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© 2015 Pyramid Research | Smartphone Trends in Latin America: The Impact of Government Policies and Regulatory Intervention

This report is part of Pyramid Research’s series of Latin America Insider Reports | April 2015 Edition

Smartphone Trends in Latin America: The Impact of Government Policies and Regulatory Intervention Guillermo Hurtado, Senior Analyst

Leslie Arathoon, Research Director

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Executive Summary

Guillermo Hurtado is a Senior Analyst for the Latin American region, based in Boston. He is responsible for Pyramid’s market sizing and forecasting within the Andean region, including Venezuela, Peru and Ecuador. He is also responsible for Pyramid’s coverage of mobile devices, both smartphones and tablets, in Latin America. He has authored several Telecom Insider Reports, Country Intelligence Reports and Research In Focus Reports and spoken at numerous industry conferences.

Guillermo Hurtado – Senior Analyst

• The momentum behind smartphone sales in emerging markets continues. In Latin America, smartphone sales have been powered by a mix of greater availability at more affordable prices and by an emerging middle class with growing disposable income. For operators, the adoption of smartphones, and particularly LTE-enabled smartphones, is crucial. Smartphones boost revenue via increased adoption and usage of mobile data services, helping operators to offset continued declines in revenues from voice services.

• Across Latin America, governments and regulators have undertaken measures that directly impact the sale of mobile handsets, particularly smartphones. Several governments (e.g., Argentina, Brazil, Venezuela and Ecuador) have opted to implement a set of import mechanisms and tax policies with the goal of spurring domestic production of handsets. Further, in markets characterized by strong concentration (e.g., Colombia, Mexico and Peru) regulators have banned the sale of carrier-locked handsets, among other things, as a way to facilitate subscriber mobility between carriers.

• As we will elaborate in this report, the results of these policies have been mixed, and they have impacted in various degrees the different players in the industry: mobile operators, local and international handset manufacturers, handset distributors and retail outlets.

The first section of this Telecom Insider Report examines and sizes the handset and smartphone markets at the global and Latin American levels. The report discusses the major handset-related regulations implemented in the region, and it then presents case studies of Argentina, Brazil, Colombia, Ecuador, Peru and Venezuela, analyzing the impact of imposed regulations. We conclude with a summary of key findings and a set of recommendations.



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• Imposing hefty duties on handset imports is a viable option to foster local industry growth. However, the absence of a fully developed production value chain (i.e., infrastructure, transportation, technology, labor, etc.) can translate into domestically-made handsets that are more expensive than similar imported products in a scenario with lower import tariffs, to the detriment of consumers, particularly those in low income segments.

• It is crucial for mobile operators to be able to expeditiously procure enough smartphones to support the rollout of new technologies (e.g., LTE). In Venezuela, for instance, the adoption of LTE services has been muted, mainly because of the unavailability of LTE-capable smartphones. In Ecuador, if not revised, government-imposed quotas on mobile handsets imports will negatively affect LTE rollout efforts by the country’s largest mobile operators Claro and Movistar, which were recently granted additional spectrum for the deployment of their LTE networks.

• Regulators across the region are increasingly resorting to banning the selling of carrier-locked handsets and forcing carriers to unlock all previously sold, with the goal of fueling competition at the service layer. Banning the selling of locked handsets in itself doesn’t change the structure of the market, but it helps level the playing field in the mobile segment.

• In Colombia, the removal of minimum contract periods (handset subsidies) has resulted in a shift to lower smartphone price bands, as consumers are unable to pay the full price of high-end and premium devices. This has negatively affected smartphone brands that are more dependent on carrier subsidies (e.g., Apple).

Key Findings



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Reasons to Buy

• This Telecom Insider helps executives build proactive, profitable growth strategies by offering comprehensive, relevant analysis of the handset sales regulatory environment in Latin America.

• The report offers a wealth of data on handset and smartphone sell-through in Latin America, with a focus on the region’s major markets: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Venezuela.

• The report is designed for an executive-level audience, boasting presentation quality that allows it to be turned into presentable material immediately.

• The broad yet detailed perspective will help operators, handset vendors and other telecom industry players to succeed in the challenging mobile telecommunications market in Latin America



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Argentina XX%

Brazil XX%

Chile XX% Colombia

XX% Ecuador

XX%

Mexico XX%

Peru XX%

Uruguay XX%

Venezuela XX%

RoR XX%

EXHIBIT 6: SMARTPHONE SELL-THROUGH CAGR, SELECTED MARKETS, LATIN AMERICA, 2014-2019

EXHIBIT 5: SMARTPHONE SELL-THROUGH, SELECTED MARKETS, LATIN AMERICA, 2014

Smartphone sell-through – Latin America Smartphone sales in Latin America increased by XX% in 2014 over 2013, reaching XXm units, primarily driven by strong demand and availability of entry-level smartphones.

Ecuador

Uruguay

Peru

Colombia

Mexico

Argentina

Venezuela

Chile

Brazil

Source: Pyramid Research Source: Pyramid Research

2014: XXm smartphones sold



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EXHIBIT 9: HANDSET-RELATED REGULATION, LATIN AMERICA

Handset-related regulation – Latin America Across the region, governments and regulators have undertaken administrative, customs and fiscal measures that directly impact the sales of mobile handsets.

Handset-related regulation

Foster/protect local handset

assembly/production

Improve mobile competition at the

service level

Environmental concerns

• Establish custom duties and taxes benefits.

• Enforce handset import quotas.

• Remove SIM lock. • Ban tying mobile

service contracts with handsets

• Enforce handset import quotas.

Source: Pyramid Research



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Case study: In Colombia, the regulator has banned the practice of tying mobile service contracts to handsets, pre-empting carrier handset subsidies

• A strategic goal of the government is to promote telecom competition, particularly within the mobile segment.

• The Colombian mobile market has a relatively large number of MNOs (and MVNOs) but moderate competitive intensity. At year-end 2014, Claro had XX% of the country’s mobile subscriber base, while Movistar and Tigo serviced 27.5% and XX% of the total, respectively.

Improve competitive environment

Source: Pyramid Research

2014: XXm handsets sold

EXHIBIT 18: MARKET SHARE BY MNO, COLOMBIA, 2014

Claro XX%

Movistar XX%

Tigo XX%

Others XX%

Sources: Mobile Operators, Pyramid Research

XX% Feature phones

and ULCs

XX% Smartphones

Colombia

EXHIBIT 19: MOBILE HANDSET SELL-THROUGH BY CATEGORY, COLOMBIA, 2014



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Table of Contents

SECTION PAGE

Introduction: Handset sell-through trends 5 Mobile handset sell-through – Global Mobile handset sell-through – Latin America Smartphone sell-through – Latin America

Handset-related regulation in Latin America 11 Removing the SIM lock Outlaw tying service contracts with handsets Import quotas and tax benefits on handsets

Market detail: Case studies 16 Peru Colombia Venezuela Ecuador Brazil Argentina

Key findings and recommendations 35 Appendix: Acronyms and definitions 38



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Table of exhibits

Exhibit 1: Handset Sell-Through Breakdown by Region, 2014

Exhibit 2: Handset Sell-Through by Region, 2014 Vs. 2019

Exhibit 3: Handset Sell-Through, Selected Markets, Latin America, 2014

Exhibit 4: Handset Sell-Through CAGR, Selected Markets, Latin America, 2014-2019

Exhibit 5: Smartphone Sell-Through, Selected Markets, Latin America, 2014

Exhibit 6: Smartphone Sell-Through CAGR, Selected Markets, Latin America, 2014-2019

Exhibit 7: LTE-Capable Smartphones Sales as a Percentage of Total Smartphone Sell-Through, Latin America, 2013-2019

Exhibit 8: IPhone 6 16GB Retail Price In Selected Countries, Latina America, 2014

Exhibit 9: Handset-Related Regulation, Latin America

Exhibit 10: Impact of Removing SIM Lock, Selected Players, Latin America

Exhibit 11: Impact of Banning Tying Service Contracts with Handsets, Selected Players, Latin America

Exhibit 12: Impact of imposing Import Quotas and Tax Benefits on Handsets, Selected Players, Latin America

Exhibit 13: Market Share by MNO, Peru, 2014

Exhibit 14: Mobile Handset Sell-Through by Category, Peru, 2014

Exhibit 15: Ported Mobile Numbers, Peru, 2014-2015

Exhibit 16: Spectrum Holdings by Operator, Peru, 2015

Exhibit 17: Market Share by MNO, Peru, 2019E

Exhibit 18: Market Share by MNO, Colombia, 2014

Exhibit 19: Mobile Handset Sell-Through by Category, Colombia, 2014

Exhibit 20: Distribution of Total Smartphones Sell-Through by Price Band, Colombia, 2013-2019

Exhibit 21: Colombian Peso to US Dollar Exchange Rate, 2014-2015

Exhibit 22: IPhone Trade-in, Movistar, Colombia, 2015

Exhibit 23: Mobile Handset Sell-Through by Category, Venezuela, 2014

Exhibit 24: Mobile Subscriptions, Venezuela, 2013-2019

Exhibit 25: Handset Sell-Through, Venezuela, 2012-2019

Exhibit 26: LTE Penetration of Mobile Subscriber Base, Selected Countries, Latin America, 2013-2019

Exhibit 27: Handset Sell-Through, Ecuador, 2013-2019

Exhibit 28: Mobile Handset Sell-Through by Category, Ecuador, 2014

Exhibit 29: Handset Revenue by MNO, Ecuador, 2012-2014

Exhibit 30: Locally Assembled Handsets, Ecuador, 2013 Vs. 2014



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Table of exhibits

Exhibit 31: Gray Market Handset Sales as Percentage of Total Handset Sales, Ecuador, 2012-2019

Exhibit 32: Mobile Handset Sell-Through by Category, Brazil, 2014

Exhibit 33: Handset Sell-through, Brazil, 2012-2019

Exhibit 34: Smartphone ASP, Selected Countries, Latin America, 2014

Exhibit 35: Smartphone Sales Market Share, Brazil, 2014

Exhibit 36: Selected Loyalty Programs, Brazil, 2015

Exhibit 37: Mobile Handset Sell-Through by Category, Argentina, 2014

Exhibit 38: Mobile Subscriptions, Argentina, 2013-2019

Exhibit 39: Smartphone Sell-Through Market Share, Argentina, 2014

Exhibit 40: Handset Sell-Through by Category, Argentina, 2013-2019



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