BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Telecomunications Sector of Chile

There were some promising developments in Chile's telecoms markets in Q307, notably the licensing of the country's first mobile virtual network operators (MVNOs). Blue Two, a WiFi and Bluetooth operator owned by alternative fixed-line operator Telsur, and Dotcom, a locally owned VoIP operator, have both received 30-year licences to provide mobile services. Meanwhile, Nextel's parent company has confirmed an US$80mn investment programme to roll out an ESMR network in Chile, following Nextel Chile's December 2006 launch of roaming services for corporate customers.

The auction for 3G frequencies is expected to take place in Q108, although the three existing mobile operators are all likely to be offering some form of 3G service by YE07. Regulators are considering whether to offer the existing operators small blocks of 45MHz spectrum in order to establish a fourth operator in the market, which would focus specifically on 3G. However, BMI is sceptical that a fourth player can be tempted to invest in an already competitive and well-developed market, particularly given that MVNO licences are now available.

In addition to its MVNO licence, Telsur, which is consolidating its position as the country's third-largest broadband provider, launched IPTV services in July, just one month after Telefónica Chile's IPTV offering. Further competition in the triple play market will now come from Telmex, which followed its March 2007 launch of fixed-wireless and broadband services with the acquisition of pay-TV provider ZAP TV in August. BMI would not be surprised to hear of further pay-TV acquisitions by Telmex in the coming months, a strategy it has pursued in Colombia and Peru as a way into the lucrative triple play market.

BMI forecasts for mobile market growth have been revised upwards as it now seems clear that growth in 2007 is following a similar pattern and similar rates to 2006. We currently forecast penetration will reach 88.7% by YE07. However, it remains to be seen how much of an impact the newly licensed MVNOs will have on the market and we have made only conservative upwards adjustments for 2008 and beyond at this time. We currently anticipate the first MVNO services will become available in late 2007/early 2008 and that operators will target the lower end of the market. In a market with lower penetration BMI would expect such a launch would trigger a price war among operators and drive considerably stronger growth.

However, with penetration in Chile already over 83%, the existing operators could be happy to let the MVNOs service the lower-spend market and focus attention on higher revenue-generating postpaid customers, a strategy already being pursued by all three operators, as well as on the deployment of 3G services. If this is the case, we would expect only slightly faster growth as much of the subscriber growth at the MVNOs would be offset by lower growth at the existing players. Likewise, we do not expect the availability of 3G services will have a noticeable impact on the market as the vast majority of subscribers will simply upgrade from 2G offerings. We continue to predict slowing growth rates over the forecast period, but now anticipate 100% penetration will be reached in 2010 with some 17.5mn subscribers and will near 105% in 2011.

Forecasts for the broadband and internet markets are unchanged, with penetration rates for both expected to remain the highest in the region. The broadband market is on track for growth of 30-32% in 2007, which will raise penetration to 8.1% by the end of the year, while internet penetration should near 34%. By 2011, broadband penetration will have doubled to 16.3% and internet usage should gradually increase to nearly 40% penetration.

However, the fixed-line market declined more quickly than originally forecast, falling by 3.2% in 2006 to bring penetration down 0.9 percentage points (pps), to 20.2%. Much of the decline was experienced by Telefónica Chile, although the slowdown has been mitigated by the mid 2006 launch of digital TV services and their bundling with telephony and internet services, as well as by growth among alternative operators. We have, accordingly, revised forecasts downwards and now anticipate Chile's fixed-line market will decline by around 1.5-2% in 2007, seeing penetration drop below 20% to 19.6%. The downward trend will continue, and we anticipate the number of fixed lines will fall below 3mn in 2011, penetration of just over 17%. However, if the MVNOs have a greater impact on the mobile market than is currently envisaged, fixed-mobile substitution will increase and the slowdown in the fixed-line market will be more marked.

Contents

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Chapter 1 - Executive Summary

Chapter 2 - Industry Forecast Scenario

Fixed-Line

Table: Chilean Telecoms Sector – Fixed lines – Historical Data & Forecasts

Internet

Table: Chilean Telecoms Sector – Internet – Historical Data & Forecasts

Mobile

Table: Chilean Telecoms Sector – Mobiles – Historical Data & Forecasts

Chapter 3 - Macroeconomic Climate

Fundamentally Sound Moderation

Risks To Outlook

Table: Economic Activity – Historical Data And Forecasts

Chapter 4 - Country Snapshot: Chile Demographic Data

Section 1: Population:

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education & Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption and Stratification

Table: Wages per year

Chapter 5 - Business Environment

Latin America

Chile

Chile Telecoms – SWOT Analysis

Chapter 6 - Competitive Landscape

Market Structure

Competitor Analysis

Table: Key Companies: Chile Telecommunications Sector

Table: Selected Operators Financial Indicators

Key Players

Fixed-Line

Table: Regional Fixed-Line Penetration Overview

Internet

Table: Regional Internet Penetration Overview

Table: Regional Broadband Penetration Overview

Mobile

Table: Regional Mobile Penetration Overview

Market Data

Fixed-Line

Table: Chilean Local Access Market, Q206

Table: Chilean DLD and ILD Markets, 2005-2006

Internet

Table: Chilean Broadband Market, Q206

Mobile

Table: Chilean Wireless Market, Net Additions, 2005-6

Table: Chilean Mobile Market, Q206

Industry Developments

Chapter 7 - Company Profiles

Telefónica CTC Chile

Entel

Telefónica Móviles Chile (Movistar)

VTR GlobalCom

Chapter 8 - BMI Forecast Modelling

How we generate our industry forecasts

Telecommunications Industry

Sources

Chapter 9 - Appendix: Regional Demographic Data

Wages (ave per annum), US$

Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Latin America Telecommunications Reports: Sample of Companies Ranked

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Commentary on key operators highlighting ownership structures, latest available revenue figures, market share analysis and ARPU counts. BMI forecasts for all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt. Company SWOTS Covering all leading telecommunications operators and manufacturers operating in each market, including competitive intelligence on geographic presence and competitive positioning against local companies; local market share; leading products, services and technologies; foreign direct investments, projects, merger and acquisition strategies.

Network of Latin American Telecommunications Sources

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BMI's Latin American Telecommunications Reports are based on an extensive network of multilateral organisations, government departments, telecommunications industry associations, chambers of commerce and company reports. Information sources include: