Grupo GTD is a Chilean holding company for telecommunications providers with a focus on large and small and medium businesses (SME), government institutions and the residential sector. Grupo GTD products and services include dedicated voice links; data and video; local telephone; digital and IP telephony; internet service; data center; storage and national and long distance; digital television; and residential telephone, television and internet services.

• Short Name: GTD
• Address: Moneda # 920, Piso 11º, Santiago Centro
• Phone: 56-2-4139000
• Fax: 56-2-4139100
• City: Santiago
• State: Región Metropolitana
• Country: Chile
• Website: http://www.grupogtd.com/
• General Email: grupogtd@grupogtd.com

Nextel Chile, which made a winning offer of roughly US$14.7mn, will use the spectrum to build a new network providing next-generation wireless products and services for local subscribers. Nextel Chile currently has 60,000 subscribers and coverage in Santiago (metropolitan region), Valparaiso and Viña del Mar, San Antonio, San Felipe, Rancagua, Los Andes, Antofagasta and Concepción, accounting for 70% of the population. Following the acquisition of the spectrum, the company began building the necessary infrastructure for expanding coverage across the country and strengthening its stand-out services based on 3G and Push To Talk technology, a special feature on a mobile phone that combines the functionality of a walkie-talkie or 2-way radio with the normal mobile phone. In early 2010, Nextel Chile reported the addition of 377,000 subscribers, an increase of 20% compared to the third quarter of 2009. In December 2010, the firm obtained completion permits from the pertinent authorities, thus meeting all deadlines as stipulated in the concession decree. Nextel is currently undertaking the final development stages through to commercial launch of its mobile services, set for mid-2011, as well as continuing to enact its long-term strategic plan.

• Short Name: Nextel Chile
• Address: Av, Presidente Riesco 5435, Piso 16, Las Condes
• Phone: 56-2-3377500 | 56-2-3377501
• Fax: 56-2-3377508
• City: Santiago
• State: Región Metropolitana
• Country: Chile
• Website:http://www.nextel.cl/
• General Email:info@nextel.cl

• Short Name: VTR Globalcom
• Address: Reyes La Valle # 3340, Piso 9º, Las Condes
• Phone: 56-2-3101000 | 56-2-3101400
• Fax: 56-2-3101560
• City: Santiago
• State: Región Metropolitana
• Country: Chile
• Website: http://vtr.com/

