Hector HernandezSenior Telecom Analysthhernandez@idc.com

Latin America’s Telecom Odyssey: From Dial Tone to IP

Services

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 Service

• IP Telephony– PC to PC calls– PC to Phone calls– Phone to Phone

calls– Wholesale

Market– Retail Market

• Web Talk– Click-to-talk– Conferencing– Messaging– IP Telephony

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

Total Market Value: US$10.6 Billion

$1,359

$4,427

$228$670

$3,008

$453$507

-5,000

10,00015,00020,00025,00030,00035,00040,00045,000

Market Revenues (US$ Billions)

Tra

ffic (

Billion

s o

f M

inu

tes)

28% Revenues

(US$ Millions)

45% Revenues

ArgentinaBrazil ChileColombiaMexicoVenezuelaOther ELAM

51%

Traffic

23%Traffic

Latin America Traditional International Long Distance Market Revenues 1999:

Not Your Usual Suspect

Total Market Value: US$4.1 BillionSource: IDC’s Latin America Telecommunications Continuous Information Service, 2000

1999 Market Revenues (US$ Millions)

53% Revenues

$833.29$462

$538

$194$113

$1,759

$266-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Market Revenues (US$ Billions)

Tra

ffic (

Billion

s o

f M

inu

tes)

ArgentinaBrazil ChileColombiaMexicoVenezuelaOther ELAM

42% Revenues

52.3%Traffic

52.3%Traffic

42% Revenues

20%Traffic

20% Revenues

Six-Country Traditional Domestic Long Distance Market

Forecast: A Price War$0.17

$0.16

$0.14

$0.12$0.11

$0.10

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1999 2000 2001 2002 2003 2004

Six

-Cou

ntr

y D

om

esti

c L

on

g

Dis

tan

ce (

Million

s o

f M

inu

tes)

$-

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

Avera

ge P

rice p

er

Min

ute

(U

S$)

CAGR 7%CAGR 7%

CAGR -13%CAGR -13%

Six-Country Traditional International Long Distance

Market Forecast

$0.46

$0.41

$0.35$0.31

$0.28$0.26

-

5,000

10,000

15,000

20,000

25,000

30,000

1999 2000 2001 2002 2003 2004

Six

-Cou

ntr

y I

nte

rnati

on

al Lon

g

Dis

tan

ce (

Million

s o

f M

inu

tes)

$-

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

$0.50

Avera

ge P

rice p

er

Min

ute

(U

S$

)

CAGR -24%CAGR -24%

CAGR 21%CAGR 21%

6-Country Domestic Long Distance: IP Arrives in

2001 • Driven by: – Efficiencies– Lower barriers to

entry– Scaleability– Value Added Services

• Unified Messaging• Click-to-talk

• Hindered by:– Regulation– Competition from

cellular, cable telephony, etc.

IP DLD CAGR 2000-2004 =443%

24%24%

-

20,000

40,000

60,000

80,000

100,000

120,000

199920002001200220032004Dom

esti

c L

on

g D

ista

nce T

raffi

c (

Million

s o

f M

inu

tes)

0%

5%

10%

15%

20%

25%

30%

Traditional DLDIP DLD

IP as % of Total DLD

6-Country International Long Distance: IP

Anywhere• Driven by:

– Arbitrage– Efficiencies (cost per

call, lower bandwidth requirements)

– Lower barriers to entry

• Hindered by:– Regulation– Equipment

Interoperability– QoS

IP ILD CAGR 1999-2004 = 647%

25.1%25.1%

-

5,000

10,000

15,000

20,000

25,000

30,000

199920002001200220032004Inte

rnati

on

al Lon

g D

ista

nce T

raffi

c

(Million

s o

f M

inu

tes)

0%

5%

10%

15%

20%

25%

30%Traditional ILD

IP ILD

IP as % of Total ILD

Global IP Telephony Market: The Opportunity

• Driven by: – Arbitrage– Efficiency– Gain Market Share– Value Added Services

• Unified Messaging• Web Talk

• Hindered by:– Regulation– QoS– Equipment

Interoperability

Source: IDC’s IP Telephony Services: Market Review and Forecast, 1998-2004.

