odyssey: From Dial Tone to IP
                       Services
                 Hector Hernandez
               Senior Telecom Analyst
                hhernandez@idc.com
                              Agenda
•   Definitions and Methodology
•   Latin America’s Traditional Long Distance Market Overview
•   Latin America’s IP Long Distance Telephony Market Overview
•   IP Long Distance Market Drivers and Inhibitors
•   Future Trends
•   The Next Steps
        IP Telephony in Latin America Definitions
• Traditional Long Distance    • Web Talk
  Service                         –   Click-to-talk
• IP Telephony                    –   Conferencing
    –   PC to PC calls
                                  –   Messaging
    –   PC to Phone calls
    –   Phone to Phone calls
                                  –   IP Telephony
    –   Wholesale Market
    –   Retail Market
    IP Telephony in Latin America Methodology
• In-country interviews with:
    –   Incumbent operators
    –   Next generation providers
    –   Competitive exchange providers
    –   Local Internet telephony service providers (ITSPs)
• Regional interviews with:
    – Traditional telephony carriers
    – Global Internet telephony service providers (ITSPs)
    – IP telephony equipment vendors
Latin America’s Long Distance Market Study
            Preliminary Results
                          Latin America’s Domestic Long Distance Markets, 1999: Quite
                                                  Predictable
                                                                                                          (US$ Millions)
                                45,000                             45%
                                40,000
Traffic (Billions of Minutes)




                                             51%                 Revenues
                                35,000      Traffic              $4,427
                                30,000                                          23%
                                25,000                                         Traffic    $3,008
                                20,000                                                          28%
                                15,000                                                         Revenues
                                              $1,359                           $670
                                10,000                            $228                             $453
                                 5,000                                                                       $507
                                   -
                                                                  Market Revenues (US$ Billions)

                                Argentina     Brazil     Chile   Colombia       Mexico        Venezuela   Other ELAM

                                                       Total Market Value: US$10.6 Billion
Latin America Traditional International Long Distance Market Revenues 1999:
                           Not Your Usual Suspect
                                                                                                            1999 Market Revenues (US$ Millions)
                                       8,000
                                                                                                   $1,759
                                       7,000
                                                                             52.3%
                                       6,000                                 Traffic                   42%
     Traffic (Billions of




                                                                                                      Revenues
                                       5,000
                                                    52.3%                 42%                                           20%
                            Minutes)




                                       4,000
                                                                                                20%
                                                    Traffic              Revenues              Traffic                 Revenues
                                       3,000                   $538
                                                                                                                        $833.29
                                       2,000   $462
                                       1,000                              $194
                                                                                       $113                  $266
                                         -
                                                                              Market Revenues (US$ Billions)
                                  Argentina    Brazil         Chile        Colombia       Mexico            53% Revenues
                                                                                                             Venezuela            Other ELAM
                                                                      Total Market Value: US$4.1 Billion
 Source: IDC’s Latin America Telecommunications Continuous Information Service, 2000
                                 Six-Country Traditional Domestic Long Distance Market
                                                 Forecast: A Price War
                                   100,000                                                        $0.18
                                    90,000                   CAGR -13%                            $0.16
                                             $0.17
                                    80,000           $0.16
                                                                                                  $0.14




                                                                                                          Average Price per Minute (US$)
Distance (Millions of Minutes)




                                    70,000
 Six-Country Domestic Long




                                                              $0.14                               $0.12
                                    60,000                               $0.12
                                                                                 $0.11            $0.10
                                    50,000                                               $0.10
                                                                                                  $0.08
                                    40,000
                                                                                                  $0.06
                                    30,000
                                    20,000                                                        $0.04

                                    10,000
                                                               CAGR 7%                            $0.02

                                        -                                                        $-
                                             1999    2000     2001       2002    2003    2004
       Six-Country Traditional International Long Distance Market
                                 Forecast
                                 30,000                                                        $0.50
                                                                                               $0.45
                                 25,000   $0.46           CAGR -24%
                                                                                               $0.40




                                                                                                       Average Price per Minute (US$)
Six-Country International Long
Distance (Millions of Minutes)




                                                  $0.41
                                                                                               $0.35
                                 20,000
                                                           $0.35                               $0.30
                                                                      $0.31
                                 15,000                                       $0.28            $0.25
                                                                                      $0.26
                                                                                               $0.20
                                 10,000
                                                                                               $0.15
                                                                                               $0.10
                                  5,000
                                                           CAGR 21%                            $0.05
                                    -                                                         $-
                                          1999    2000     2001       2002    2003    2004
                                              6-Country Domestic Long Distance: IP Arrives in
                                                                  2001
                                               120,000                                                  30%
                                                                 Traditional DLD                              • Driven by:
                                                                IP DLD
                                               100,000
                                                                   IP as % of Total DLD
                                                                                                        25%       –   Efficiencies
                                                                                                        24%
Domestic Long Distance Traffic (Millions of




                                                                                                                  –   Lower barriers to entry
                                                80,000                                                  20%
                                                                                                                  –   Scaleability
                                                60,000                                                  15%
                                                                                                                  –   Value Added Services
               Minutes)