Brief: In the wake of the financial crisis in 2009 and the earthquake in February 2010, the Chilean telecoms industry is now showing signs of growth. For the year ending December 2010, Chile’s telecom revenues were approximately US$4.4bn. The continuing penetration of Internet use in homes and the widespread penetration of mobile services give us an indication that the industry will continue to grow, aided and motivated by the 4-5% rise in Chile’s GDP [gross domestic product] forecast for 2011.
Having grown in the beginning of 2010 by 10.5%, the telecoms sector is performing better than are other sectors of the Chilean economy. That growth was attributed to the expanding mobile sector, specifically prepaid services. The kinds of structural changes in public policies that give greater dynamism to this sector are needed to support investments that will help substantially improve the quality of services and infrastructure in Chile.
For the rest of 2010, variations in GDP and telecom revenues were negative. The main reasons were the recovery efforts and the investments required after the earthquake. But investment in the sector hit a milestone in 2010. Owing to regulatory changes, network deployments and brand unification, investments were estimated at US$1.6bn.
When Chile’s telecom sector showed great deficiencies after the earthquake in February 2010, the government had to promote the development of infrastructure. The government gave the private sector subsidised funds to set up mobile infrastructure in parts of Chile where a cellular phone signal is hard to find. Not only did the earthquake prove that Chile was not completely prepared to cover a largescale natural disaster, but continual accidents—specifically car accidents near the border between Chile and Bolivia—stressed the lack of proper communications infrastructure to support rescue efforts.
By improving communications, authorities hope to improve connectivity, education and, most important, the integration of all of Chile’s regions. Both the private and the public sectors’ efforts to extend current fixed lines and mobile infrastructure have slowly resulted in increased revenue. The government has also tried to modify current regulations to allow companies to focus efforts on expansion.
Although sales of smartphones and regular mobile phones have grown 20% in the past year, this explosive growth is mainly for prepaid phone service, not precisely subscriber service. Chile has a population of 16.7m and 19.8m mobile phones in the market. For the year 2010, the Chilean telecommunications authority, Subsecretaría de Telecomunicaciones (Subtel), estimated mobile penetration at 115.6%. Recently, VTR and Nextel joined the mobile operating service in competing with the three main companies—Movistar, Entel PCS and Claro Comunicaciones S.A. VTR claims it will offer similar services at better prices, and Nextel will continue to expand its niche-based market.
Initially, in 2006, the three main operators Movistar, Entel and Claro were opposed to MVNOs (mobile virtual network operators). Subtel, though, viewed MVNOs as a possibility for expanding the market. In May 2007, Subtel received ten MVNO concession applications from the following companies: VTR, GTD Manquehue, Netline Telefónica Movil, OPS Ingenieria, Blue Two, Telecomunicaciones Dotcom, Finvest SA, Telecomunicaciones Nomade, Inversiones Toro Bayo and Telecomunicaciones Net Uno.
The first licences were granted in August 2007 to GTD Teleductos and to Telsur’s subsidiary Blue Two Chile, a Wi-Fi and Bluetooth operator. In September 2007, another six MVNO licences were granted, to VTR Banda Ancha, local investment group Toro Bayo, VoIP provider Dotcom, Finvest SA, Telecomunicaciones Nomade, and Telecomunicaciones Net Uno. In July 2008, the Swedish company Sweedcom was granted a licence to operate.
The market continues to grow, and the MVNOs currently operating in Chile are niche-based companies that offer specific services for specific customers. The Chilean telecom market is highly regulated, and most decisions must be approved by Subtel. Although Subtel and the government promote expanding the market, the current and biggest telecom operators have put up a fight, making it harder for smaller companies to continue growing or to enter the market.
Along with saturation of the mobile phone market, we will begin to see users trying out IP (Internet Protocol) calling services. That method of communication will grow along with broadband penetration and better performance of broadband connections.
We will also begin to see IPTV expand. Telsur was the first company to conduct trials on this form of television distribution, and Movistar is now beginning trials. To guarantee good quality of service, IPTV requires high-speed Internet connections, which need to be offered. We also expect an expansion of SIP (Session Initiation Protocol) billing services, international VoIP (voice over Internet Protocol) wholesale provider services and data conferencing, among other IP-related services.
The mobile smartphone industry constitutes nearly 19% of the total mobile devices (according to Atelmo, an association for mobile telephone service). Smartphones will be companies’ focus for the next couple of years, along with tablets and other mobile devices. Focusing on smartphones and tablets naturally will force companies to diverge efforts on value-added services in order to captivate customers.
Market segments
Fixed lines
Chile has approximately 3.5m telephone landline users, 56% of which are concentrated in the metropolitan regions. Santiago has 1.9m fixed line clients, followed by the Valparaiso region’s 347,000. It is also important to mention that of this total, 1.2m are commercial fixed landlines.
The market leader for fixed landline services is Movistar-Chile (Telefónica), which holds 56% of the total market and does not have a close competitor (see Figure 1). Movistar also offers packaged services that include satellite TV, voice and broadband service through ADSL, ADSL+ and VDSL technology. Being the largest operator in the market and previously state owned, Telefónica must undergo tariff negotiations every five years with the Chilean telecom regulatory authority.
VTR is the second largest, with 19% of the market. VTR, like Movistar, offers packaged deals that include three main services: voice, coaxial cable and broadband. VTR began offering bundled services to help increase its market share and now, with 54% of the market, is the main cable operator in Santiago. But still it struggles with fixed line phone service. VTR will continue to focus their efforts on improving their cable services to offer high-definition television and on improving broadband connections.
One of the most important events in the market, on a business scale, occurred when GTD acquired 96% of Telsur in January 2010. That gave GTD 10.07% of the market and made the company the third largest operator. The acquisition also extended GTD’s services from Concepción all the way to Coyhaique. Telsur was the leading service provider in the southern regions of Chile and the first company to introduce IPTV and other IP-related services in the south. By acquiring Telsur, GTD expanded its services to parts of Chile where service is hard to come by due to the rough terrain and the difficulty of extending cable lines.