IP T

raffi

c

(Million

s o

f M

inu

tes)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1999 2000 2001 2002 2003 2004

0%

5%

10%

15%

20%

25%

30%

Global IP MOU

6-Country IP MOU

6-Country Percent ofGlobal IP Traffic

Global IP CAGR 1999-2004 = 119%

Latin America’s IP Telephony Market Drivers

Shift 2000-2004

VALUE ADDED VALUE ADDED SERVICESSERVICES

MARKET SHAREMARKET SHARE

MARKET SHAREMARKET SHARE

LOWER BARRIERS LOWER BARRIERS TO ENTRYTO ENTRY

EFFICIENCIESEFFICIENCIES

ARBITRAGEARBITRAGE

YEAR 2000YEAR 2000 YEAR 2004YEAR 2004

VALUE ADDED VALUE ADDED SERVICESSERVICES

EFFICIENCIESEFFICIENCIES

ARBITRAGEARBITRAGE

LOWER BARRIERS LOWER BARRIERS TO ENTRYTO ENTRY

Latin America’s IP Telephony Market Drivers Arbitrage: Chasing the

Opportunity

IP/PSTN Price Gap

Arbitrage Opportunity

Country 1Launch

Country 2Launch

Country 3Launch

Source: IDC’s IP Telephony Services in Europe, 1998-2003

Latin America’s IP Telephony Market Drivers• Arbitrage (origination Vs

termination)

PSTN PSTN

IP Gateway IP GatewayPublic Internet

International Carrier System

Settlement RatesTransport CostsOriginated $$Originated $$ TerminatedTerminated

Latin America’s IP Telephony Market Drivers• Arbitrage Onnet Vs. Offnet

PSTN PSTN

IP Gateway IP GatewayPrivate Network

SLAQoS

International Carrier System

Settlement Rates

Transport CostsOriginated $$Originated $$ TerminatedTerminated

Latin America’s IP Telephony Market Drivers

Typical VoIP call 10 Kbps (Toll Quality)

Typical Voice Channel 64 Kbps

64 Kbps

• IP Network Efficiencies

Initial Investment Comparison

Source: IDC, 2000

SOLUTIOSOLUTIO

NN

INVESTMENTINVESTMENT CAPACITY CAPACITY ADVANTAGEADVANTAGES S

•QualityQuality

•ReliabilityReliability

•Proven Proven TechnologyTechnology•Efficiency Efficiency •New New Services Services Potential Potential •ScaleabilityScaleability•Efficiency Efficiency •New New Services Services Potential Potential •ScaleabilityScaleability

Traditional Traditional TelephonyTelephony

IP IP TelephonTelephon

yy

Class 5 Class 5 SwitchSwitch

IP PopIP Pop

IP IP Full Operation Full Operation

US$20 US$20 millionmillion

US$US$100,00100,00

00

US$3 to 5 US$3 to 5 millionmillion

20,00020,000LinesLines

400,000400,000Minutes per Minutes per

MonthMonth

35 Million 35 Million Minutes Minutes

per Monthper Month

BANDWIDTH BANDWIDTH AVAILIBILITYAVAILIBILITY

Latin America’s IP Telephony Market

Inhibitors

QOSQOS

REGULATIONREGULATION

YEAR 2000YEAR 2000

EQUIPMENT EQUIPMENT INTEROPERABILITYINTEROPERABILITY

REGULATIONREGULATION

EQUIPMENT EQUIPMENT INTEROPERABILITYINTEROPERABILITY

QOSQOS

BANDWIDTH BANDWIDTH AVAILIBILITYAVAILIBILITY

YEAR 2004YEAR 2004

Latin America’s IP Telephony Market InhibitorsIP Telephony Regulation IP Telephony Regulation

- 2000 - 2000

CHILECHILE

NO NO RESTRICTIONS.RESTRICTIONS.

ARGENTINAARGENTINACurrently Currently banned.banned.

Only Only licensed licensed

operators operators can carry can carry voice . voice . Clients Clients

cannot use cannot use value-added value-added services to services to transmit transmit voice. voice.

Will open in Will open in November November

2000.2000.

