Central America. The Central American region has just registered a competitive shake-up and setback in its telecommunications sector. The dominant operator or regional telecommunications giant, América Móvil (AMX) recently acquired Telefónica Movistar's operations in Guatemala and El Salvador, immediately registering a greater degree of concentration in those markets. The total operation valued at $648 million dollars, strengthens the footprint of its subsidiary "Claro" in the telephony and broadband, fixed and mobile segments.
Market concentration and decreased consumer choice
With these acquisitions, Claro appropriates practically all of the fixed telephony markets: 96.3% in El Salvador and 87.1% in Guatemala. The metric of market concentration in subscriptions, the Herfindahl-Hirschman Index (IHH), soars to 9,292 points and 7,692 points, respectively, which corresponds to the extreme concentration band, only a smaller scale than the absolute monopoly scenario.
In the mobile segment, it results in a reduction in the number of alternatives of choice of mobile operators (significantly in Guatemala from 3 to 2 main ones), with a consequent market share in the vicinity of 50%: 47.4% in Guatemala (IHH=5,015 points) and 52.7% in El Salvador (IHH=3,991 points).
In the Pay-TV and Fixed Broadband segments, Movistar's recent foray into the Guatemalan market will allow AMX to strengthen its market positioning, which amounts to 40.8% and 76.8% respectively.
Effects on the Consumer
What will be the impact of this market integration and concentration for the consumer?
Among the benefits of having a greater diversity of choice and competition is the increasing optimization of prices, quality and coverage. The disappearance of a player (horizontal integration) leaves the acquirer in a position of advantage over the rest of the participants.
A risk now in those countries is identified in underinvestment scenarios, right at this time of deployment of 4G (one of the lowest in the world) and 5G. According to OpenSignal, these networks reached an availability among users of 65.1% and 44.7% in 2017.
Likewise, the high concentration in the mobile segment would condemn these markets to remain at the highest price levels in the comparison between Latin American countries.
For example, the average cell phone basket costs $53.4 purchasing power parity (PPP) in Guatemala and $30.4 dollars. PPP in El Salvador, according to statistics from the International Telecommunication Union (ITU) for 2017.
In terms of the speed recorded by Internet users on fixed networks, the incentives to improve would be limited.
In this regard, Guatemala and El Salvador are in the last places in the regional comparison, with an average speed of 2.43 Mbps and 2.49 Mbps, according to the "ISP Speed Index" published by Netflix in December 2018. In these countries, Claro's so-called "Turbonett" offering has consistently remained at average speed levels below that of Tigo in recent years.
Although the acquisition of Telefónica Guatemala was formally closed on the date of publication of the agreement, authorizations from the competition authority in El Salvador must still elapse, which must take into account these harmful effects on competition and, with it, on consumers.
This is, without a doubt, a 'Clear' example that intentions to strengthen a market position can result in an approach to monopolistic scenarios on maturing markets.
Text written by Ernesto Piedras of The Competitive Intelligence Unit.