The fixed line market in Chile is declining, due mainly to the high penetration of mobile service. Residential fixed lines accounted for 62% of the market in 2009 but fell 6.2% in 2010. Commercial landlines account for 35% of the market.
The declining rate doesn’t mean fixed line service has no more opportunity to grow. In December 2010, the Chilean government enacted a law that will eliminate, gradually, long distance national rates and instead will charge customers local rates for any national long distance calls.
The phasing out of domestic long distance aims to improve national connectivity while promoting traffic in fixed networks. The term of this project is three years. In the first stage, the new law will reduce the primary areas from 24 to 13, fusing various districts into local areas. The second stage will remove all the primary areas, turning the country into a single local calling area. This change will make fixed line calling more convenient than prepaid mobile service and possibly will motivate customers to use fixed line calling.
Long distance
The growth of the long distance market is at an all-time low (-13.6%). It will continue to fall as consumers use their mobile phones to make long distance calls—despite such calls being more expensive using prepaid mobile service than fixed line service. Consumers have chosen to call from one city to another on their mobiles mainly for comfort and convenience.
Rates continue to fall as the termination of long distance national calling is imminent. The use of IP telephony service also has contributed to the decline in fixed-line long distance.
Mobile
As of December 2010, Subtel, the department in charge of regulating the Chilean telecom industry, calculated that the number of mobile lines operating in the market was 19.8m, significantly more than the 3.5m that the fixed line market has. This figure is significant when you consider that the population of Chile is approximately 16.9m.
A large portion of the mobile market is in prepaid service and the remainder in contracted service (both personal and corporate). Chile’s three main operators provide services to 14.05m prepaid phones and only 5.7m customers with contracts. Persuading customers to switch from prepaid to fully contracted services appears to be a challenge for the coming years.
Subtel estimates mobile penetration at 115.6% . Although recovering from the financial crisis and the earthquake during the first months of 2010 affected growth, which fell between 4% and 5%, it’s safe to say that the market recovered over the year and is expected to continue growing.
A portion of the population own two mobile phones, one for work and the other for personal use. The growing popularity of smartphones in Chile will contribute to growth. Mobile penetration should continue to exceed 100%, accounting for marginal growth in the future, but will decline in the long run as the market becomes saturated.
Of the three operators that dominate the mobile market, Entel PCS is local and Movistar (Telefónica of Spain) and Claro (América Móvil of Mexico) are controlled internationally. Movistar leads with 41% of the market, followed by Entel, 36%, and Claro, 23%.
Subtel has awarded the two new participants, Nextel and VTR, the 60 and 30 MHz band lines, respectively. Both should commence operating in the second half of 2011. Although a specific date has not been established, VTR has already begun its testing phase.

The mobile value-added services (VAS) market in Chile is still dominated by peer-to-peer short message service (SMS), not surprising in a market that is mostly prepaid mobile service. The entire VAS market has seen subscribers’ interest increase in other personalised services—including ring tones, horoscopes, jokes of the day, love messages, etc. The Ministry of Transportation is offering a service for bus riders that indicates where a particular bus, by number, is located and how long it will take to arrive at a bus stop.

In the near future, we will see customers choosing to consolidate their telecom services with one operator. Companies will begin to offer complete mobile services (minutes, SMS, Internet) for one flat fee. This in turn should attract and retain new customers.