                                                                                                                       • Unified Messaging
                                                40,000                                                  10%            • Click-to-talk
                                                                                                              • Hindered by:
                                                20,000                                                  5%
                                                                                                                  – Regulation
                                                                                                                  – Competition from cellular, cable
                                                    -                                                   0%
                                                                                                                    telephony, etc.
                                                         1999    2000    2001     2002    2003   2004

                                                            IP DLD CAGR 2000-2004 =443%
                                               6-Country International Long Distance: IP
                                                              Anywhere
                                      30,000                                                       30%
                                                          Traditional ILD                                  • Driven by:
                                                         IP ILD
                                      25,000                                                       25%         – Arbitrage
                                                            IP as % of Total ILD
                                                                                                   25.1%       – Efficiencies (cost per call, lower
International Long Distance Traffic




                                      20,000                                                       20%           bandwidth requirements)
        (Millions of Minutes)




                                                                                                               – Lower barriers to entry
                                      15,000                                                       15%
                                                                                                           • Hindered by:
                                      10,000                                                       10%         – Regulation
                                                                                                               – Equipment Interoperability
                                       5,000                                                       5%          – QoS

                                         -                                                         0%
                                                 1999     2000      2001      2002   2003   2004
                                                        IP ILD CAGR 1999-2004 = 647%
                                       Global IP Telephony Market: The Opportunity
                                     160,000                                                                                        30%

                                     140,000
                                                                                 Global IP MOU                                            • Driven by:
                                                                                  6-Country IP MOU                                  25%
                                                                                   6-Country Percent of
                                                                                                                                              –   Arbitrage
                                     120,000
                                                                                  Global IP Traffic                                           –   Efficiency
                                                                                                                                    20%
                                     100,000
                                                                                                                                              –   Gain Market Share
             (Millions of Minutes)
IP Traffic




                                      80,000                                                                                        15%       –   Value Added Services
                                      60,000                                                                                                       • Unified Messaging
                                                                                                                                    10%
                                                                                                                                                   • Web Talk
                                      40,000
                                                                                                                                    5%    • Hindered by:
                                      20,000
                                                                                                                                              – Regulation
                                         -                                                                                          0%
                                                                                                                                              – QoS
                                                        1999          2000          2001          2002          2003         2004
                                                                                                                                              – Equipment Interoperability
                                                          Global IP CAGR 1999-2004 = 119%
                                               Source: IDC’s IP Telephony Services: Market Review and Forecast, 1998-2004.
Latin America’s IP Telephony Market Drivers Shift
                    2000-2004
                                  ARBITRAGE

     ARBITRAGE                EFFICIENCIES
                                 LOWER BARRIERS
                                    TO ENTRY
    EFFICIENCIES               MARKET SHARE
     LOWER BARRIERS
        TO ENTRY
                              VALUE ADDED
      MARKET SHARE
       VALUE ADDED
                                SERVICES
         SERVICES

       YEAR 2000                 YEAR 2004
        Latin America’s IP Telephony Market Drivers
       Arbitrage: Chasing the Opportunity
                    Country 1              Country 2                   Country 3
                    Launch                 Launch                      Launch




IP/PSTN               Arbitrage
Price Gap            Opportunity




            Source: IDC’s IP Telephony Services in Europe, 1998-2003
   Latin America’s IP Telephony Market Drivers
• Arbitrage (origination Vs termination)


     IP Gateway            Public Internet          IP Gateway


        PSTN                                            PSTN



                       International Carrier
                              System
                         Settlement Rates
      Originated $$       Transport Costs      Terminated
   Latin America’s IP Telephony Market Drivers
• Arbitrage Onnet Vs. Offnet


                          Private Network
    IP Gateway                  SLA                IP Gateway
                                QoS

       PSTN                                            PSTN



                      International Carrier
                             System
                        Settlement Rates
     Originated $$       Transport Costs      Terminated
   Latin America’s IP Telephony Market Drivers
• IP Network Efficiencies

                Typical Voice Channel 64 Kbps


            Typical VoIP call 10 Kbps (Toll Quality)


                                64
                               Kbps
                         Initial Investment Comparison
                    SOLUTION           INVESTMENT           CAPACITY              ADVANTAGES
                                                                              •Quality
                    Class 5 Switch     US$20 million           20,000
 Traditional                                                   Lines          •Reliability
 Telephony                                                                    •Proven Technology

                                                                               •Efficiency
                      IP Pop               US$                 400,000         •New Services Potential
                                          100,000         Minutes per Month    •Scaleability
 IP Telephony
                                                         35 Million Minutes     •Efficiency
                          IP         US$3 to 5 million
                                                             per Month          •New Services Potential
                    Full Operation
                                                                                •Scaleability




Source: IDC, 2000
Latin America’s IP Telephony Market Inhibitors


  REGULATION                  REGULATION



       QOS                        QOS

     BANDWIDTH                  BANDWIDTH
     AVAILIBILITY               AVAILIBILITY

     EQUIPMENT                   EQUIPMENT
  INTEROPERABILITY            INTEROPERABILITY

      YEAR 2000                   YEAR 2004
                              Latin America’s IP Telephony
                                    Market Inhibitors
                                  IP Telephony Regulation - 2000

