By Robert Walzer
Latin America has been in the news constantly since its wireless markets
opened up. From Mexico to Argentina, both mobile and fixed
access services look set for growth. What are the prospects
for cdmaOne in this highly promising but economically uncertain
market? Robert Walzer
Mobile phone companies that promote the use of CDMA are meeting with
more success in uniting the region than did the 19th century
South American patriot Simon Bolivar. Bolivar died before
achieving his dream of union, but companies like Lucent Technologies,
Motorola Inc., Nortel Networks, Qualcomm and NEC do Brasil
are coming closer to doing something similar with installation
of cdmaOne equipment in many of Latin America's biggest markets,
paving the way for seamless hemispheric wireless communications.
CDMA infrastructure providers are expected to perform
strongly in Latin America this year, with operators rolling out new service
based on the digital mobile standard in Mexico, Brazil, Bolivia, Paraguay
and possibly other nations including Argentina and Venezuela. Government
privatization of telecom markets and their allocation of spectrum is making
it all possible. But three trends in particular are driving CDMA's growth
in the region: government auctions of PCS rights; the upgrading in many
markets to digital from analog; and the deployment of wireless local loop
For international suppliers of CDMA equipment, 1999 looks promising. "Every
market of significance in Latin America has CDMA started and growing,"
says Woody Ritchey, vice president of Motorola Inc.'s Americas Cellular
Infrastructure Group. "We've seen a 30 percent increase in expansions
and new business in Latin America on the CDMA side in 1998. I expect at
least that much growth this year."
David Dial, Lucent Technologies' vice president of business development
for the Caribbean and Latin America, adds: "For us, growth of CDMA
is significantly greater than anything else. We expect that to continue
this year in Latin America. CDMA is emerging in a significant way and,
in percentage terms, will grow stronger than TDMA."
Introduced to Latin America just two and a half years ago in Lima, Peru
by way of a 10,000-line network employing Motorola infrastructure and
Samsung handsets, CDMA has quickly become a formidable rival to the more
entrenched TDMA standard and to GSM, which is still in the early stages
of development in the region. At the end of 1998, CDMA had seven percent
of the mobile market, while its chief rival TDMA controlled 30 percent.
(AMPS, the analog standard in the process of being phased out, still enjoys
a 62 percent majority of Latin America's market; GSM has one percent.)
The biggest challenge for companies selling CDMA equipment in the region
isn't proving the quality of their product-laboratory tests tend to favor
CDMA over TDMA in terms of voice quality and line capacity. Rather, it's
taking on the region's biggest equipment supplier, Ericsson, which favors
the use of TDMA equipment.
"TDMA, because of Ericsson and because it had a head start, is still
the dominant standard in Latin America," says Leslie Arathoon, a
Latin America telecoms analyst at Boston-based Pyramid Research, a unit
of the Economist Intelligence Unit. "But CDMA is now playing catch-up,
and it's gaining ground." Pyramid sees CDMA's share of PCS and mobile
business reaching 15 percent by the end of this year, and 35 percent within
four years compared to TDMA's projected 58 percent share at that time.
There is still a lot at stake. Pyramid, for one, predicts 43.8 million
mobile phone subscribers in Latin America by 2003, up from 19.2 million
at the end of last year. Other analysts suggest that annual wireless revenues
will reach $20 billion by 2000 and $30 billion by 2002. About two-thirds
of that activity will be in three countries: Brazil, Mexico and Argentina.
Mexico is expected to be a hotbed of CDMA activity this year. There, Qualcomm
will supply equipment to operator Pegaso Comunicaciones y Sistemas, which
won a bid to install PCS mobile networks in Tijuana, Mexico City, Monterrey
and Guadalajara. Qualcomm had a 49 percent stake in Pegaso, which it transferred
to its spin-off Leap Wireless International.