Mobile regulation
Number portability. In December 2010, Chile amended its telecommunications law to establish an agency for number portability. A central entity, the agency will allow subscribers of different mobile and fixed telephone companies to switch from one company to another without losing their subscriber number. In the initial phase, changes can be made only between companies operating within a network equivalent, for example, mobile to mobile. This system is expected to be operating at a national level during the second half of 2011.
Senders keep all. For some time, mobile operators and government regulators have been talking about eliminating access charges between mobile operators. The primary proponents of this are private service providers. They argue that it would directly benefit consumers purchasing prepaid phones, deterring them from crossing over to contracted service. Clearly, operators, the ones that would absorb the costs, are opposed. Government officials say that eliminating connection costs between companies removed the entry barriers for other competitors, allowing for reduction in prices. Prepaid phone users, they also argue, will be more likely to use their phones as calling rates are reduced, and greater use should compensate for what companies claim to be additional operating costs.
Ley de Atenas (antenna law). Chilean President Sebastian Piñera announced in December 2010 that he would make the antenna bill “urgent”. The bill—discussed in congress for the previous five years—regulates the installation of antennas to address concerns about health risks and the impact on landscapes.
Internet
Broadband connections in Chile have nearly displaced all forms of dial-up connections (1.8m vs. 1,319, respectively). Fixed Internet connections (residential and commercial) are dominated by two companies, Movistar (Telefónica) and VTR. They share 81% of the market, Movistar having 43% and VTR 38%. Groupo GTD and Claro Comunicaciones S.A. have 8% and 7%, respectively. The remaining share of the market is distributed among small companies that offer dedicated Internet services to small and medium-sized firms, universities, schools, etc.
Chile has one the highest Internet penetration rates in Latin America, with 36.6%, as of December 2010, and it is expected to grow due to government regulations and expansion programmes (see Figure 4). Growth is expected to begin decelerating in the future as the market for Internet connections in highly dense populations becomes saturated. Internet providers will look for ways to expand their services in areas where fixed connections aren’t profitable. Companies will continue to pursue wireless connections in rural regions of Chile.
Internet connections grew 7.3% in 2010 but by 17.8% in 2009. This substantial difference can be due in part to the 2009 financial crisis and the earthquake in 2010. Internet prices in Chile remain high, making it difficult for the middle- to lowerclass segment to access this service. The government is working to make Internet connections more affordable.
Mobile Internet
Movistar was leading mobile Internet services, with a 51% market share as of the end of 2010, followed by Entel PCS (30%) and Claro (19%). Mobile Internet penetration will increase as customers keep crossing over to smartphones with 2G or 3G connections. Although still gaining popularity, those devices and plans continue to be expensive and available only to the upper-middle-class segment.
Of the 5.8m mobile Internet users, 4.6m connect via 2G with varying speeds. The remaining 1.2m use 3G technology. Mobile Internet plans are being offered as unlimited access plans, but companies offer full-speed connections until a certain amount of data has been transferred. After that, the speed of the connection diminishes significantly. Forty-five percent of consumers, or 2.5m users, have connection speeds that reach up to 56 kbps (see Figure 5). Approximately 800,000 connections surf at speeds that vary between 56 and 128 kbps. The next big jump is concentrated between 128 and 256 kbps and accounts for 20% of the connections.
Regulation:
Net neutrality. Approved by the senate and enacted in August 2010, network neutrality aims to regulate conditions of Internet service providers (ISPs). It advocates no restrictions on content by ISPs or the government and no speed limitations. Its main goal is to guarantee rights to Internet users and free competition. Chile is the first—and so far the only—country in the world to enact net neutrality regulation.
Broadband access. Access to broadband and Internet penetration have slowed down in recent years, although Chile’s 36% penetration is still one of the largest among Latin countries. The government has tried to increase the number of ISPs and reduce access rates to home users. Many home users cite high cost as the main reason they have not accessed the Internet. The government is studying the possibility of subsidising poor families to improve their access. In 2011, a bill is expected to reach the senate for discussion.
