BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Telecomunications sector of Venezuela

Venezuela enjoyed higher than anticipated growth in both the mobile and broadband sectors in Q2, leading BMI to revise forecasts for 2006 and beyond upwards. The number of mobile additions nearly doubled q-o-q with over 2.1mn net additions. While BMI has continuing concerns about the over-reliance on the prepaid segment, with penetration at only 47% at YE05 there is plenty of room for growth. We now forecast mobile penetration will hit 70% by YE06, rising to over 80% by YE07 and 90% in H109. CANTV continues to dominate the broadband market, although its share of the market declined to 82.5% in Q2, and for the first time it underperformed the market as a whole. In light of this strong growth from alternative operators, we have made slight upwards forecasts for YE06, and now expect penetration will hit 1.9%. However, if CANTV hits the upper end of its target for the end of the year and the alternative operators continue to erode its market share, penetration could reach 2%. We now believe the 1mn user mark will be breached in 2009, and that penetration will be slightly over 4% by 2010.

Despite the relatively small Venezuelan market, these upward revisions have improved the country’s growth prospects in BMI’s regional business environment ranking, although it remains at the lower end of the scale for the region. But our growing concerns over the country’s long-term economic risk, which is by far the worst in the region, detract from the better opportunities for growth. Venezuela remains at the bottom of BMI’s business environment ranking for Latin America, where it has now been joined by Peru, with little prospect of improvement.

Conatel is proposing new regulations that it hopes will stimulate investment in underserved areas by encouraging small operators and co-operatives into the market. BMI already predicts slow but steady growth in Venezuela’s fixed-line sector to 2010, but this figure could accelerate if large numbers of players enter the market. This will also lead to higher take-up of internet and broadband services. The regulator has also announced its intention to reduce dependence on mobile telephony for growth, so if fixed-line growth is raised appreciably, mobile growth rates could be adversely affected. Conatel has said the new model of service provision will fit in with the country’s new ‘social vision’, with the state facilitating the necessary tools for operators to stimulate investment in infrastructure in underserved areas. In our opinion, while the government’s programme of socialism for the 21st century will hopefully stimulate competition, the positive benefits could be counteracted if the state is too heavily involved. Likewise, Venezuela’s licensing and regulation score would need to be reduced if the government goes ahead with its threat to nationalise CANTV. BMI believes such a drastic step will not be necessary, but it is a worrying sign of potential state involvement in the country’s telecoms sector.

Further negative indications for the market are the extension to deadlines on the sale of Verizon’s holding in CANTV to Telmex and América Móvil, as well as the ongoing saga of CANTV’s pension obligations. BMI sees a clear link between the two. Whilst Telmex has said it has not been put off by President Chavez’s threats to nationalise CANTV if the pension dispute isn’t resolved, we believe Telmex is unlikely to agree on a price for the stake until the final pension payments due from CANTV have been determined.

Contents

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Chapter 1 - Executive Summary

Chapter 2 - Industry Forecast Scenario

Fixed-Line

Table: Venezuelan Telecoms Sector – Fixed-line – Historical Data & Forecasts

Internet

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

Mobile

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

Chapter 3 - Macroeconomic Climate

Play Today, Pay Tomorrow

Risks To Outlook

Table: Economic Activity Indicators

Chapter 4 - Country Snapshot: Venezuela 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

Chapter 5 - Business Environment

Latin America

Venezuela

Venezuela Telecoms Sector – SWOT Analysis

Chapter 6 - Competitive Landscape

Competitor Analysis

Market Structure

Table: Key Players: Venezuelan Telecoms Sector

Table: Selected Operator 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: Venezuela Local Market, Q206

Internet

Table: Venezuela Internet Market, Q206

Mobile

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

Table: Venezuela Wireless Market, Q206

Industry Developments

Chapter 7 - Company Profiles

Compañía Anónima de Teléfonos de Venezuela (CANTV)

Telefónica Móviles Venezuela (Movistar)

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: