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Leslie ArathoonVice President of Research

April 2, 2008

Telecoms Market Developments in Latin America:

Analyzing WiMAX and 3G/4G

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Executive Summary

As subscriber growth rates slow around the world and in Latin America, operators are focusing increased attention on data services and applications in order to create stickiness with customers and offset declines in voice ARPS.

Mobile/Wireless networks have become the primary means for connecting to broadband networks around the world. Though 3G and WiMAX are just now making their way into the Latin American context, we expect that here too mobile platforms will the primary means for accessing broadband applications and services.

Pyramid Research maintains that there is a role for both WiMAX and 3G/LTE in Latin America and the rest of the world. Outside of Japan, Korea and the US, we see WiMAX being deployed primarily by competitive access providers offering an alternative to wired DSL/Cable solutions to high-end residential and SME customers. 3G/LTE, by contrast, will largely be pushed by incumbent mobile service providers as a means to enhance service offerings to their customer bases.

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Fixed

MobileMedia &

entertainment

Fixed

Mobile

Fixed

Media & entertainment

MobileMedia &

entertainment

A backdrop for the development of 3G and WiMAX Networks Convergence of mobile, fixed and media industries Evolution toward presence/location and personalization.

SMS, ringtones

Cable TVWiFi

Source: WiMAX Forum, Pyramid Research.

Cable TV, IPTVCable TV, IPTV,

VOD, HDTV

True FMCFMC, WiMAX, LTE, bundling

Mobile music, Mobile video,

gaming

Mobile music, mobile video, streaming TV,

Web 2.0

IMS/NGN/4G advertising &

commerce

Toward presence & personalization

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A backdrop for the development of WiMAX and 3G

Source: WiMAX Forum

Over the next five years, the following will characterize the telecommunications industry:

1. Broadband usage to move from fixed/wireline networks to mobile/wireless networks as subscribers demand everywhere connectivity

2. New media-rich applications will place a high demand on bandwidth

3. High traffic loading on the networks as large media-rich files are transferred

4. Higher demand on uplink channels as users generate their own media rich-content

5. A greater selection of devices that provide a range of broadband connectivity options, allowing the user to choose their preferred network at will

6. A transition from household and business broadband connections to individual/personal connections where users stay connected irrespective of location

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Mobile is the world’s primary access technology… Overwhelmingly, users are becoming “connected” to the network via mobile devices. Globally, mobile penetration has more

than doubled over the last four years, from 23% at year-end 2003 to 52% today. Driven by continued adoption in high-growth markets in Africa and Emerging Asia, in particular, we expect mobile penetration to top 73% worldwide by 2012. Interestingly, more than 40 countries will enjoy penetration rates above 100% - from Chile in Latin America to UAE in the Middle East.

Though broadband has been making impressive gains across all regions, we do not expect total broadband connections to exceed narrowband connections within our current forecast period (2008-2012).

0%

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2005A 2006A 2007 2008E 2009E 2010E 2011E 2012E

Pene

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Fixed Narrowband Fixed Broadband Mobile

PENETRATION BY SERVICE, 2005-2012 (% OF POPULATION)

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…and has become the primary means for accessing broadband

DSL35%

Others1%

Cable Modem12%

Fiber 4% WiMAX

0%

3G47%

DSL23%

Others1%

Cable Modem6%

Fiber 4% WiMAX

2%

3G64%

BROADBAND ACCOUNTS BY ACCESS TECHNOLOGY, 2007678m

BROADBAND ACCOUNTS BY ACCESS TECHNOLOGY, 20121.8bn

In 2007, 3G mobile platforms overtook DSL to become the dominant technology for accessing broadband networks around the world. As of year-end 2007, 47% of the world’s broadband accounts accessed broadband networks and applications via a mobile device. We expect this figure to increase to 64% by year-end 2012, on the strength of continued deployments of UMTS/HSPA networks around the world.

Though there is significant speculation around WiMAX, we believe that it will account for a modest 2% of broadband connections by 2012, unless more incumbent operators (fixed or mobile) embrace the technology.

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$0

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2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E

In Latin America, mobility and broadband are the top two growth drivers… Latin America’s communications market surpassed the $100bn mark for the first time in 2007, when operators in the region generated a combined $117bn from the

provision of voice, data and video services. Over the next five years, we expect service revenue to increase at a CAGR of 7%, reaching $151bn by 2012. 2007 also marks the first year when operators generated more revenue from mobile services ($61bn) than from fixed services ($55bn), a gap that will widen with time. The fastest growing segments will be IPTV (157% CAGR) and VoIP (56%). However, these service areas will be starting from such a low base that they will still represent

less than 5% of total revenue by 2012. Though not growing as quickly, the broadband market and the mobile data market, thanks to their overall volume, will be the most interesting to watch

over the next five years.

CAGR, 2007-2012

IPTV

Pay-TV

Broadband Internet

Dial-up Internet

Fixed VoIP

Fixed circuit-switched voice

Mobile data

Mobile voice

157%

7.8%

17.1%

-10.6%

56%

-3;2

%19.3%

6.3%

Total market

TOTAL COMMUNICATIONS SERVICE REVENUE, 2005-2007 (US$bn)

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…with smaller markets outpacing regional growth levels Given mobile penetration rates nearing 100% in many of the region’s largest markets, we expect that most

major markets in Latin America will see revenue growth over the next five years averaging 5-10% per year, 8-14% when measured in local currency terms. Smaller markets with below-average penetration rates, like Peru and most of Central America, will enjoy growth rates in the 8-14% range, supported by continued growth in mobile adoption and the introduction of broadband services and applications.

MARKET GROWTH RATES, by COUNTRY

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14%

$1,000 $3,000 $5,000 $7,000 $9,000 $11,000

GDP PER CAPITA (US$$)

SER

VIC

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EV

EN

UE C

AG

R (

20

07

-20

12

)

Brazil

Mexico

Chile

Argentina

Venezuela

Panama

Costa RicaPeru

Guatemala

Colombia

Honduras

Paraguay

EcuadorEl Salvador

Bolivia

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Mobile penetration in Latin America will reach 92% by 2012 Overwhelmingly, users are becoming “connected” to the network via mobile devices. Latin America’s penetration growth has exceeded the

global average, increasing from a similar 24% mark in 2003 to 69% at year-end 2007. By 2012, we expect Latin America’s mobile penetration rate to reach 96%, more than twenty percentage points above the global average of 73%.

Though broadband has been making impressive gains in most major markets, we do not expect broadband accounts to catch up with fixed line accounts before the end of 2012. We expect telephony penetration to drop from 17% to 16%, with broadband penetration doubling from 4% to 8% over the forecast period. Interestingly, some markets like Chile will see broadband accounts overtake narrowband accounts before year-end 2012.

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2005A 2006A 2007 2008E 2009E 2010E 2011E 2012E

Pene

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Fixed Narrowband Fixed Broadband Mobile

PENETRATION BY SERVICE, 2005-2012 (% OF POPULATION)

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Though ample differences in the region remain

0% 20% 40% 60% 80% 100%

Bolivia

Costa Rica

Nicaragua

Peru

Honduras

Mexico

Brazil

Guatemala

Panama

Colombia

Ecuador

Paraguay

El Salvador

Venezuela

Chile

Uruguay

Argentina

MOBILE PENETRATION, BY COUNTRY, 2007

Regional Average, 69%

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As subscriber growth stabilizes, pressure on ARPS increases

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2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E

VOICE ARPS (US$), 2005-2012

14% Decline

ARPS enjoyed a slight boost in 2007 in US dollar terms, mostly due to the decline of the value of the US relative to currencies in Latin America, particularly the Brazilian real. Going forward, we expect ARPS levels to continue declining, from the current US$14.50 to US$12.70 in 2012.

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Chi

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Braz

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Arge

ntin

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Col

ombi

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Voice ARPS Data ARPS

8%

9%

13%

16%

16%

25%

0% 10% 20% 30%

Brazil

Chile

Colombia

Argentina

Mexico

Venezuela

Most of the region’s top six markets have ARPS levels above the US$14.70 average, with Colombia being a notable exception given its US$8.14 ARPS level in 2007. Mexico has overtaken Venezuela to hold the number one spot in the region in terms of overall ARPS – with an ARPS level of nearly US$18.

Venezuela, however, continues to be the region’s leading data “innovator,” a status it has held since SMS services were introduced in the region.

DATA ARPS AS A PERCENTAGE OF TOTAL ARPSARPS COMPARISONS BY MARKET (US$), 2007

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…Raising the stakes for data

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There are more than 200 companies in Latin America and the Caribbean with licenses in the 2.5 GHz and 3.5 GHz bands that can be used for the provision of WiMAX services. Although many of these are not in use, the sheer number of companies holding spectrum speaks to the overall potential of the technology in the region.