Rural Internet. An initiative in 2009 by the former administration sought to expand Internet access to the rural parts of Chile. The project involved more than US$100m and benefitted three million Chileans, about 850,000 households, more than 800 schools and health posts and 90,000 small businesses associated mainly with agriculture and tourism. Allowing Chile to expand in network coverage and services, this project is progressing and has not come to term yet.
The government continues to offer funds to establish Internet connections in public schools. For instance, Chiloe, an island located in the south of Chile, was “connected” in early 2010 as a result of a government-funded programme. The initiative connected 280 communities and directly benefitted about 6,000 households.
Emerging trends
According to PwC’s estimations, Chile’s population should reach 17.4m by 2015; 8.1m people will be between the ages of 18 and 49, and more than 5m will be over 45. A large working population that has grown up with the latest technology will continue to demand better devices, faster connection speeds, more applications and improved services in general. We estimate that the current Internet penetration of 36% will reach nearly 71% by 2015.
Regarding wireless subscribers, we estimate a total of 20m customers by 2015 and a total penetration of 20%. Although the market will begin to saturate in terms of the number of users, companies will look to improve services and mobile applications. Companies will also choose to convince prepaid customers to convert to a contracted plan.
Urban rollouts
With urban teledensity reaching 50% in some cities, there still is room for growth. Telecom companies will keep competing for new clients, primarily those who aren’t connected. Companies will focus on developing better and cheaper services. They will continue offering packaged services that contain broadband Internet connections at varying speeds, fixed line phone service and cable or satellite television.
Considering that Telmex and Claro have united to form one unit of business, who is to say that companies won’t start offering four packaged services, adding mobile cellular to the bundle? Companies will have to continue perfecting the service formula in order to gain market penetration.
Increased focus on rural rollouts
Connectivity has become an issue for the current government administration. It’s focusing on taking broadband connections to the most remote parts of Chile, but profitability has become an issue. Companies not only will seek government funding to support their investments, but also they most likely will outsource tower services in order to offer Wi-Max service.
Governmental push for rural rollouts
In 2009, the Chilean government, along with a private initiative, invested US$100m to push the Internet to rural areas. The idea is to connect 1,470 communities in both the southern and the northern regions of Chile. This will include public funding from the telecommunications development fund.
More competition
As VTR and Nextel join the mobile market in Chile, plan rates should begin to drop when other bigger companies like Movistar and Entel see the potential for their customers to flee. Number portability has been an issue for customers, making it hard for them to change companies. Now that number portability will be available, large operators will have to reduce prices and offer more value-added services in an effort to retain customers.
Introducing 4G
Entel was the first company to launch HSDPA 3G in 2006. Initially, Chile was slow to adopt 3G services in mobile phones and focused instead on selling mobile modems for portable computers. By 2010, 3G services accounted for approximately 1.2m connections, which is nearly half of dedicated and mobile Internet combined. The next step is 4G service. Although the authorities have not stated clearly when the spectrum will be auctioned, they have determined that the spectrum will be in the 2.6 gigahertz band in order to operate 4G connection speeds.
Hurdles and opportunities
While the Chilean telecom market continues to grow, it can benefit from several major opportunities— after clearing a few critical hurdles. Making Internet access affordable and improving connectivity to all consumers is the biggest hurdle. The current penetration (36%), although high for a Latin American country, is low on an international scale.
An opportunity for mobile revenue to grow lies in developing useful applications for Spanish-speaking consumers. Most applications currently available for smartphones are in English. Although the variety of applications targeted at all age levels has boomed in the past years, most are not available in Spanish. Language can be an entrance barrier for consumers who don’t speak English.
Outsourcing tower installation and maintenance service and renting out tower service are both opportunities to help reduce operational costs. Operators can then transfer cost savings to consumers in the form of lower pricing. Eliminating connection fees between operators also will help reduce rates for prepaid customers and regular contracted customers.

---

Rafael Ruano is a telecom consulting partner and Dennis Mahorney is an entertainment and media consultant for PwC Chile. For more information, contact Rafael by phone at [56] 2 940 018; or contact Dennis by phone at [56] 2 940 0181.

To Access this Report, please go-to Research & Markets: Chile’s Telecommunications Report .