BRAZILBRAZILNot Not

regulatedregulatedOnly Only

licensed licensed operators operators can carry can carry

voice. voice. COLOMBIACOLOMBIA Only licensed Only licensed

operators operators

can use VoIP.can use VoIP.

MEXICOMEXICONot Not

regulated. regulated. Only licensed Only licensed LD operators LD operators

can carry can carry voice. voice.

VENEZUELAVENEZUELANot Not

regulated. regulated. Only CANTV Only CANTV

can offer can offer voice voice

services until services until October October 2000.2000.

Latin America’s IP Telephony Market

Inhibitors - Regulation

Regulation

Voice Over IP

Latin America’s IP Telephony Market

Inhibitors

Typical IP Level 200-350 ms

No Noticeable Delay

Barely Noticeable Delay

Acceptable Delay

Unacceptable DelayTypical Satellite Level 300 ms

Typical PSTN 50-150 ms

450

0

50100150200250300350400

450

0

50100150200250300350400

Quality of Service (QoS)Telephony Delay Levels (milliseconds)

ms

Worst

Source: IDC’s IP Telephony Services in Europe, 1998-2003

Best ms

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 147% per quarter

• 13% of traffic is going to and from the LA region

• 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.

ITXC

IBASIS

DELTA TH

REE

Net2Phone (AT&

T)

150.1 156.575 319

701

1999 Traffic (Billions of Minutes)

Total

Future Trends

Web Talk Convergence

Business ModelBusiness Model

Web-centricWeb-centricTalk ServicesTalk ServicesFree to usersFree to users

Fax-to-emailFax-to-emailVmail-to-emailVmail-to-email

Instant Instant MessagingMessaging

Buddy ListsBuddy Lists

WebWebMessaginMessagingg

PC-to-PCPC-to-PCPC-to-phonePC-to-phonePhone-to-PCPhone-to-PC

TelephonTelephonyy

Audio,Audio,Video,Video,Document/Document/File SharingFile Sharing

WebWebConferencinConferencin

gg

Click-to-XClick-to-XVoice-Voice-EnablemeEnableme

ntnt

V-CommerceV-Commerce Mobile NetworksMobile Networks

Worldwide Web Talk User Forecast

A Web User is a Talking User

0

100

200

300

400

500

600

700

WW Internet Users 240 328 427 521 602 693

Web Talk Users 10 40 107 208 361 416

1999 2000 2001 2002 2003 2004

Key Assumptions:• Simple, easy-to-user,

auto-install utility.• Cellfon quality or better

is typical.• 1999 is start-up year for

many services.• 12-15 services reach

1 million+ users in 1st half 2K.

• Hotmail-like growth expected for PC-to-PC services.

Mil

lion

s

Source: IDC, 2000

Latin America’s IP Telephony Market

Inhibitors - Regulation

Voice Over IP

Regulation

WebTalk

Web Talk in Latin America: The Chilean

Example in 2001

Total Minutes Total Minutes of of

Webtalk:Webtalk:255,681,429255,681,429

% of % of ResidentiResidential Users :al Users :

48%48%

Number of Number of

ResidentialResidential Users:Users: 546,328546,328

% of % of Residential Residential

Users Users Doing Doing Chat:Chat:50%50% NumberNumber of Residentialof Residential Users Doing Users Doing

Chat:Chat:273,164 273,164 Number of Chat Minutes Number of Chat Minutes

per Week per per Week per User:User:120120 Number Number

of Minutesof Minutesper Year perper Year per User: 6240User: 6240

Total Total Number of Number of

Chat Chat Minutes:Minutes:

1,704,542,861,704,542,86

1 1

% of % of Minutes of Minutes of Webtalk:Webtalk: 15%15%

Internet Internet Users:Users:

1,138,1831,138,183

Equivalent to 10% of Equivalent to 10% of DLD for that yearDLD for that year

What is Next?

• Clarify Regulation• Operators:

– embrace the technology – generate new services – leverage on the efficiencies– Develop QoS, SLAs

• Equipment Vendors: – Achieve true interoperability

Hector HernandezSenior Analyst, IDC Latin America

hhernandez@idc.com

Questions?Questions?