Mexico

Axtel Nextel

Brazil

ImpSat (Global Crossing)TVATelemarTelefónicaBrasil TelecomGVTTIM BrasilEmbratel

Uruguay

DedicadoArgentina

Ertach (Telmex)VeloCom (Nextel) Solunet

Central America

TelguaTigoCTE (America Móvil)TelefónicaSalnetAmnet

Peru

TelmexAmericatelChile

Entel VTRTelmexTelsur

Ecuador

Andinatel

Ecutel

Colombia

ComcelETBUNETelefónica

Paraguay

Telecom Personal

Caribbean

DigicelBEC TelecomOnemaxIslanet

Venezuela

Genesis

In this context, it is no surprise that WiMAX is being deployed throughout the region…

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…as is 3G (UMTS/HSPA) With organic growth across many markets slowing, the battleground for the region’s two leading players

is shifting toward the deployment of 3G which will enable each carrier to launch new products and services to differentiate their brand.

Source: 3G Americas, Operators, Pyramid Research.

Argentina2Q07 Personal 3Q07 Movistar4Q07 CTI AMX

Chile4Q06 Entel PCS4Q07Movistar4Q07 Claro AMX

Brazil4Q07 Claro AMX

Colombia1Q08 Comcel AMX

Uruguay2Q07Ancel2Q07 Movistar4Q07 CTI AMX

El Salvador1Q08 Claro AMX

Paraguay4Q07 CTI AMX

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Why are operators deploying WiMAX?

($10,000)

($5,000)

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Mobile

voice

Mobile

data

Fixed

circuit

switched

Fixed VoIP Dial-up

Internet

Broadband

Internet

Pay-TV

-100%

-50%

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50%

100%

150%

200%

Change in dollars Percentage change

CHANGE IN VALUE OF MARKET, 2007 vs. 2012

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2 Many of the same drivers that are pushing operators in other regions to develop WiMAX are pushing

operators in Latin America to explore the technology: Low fixed line penetration, averaging less than 20% in the region Low broadband penetration, averaging 4-5% in the region Delays in award of 3G spectrum Transition period for the region’s operators. Fixed-only operators are seeking alternative services

to offset the expected $9bn decline in the value of the fixed market over the next five years. Mobile operators are entering into a period of single-digit growth and are thus looking to capitalize on broadband’s expected 17% CAGR.

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Motivation for fixed-only operators

Broadband Internet

IPTV

VoIP

Fixed Voice

Dial-up

10% of Mobile Market

The motivation for fixed operators is clear. Revenue declines are expected to reach $9bn in a conservative scenario. The deployment of VoIP, broadband and IPTV will merely get operators to where they were before. Mobility, for those that lack mobile licenses, is one of the most attractive avenues to not only offset fixed line losses but also create stickiness for customers.

VTR, Global Crossing, Axtel, Telmex Peru, Net/Embratel, Entel and Americatel are only some of the operators pursuing a WiMAX strategy precisely for this reason.

THE CASE FOR FIXED OPERATORS SELECTED FIXED OPERATORS PURSUING WiMAX STRATEGY

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Motivation for mobile-only operators The motivation for mobile operators has been less clear, explaining why mobile operators have been

slower to embrace the technology. Mobile operators without a presence in the fixed local access/broadband market, however, are beginning

to see in WiMAX an ability to enter the fastest growing segment in the industry as well as a first step in providing a bundled, converged offer to their clients. Sprint Nextel is the best-known operator pursuing this strategy. In emerging markets, operators are finding in WiMAX an ability to quickly offer an alternative to DSL and cable networks.

SELECTED MOBILE OPERATORS PURSUING WiMAX STRATEGY

Mobile voice

THE CASE FOR MOBILE OPERATORS

Broad-band

Mobile data

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Latin America is in the WiMAX “sweet spot”…

Market attractiveness framework: Broadband penetration vs. wireless penetration

“Wild card” markets: Low penetration of broadband and wireless

Economics will determine uptake; these markets could lead to a substantial upside for WiMAX.

Fiercely competitive environment: Can WiMAX keep up?

Sweet spot markets for WiMAX: Low broadband penetration, high wireless

Time-to-market is critical

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(2010 f

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Broadband penetration of households (2010 forecast)

South Africa

UAE

China

India

Korea

Philippines

AustriaCzech Republic

France

Germany

Russia

UK

Brazil

Canada

USA

Mexico

Chile

ColombiaTurkey

AustraliaHong Kong

Indonesia

Argentina

New Zealand

Singapore

Taiwan

Thailand

Vietnam

Japan

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WORLDWIDE WiMAX SUBSCRIBER ADOPTION (millions)

…explaining why 14% of WiMAX accounts by 2012 will be in the region. The WiMAX industry is in its infancy and, as such, is shrouded in uncertainty. Regulatory developments,

technical developments and the decision of world-class carriers to adopt the technology (or not) will ultimately determine the success of WiMAX worldwide.