Mexican operator Unefon, which has won nine PCS and nine wireless local
loop frequencies, signed a letter of intent with Nortel Networks in May,
1998 to be its supplier. Unefon did not meet the December 31 deadline
for raising the cash to pay for the frequencies, and in the meantime,
Nortel now says its agreement with Unefon has expired. Unefon stands to
lose its licenses and 20 percent deposit unless it makes the payment by
Deals in the pipeline
The outlook isn't as bleak as it may seem. Nortel Networks is installing
a CDMA PCS network with a capacity of 150,000 subscribers in Guatemala
for operator Telgua; it is to be completed mid-1999. Nortel spokesman
Ernesto Ortiz says: "We have a couple more PCS deals in the pipeline
using CDMA this year," although he was unable to go into detail about
Meanwhile, Mexican operator Grupo Iusacell has chosen Lucent Technologies
to provide for the installation of a PCS network in and around Mexico
City and in Baja California and the country's northeast, where the operator
is digitizing the network.
Motorola has an equally high profile in Mexico with three networks up
and running since late last year and another soon to follow, all at 800
MHz. Elsewhere in the region, Motorola will be busy expanding existing
networks in Sao Paulo, Lima and Buenos Aires into outlying "non-dense
urban parts," Ritchey says. Adds Crispin Vicars, an analyst and director
at Boston-based Yankee Group: "Motorola and Qualcomm have taken the
strategy of participating in the license process and being part of the
consortium. It's a guarantee that you'll be installing the equipment."
In Paraguay, Motorola is to supply the Millicom International Cellular-owned
operator Telefonica Celular de Paraguay with equipment for the deployment
of a CDMA network. In Bolivia, Motorola is also the likely candidate to
supply Telefonica Celular de Bolivia with CDMA equipment, analysts say,
although Motorola wouldn't comment on those projects.
Looking ahead, Venezuela, whose planned PCS cellular license has been
subjected to great political and regulatory delays, is seen as possibly
fulfilling the promise of new spectrum allocation this year. Argentina,
too, could soon be auctioning off PCS bands-also possibly this year. "You'll
see another wave of opportunity for CDMA where PCS licenses are awarded,"
Lucent's Dial says. Adds Ritchey: "We're seeing a good portion of
PCS operators, perhaps half of them, entertaining CDMA."
Yet in predicting CDMA's growth this year, the health of Latin America's
largest economy, Brazil, can't be ignored. It is potentially the biggest
prize in the region but not without challenges. The recession-plagued
country, which was granted $41 billion by the International Monetary Fund
late last year to prevent a collapse of its currency, found it impossible
in January to defend the value of its currency, the real, and let it float
freely. Brazilian President Henrique Cardoso hoped to promote a reduction
in interest rates and a return to growth and employment. But the country's
immediate future is uncertain.
"Brazil is the linchpin," Motorola's Ritchey says, adding that
an economic downturn would result in placing more customers on existing
networks rather than expanding them and create more demand for vendor
financing. "The wild card right now is the economic climate and whether
there'll be an economic downturn. If Brazil falters it could have an impact
on everybody's growth plan."
There has been no shortage of wireless activity in Brazil, however. This
year, Lucent Technologies is supplying CDMA infrastructure to Telesp Celular,
which is owned by Portugal Telecom. Building out $340 million worth of
wireless networks based on CDMA in Sao Paulo state, one phase of the project
has been completed in the Osasco region, where some 150,000 customers
have signed up for the digital services.
In all, the contracts call for the installation of wireless CDMA networks
to support more than 1.5 million subscribers in Greater Sao Paulo and
select areas in the interior of the state, the largest wireless market
in Brazil. The metropolitan Sao Paulo area alone is being equipped with
more than 400 cell sites, a build-out expected to be completed by June
Up and running
Nor should one forget the Brazilian sister company of Japanese giant NEC.