                                        BRAZIL                     MEXICO
      ARGENTINA
                                    Not regulated            Not regulated. Only
    Currently banned.                                     licensed LD operators can
                                Only licensed operators
 Only licensed operators                                          carry voice.
can carry voice . Clients          can carry voice.
        cannot use                                                                       CHILE
       value-added
services to transmit voice.                                                                NO
                                     COLOMBIA                   VENEZUELA             RESTRICTIONS.
 Will open in November               Only licensed          Not regulated. Only
           2000.                                           CANTV can offer voice
                                       operators
                                                            services until October
                                     can use VoIP.                   2000.
   Latin America’s IP Telephony Market Inhibitors -
                      Regulation



                    Voice Over IP




Regulation
Latin America’s IP Telephony Market Inhibitors
                       Quality of Service (QoS)
                 Telephony Delay Levels (milliseconds)
 Worst
          450                                                450     Typical Satellite Level
          400           Unacceptable Delay                   400     300 ms
          350             Acceptable Delay                   350
          300                                                300   Typical IP Level
          250                                                      200-350 ms
                                                             250
          200                                                200
          150        Barely Noticeable Delay                 150
                                                                   Typical PSTN
          100                                                100   50-150 ms
          50            No Noticeable Delay                  50
           0                                                  0
 Best       ms                                               ms
        Source: IDC’s IP Telephony Services in Europe, 1998-2003
    Latin America’s IP Telephony Market Players
• Regional ITSPs:
   – Wholesale Operators: ITXC, iBasis, GRIC, etc.
   – Retail Operators: Net2Phone, Deltathree, etc.
   – Clearing Houses: (AT&T, Telia, etc.)
• Local ITSPs:
   – Incumbents: buying wholesale minutes, offering IP Telephony, installing IP
     Telephony networks
   – Clecs: Globus, Cybercenter, etc.
   – Other Players: ISPs, clandestine operators, callback operators (using IP
     Telephony), etc.
              Main Global IP Telephony Players, 1999
                                                                              • Traffic is growing at an average of
           1999 Traffic (Billions of Minutes)
                                                                                147% per quarter
                                                                              • 13% of traffic is going to and from
                                                                     701        the LA region
   150.1           156.5
                                      75             319                      • Wholesale (44%) Vs Retail (56%)
                                                                              • New companies playing in the LA
                                                                                space: Ursus, AIC, talk.com,Netvoice,
                                                                                Dialpad, etc.


Source: IDC’s IP Telephony Services: Market Review and Forecast, 1998-2004.
Future Trends
                      Web Talk Convergence
                                                         PC-to-PC
      Voice-   Click-to-X                            PC-to-phone
                                                                    Telephony
 Enablement                                          Phone-to-PC

                                Business Model
                               Web-centric
                               Talk Services
                               Free to users
        Web    Audio,                                  Fax-to-email Web
Conferencing   Video,                                Vmail-to-email Messaging
               Document/                         Instant Messaging
               File Sharing                             Buddy Lists

                       V-Commerce                Mobile Networks
                     Worldwide Web Talk User Forecast
                            A Web User is a Talking User
Key Assumptions:                                  700
• Simple, easy-to-user,
  auto-install utility.                  600

• Cellfon quality or better              500
  is typical.

                                       Millions
                                         400
• 1999 is start-up year for
  many services.                         300

• 12-15 services reach                   200
  1 million+ users
  in 1st half 2K.                        100

• Hotmail-like growth                       0
  expected for PC-to-PC                                 1999   2000   2001   2002   2003   2004

  services.                 WW Internet Users           240    328    427    521    602    693
                               Web Talk Users            10     40    107    208    361    416




Source: IDC, 2000
        Latin America’s IP Telephony Market Inhibitors -
                           Regulation


                    WebTalk

           Voice
          Over IP
Regulation
     Web Talk in Latin America: The Chilean Example
                        in 2001
                             Number of      % of Residential
                             Residential   Users Doing Chat:
                               Users:            50%
                                 546,328
              % of Residential                                Number
                  Users :                                 of Residential           Total Minutes
Internet                                                                                 of
  Users:           48%                                  Users Doing Chat:
                                                           273,164                   Webtalk:
1,138,183                                                                           255,681,429
              Number of Chat Minutes                      % of
                  per Week per                          Minutes of
                      User:                              Webtalk:
                       120       Number                       15%           Equivalent to 10% of
                                                  Total
                             of Minutes                                      DLD for that year
                                               Number of
                            per Year per
                                              Chat Minutes:
                             User: 6240
                                               1,704,542,861
                                What is Next?
• Clarify Regulation
• Operators:
    –   embrace the technology
    –   generate new services
    –   leverage on the efficiencies
    –   Develop QoS, SLAs
• Equipment Vendors:
    – Achieve true interoperability
        Questions?
      Hector Hernandez
Senior Analyst, IDC Latin America
       hhernandez@idc.com

				
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