Overall, we expect the number of WiMAX subscribers to reach 43m in 2012, up from 3.4m in 2007. Of these, nearly 6m will be in Latin America.

APAC44%

WE3%

CEE4%

LA14%

NA24%

AME11%

WIMAX SUBSCRIBERS BY REGION, 201243m

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Technology comparisons: WiMAX vs. 3G?

DSL / Fiber WiMAX 3G/4G

Mobility Bandwidth Device variability and price

Opex Capex Personalization

Though wireless/mobile networks have made huge strides with respect to bandwidth capacity, they will never match the throughput that fixed networks enjoy. Several studies suggest that households will eventually need up to 20Mbps of speed to support increased demand for voice, data, high-definition video and interactivity. Wireless networks in the short term will top out at 1-5Mbps.

What wireless networks offer is mobility, cost advantages for developing markets and personalization.

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UK US Middle East Eastern Europe

3G WiMAX

Spectrum: Advantage WiMAX

COST OF SPECTRUM: PRICE/POP/MHz (US$)

Compared with the price of 3G spectrum, WiMAX spectrum is a steal, averaging $0.01-0.03 per pop per MHz. These lower prices have enabled hundreds of smaller, greenfield operators to acquire spectrum throughout the world. Though the price of WiMAX spectrum in emerging markets appears to be much more expensive than the price of that same spectrum in developed markets, it is still cheaper than acquiring 3G spectrum.

Spectral efficiency for WiMAX should be superior.

Spectrum is being awarded in various bands (2.3 GHz, 2.5GHz, 3.4GHZ) with new bands being considered (700 MHz), which is creating some risk for operators in terms of ensuring economies of scale.

Delays in awards are common.

Regulatory restrictions often prevent WiMAX license holders from providing mobile services (e.g., in France) and voice telephony. Going forward, there may be limitations on video.

Although there are several negatives associated with spectrum allocation for WiMAX, overall we think the advantages relative to 3G (a much lower cost) more than compensate for these challenges.

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Opex & Capex: an Even split We believe that there will be definite Opex advantages for WiMAX versus 3G. Although the WiMAX

Forum lauds the technology’s Capex advantages vis-à-vis 3G, Pyramid Research is not convinced. We believe the pricing of both technologies will be similar, with initial cost advantages of WiMAX quickly erased as 3G gains scale. Owing to its all-IP network architecture and higher capacity levels, WiMAX supporters suggest that compared with HSPA, for example, WiMAX’s cost per bit is lower by as much as

30%. Cellular networks are evolving in the same direction, but considering timetables for these competing technologies, mobile WiMAX will be earlier to market with such advantages.

The most important difference between WiMAX and other broadband wireless access technologies (such as LMDS and MMDS) is that WiMAX has been standardized and is based on an open-standards architecture, unlike the others. The financial impact of standardization is growth in volumes of equipment, competitive pricing and further innovation, since it essentially opens floodgates to more suppliers.

Capex should be similar for mobile WiMAX and 3G technologies, if not lower for the latter due to advantages related to scale and lower spectrum bands. Given WiMAX’s higher spectrum band (thus lower propagation), there may be need for additional radio base station equipment.

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Devices: Advantage HSPA/LTE

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3G vs. WIMAX SUBSCRIPTIONS 2005-2012 (millions)

In 2012, there will be 30 times more 3G subscribers worldwide than WiMAX subscribers. This will give 3G a scale advantage that will translate into:

Much lower prices for 3G devices relative to WiMAX devices.

A much wider availability of devices relative to WiMAX devices.

Devices is an area of clear challenges for WiMAX. Today, there are more than 30 fixed WiMAX devices on the market, with a price point between $200 and $300, too high for wide-scale adoption. Selection will have to improve and prices will have to decrease to around the $100 mark before WiMAX can gain scale.

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Conclusion: In Latin America, both technologies will co-exist in support of broadband deployments

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LTE Introduced

BROADBAND SUBSCRIPTIONS BY TYPE, 2005-2012 (millions)

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Leslie Arathoon

Vice President of Research

tel: + 1 617 494 1515 x.242

fax: + 1 617 494 8898

e-mail: larathoon@pyr.com

Thank You