Venezuela Telecommunications Report Q3 2012

The Venezuelan mobile sector reported positive net additions in Q411, the second consecutive quarter of growth. This follows a turnaround of H111, when the market reported two quarters of declines, and the mobile market had a total of 29.3mn subscribers at the end of Q411. While this is a return to growth, the market has been in steady decline through 2010 and 2011. Movistar reported losses this quarter, although its postpaid base was growing strongly.

In the mobile market, Movistar’s market share fell this quarter and now totals 32.2%. Movilnet returned to very strong growth, based on new data and on the success of its ‘Jornada Vergataria’ promotion, recording a market share of 50.4% at the end of Q411. Digitel’s share shrunk significantly, to 17.4% of the market following declines in subscriber base.

This increase in market share shows that Digitel’s price hikes of Q311 have not hit demand too strongly.

We believe this is because the price hikes were in line with inflationary pressures and therefore have had a negligible effect at deterring consumers. Further, Digitel focuses on middle and high income customers, promoting its 3G network and showing enthusiasm to gain a 4G licence in the upcoming auctions, expected in July 2012. However, appealing to the middle income consumer, its subscribers are less price sensitive than those of Movilnet, which also raised its prices, but by a greater amount than Digitel. We expect this is why Movilnet has reported slower growth in Q311. However, with the positive effects of the Jornada Vergataria, it appears it has returned to growth in Q411.

Digitel received a high level complaints in 2011 from customers suffering frequent cuts in service and slow rates of connection. Digitel blames the problem on difficulties obtaining importation certificates for necessary equipment in 2011. However, it now says this equipment has been imported and installed, and should lead to improvements in the situation. BMI believes problems will continue for the company, as handset imports are also restricted. Digitel currently has 20,000 Apple iPhone 4S handsets stationed at a Venezuelan port, awaiting permission to recover them for commercial sale.

However, these problems could be a thing of the past. In March 2012 the Venezuelan Central Bank announced it is to make more foreign exchange available to importers, which should help limits such problems in the future. Despite this, BMI believes Venezuela's escalating debt burden means the benefits to the wider economy, and to businesses, will be short-lived. In the medium term, the business environment is likely to deteriorate rapidly as the government struggles to pay back accumulated debt and maintain the overvalued currency.

The recent rally on Venezuelan sovereign debt bodes well for importers such as Digitel, which have seen the value of these bonds rise concurrently with their availability. Changes to the Foreign Exchange Administration Commission (Cadivi) regulation also indicate the costs and time span of obtaining foreign exchange will fall for importers.