NEC do Brasil has contracts to supply over two million CDMA lines in Sao
Paulo, Rio de Janeiro and Bahia. In Rio de Janeiro a total of 660,000
users will eventually be served by Telerj in a rollout planned for completion
by March this year. Around a quarter of a million customers are already
using the network. The Salvador, Bahia network is up and running too:
20,000 of the 40,000 line capacity has already been taken up and local
operator Telebahia has ambitious plans for expansion of its digital services
to 500,000 customers this year.
The project in Sao Paulo is the biggest, however. NEC do Brasil has signed
contracts to deploy a network with about 318 base stations accommodating
some one million users. The project is planned to be completed by the
end of the first quarter this year.
It won't be easy. As NEC itself points out, Sao Paulo has 17 million,
densely packed inhabitants, a lot of traffic and complex geography. However,
even NEC's two million lines across three states combined with a million
for Lucent, is only a small part of a total population of some 150 million.
There's a lot to play for still.
And it's not just in cellular. Another promising area for CDMA vendors
is wireless local loop systems. Following the deployment of six CDMA-based
wireless local loop networks in Brazil, Mexico, Guatemala and Puerto Rico,
at least one more is being built in Brazil this year. A fixed-line mirror
consortium dubbed Canbra won the contract to compete with Tele Norte Leste
in a region comprising nearly 90 million people in 16 states including
Rio de Janeiro and Belo Horizonte.
Canbra's partners are Bell Canada Inter-national, WLL International, SLI
Wireless, Taquari Participacoes and Qualcomm. "It is very probable
that the mirror company will choose CDMA as the primary standard for its
wireless local loop build-out," says Andy Castonguay, Pyramid's Brazil-based
analyst. Indeed, many analysts already see CDMA as the best solution for
fixed wireless because of its spectral efficiency.
Meanwhile, the CDMA Development Group (CDG), and groups supporting competing
technologies are busy lobbying Latin American governments to auction spectrums
in a manner that allows for equal opportunities for all standards.
"We want to make sure that spectrums are made available that would
provide the opportunity for companies to bid using CDMA as their technology,"
says Jim Takach of the CDG. "We'd like to see the operator or investor
able to choose the technology they wish."
But, as Pyramid's Arathoon points out, it's not only
the merits of the technology that decide whether CDMA or TDMA win Latin
American infrastructure supply contracts. It's also a matter of which
provider can provide a better financial package. "Many times, selections
are not made with the standard in mind, but rather on the basis of the
vendor or financing involved," Arathoon says. "As markets liberalize
and new players enter the fold, they often ask for financing. The question
then becomes: 'Who can give me the best deal?' Vendors are becoming more
like strategic partners rather than just equipment providers." Owing
to their size and ability to finance their equipment, the Nortels and
Lucents of the world hold a natural advantage in the region.
Also working to CDMA's favor, the desire to roam beyond national borders
is whetting the appetite of Latin Americans for the standard. CDMA is
now offered across North America, serving about 6.8 million subscribers.
Ritchey says that facilitates easy roaming with the U.S., Latin America's
biggest trading partner. This is particularly the case in Mexico, where
the North American Free Trade Agreement that links it with the U.S. and
Canada, plus a 2,000-mile boundary with the U.S., makes it the world's
largest roaming border.
It's perhaps no coincidence that CDMA is used by the
country's leading mobile phone operators, including Iusacell, Telefonia
Celular del Norte (Norcel), Celular de Telefonia (Cedetel), Pegaso and
CDMA equipment makers have also begun manufacturing in Latin America,
with the promise that equipment prices will further decline and further
boost sales. Lucent, the CDMA market leader in Latin America, recently
opened a 212,000 square meter industrial complex in Campinas, Brazil,
to make digital switches and other cellular infrastructure for CDMA, as
well as for the other standards.
Other CDMA factories are opening in Brazil as well. Motorola
has opened a facility in Jaguariuna, in Sao Paulo state, to make CDMA
base stations, receivers and controllers.
Meanwhile, worldwide, the promise of cheaper handsets is being realized.
CDMA handset manufacturers make about 15 million units a year;
if demand continues to grow in Latin America at present rates,
that figure could soon need some revision.