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2019 Outlook For Latin American Multichannel Broadband Market

Fiber Route Mile Leaderboard

M&A: A New Year Resolution For The South Korean Multichannel Market?

Global Multichannel Market Up 3.1% In 2018 As IPTV Subscriptions Overtook Direct To Home Platform

2019 Outlook Turbulence But Cards To Play

Technology, Media & Telecom
2019 Outlook For Latin American Multichannel Broadband Market

Highlights

Pay TV and broadband growth trend strengthens in 2019.

Broadband net adds projected to be almost double those of multichannel in 2019.

IPTV gets a boost from new Telefónica strategy.

Jan. 14 2019 — The Latin America multichannel and broadband industry is heading into 2019 with positive headwinds. Demand for convergent services and economic recovery in larger markets should drive industry growth in 2019. The big caveat is the economy, with external shocks threatening to decelerate economic growth. Amid this environment, we expect the M&A market to remain active, with transactions in Mexico and Central America highly likely. New virtual multichannel, satellite broadband and IPTV services should also gain a foothold in the region.

Pay TV and broadband growth trend strengthens in 2019

Kagan estimates Latin America's multichannel and broadband subscriber bases should expand during 2019, with broadband net adds projected to be almost double those of multichannel. The trend toward convergent services is expected to help cable regain strength in the multichannel market, accounting for the majority of net additions. Multichannel revenues are forecast to grow, with Argentina, Brazil and Mexico expected to be the biggest contributors to multichannel revenue growth. The importance of fiber technologies is rising, concentrating the highest share of fixed broadband net additions during 2019.

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Economy: Outlook for 2019

The World Bank projects Latin American and Caribbean GDP will expand 2.3% during 2019. However, deteriorating external conditions and local challenges might hinder economic growth. Recovering private consumption and investments should drive GDP growth in the region for 2019, although foreign exchange volatility and rising financing costs could weaken this trend. Prospects for fiscal consolidation in Argentina and Brazil remain challenging due to political opposition, especially in Argentina, where general elections are to be held in October. Venezuela's economic prospects remain dire, worsened by the recent drop in oil prices.

M&A: Mexico and Central America to remain active

The possibility of Telefónica SA divesting its Mexican and Central American operations, along with Millicom International Cellular SA's and Liberty Latin America Ltd.'s continued competition for acquisition targets in Central America to strengthen their positions in the region, raises the prospects for active Latin American M&A in 2019. Investment funds and Latin American telecommunication groups seem to be competing for Telefónica's assets in Mexico and Central America. Liberty Latin America is actively looking for acquisition opportunities in Latin America through its Chilean subsidiary VTR and is cited as a potential buyer for Telefónica assets, along with competitors Millicom, Entel Chile and AT&T Inc., although the latter may be barred in Mexico due to the mobile market concentration that would result.

AT&T Inc.'s acquisition of Time Warner Inc. may also lead to changes in its Latin American operations. After the failed IPO of DIRECTV Latin America LLC (now named Vrio) in 2018, the company may still need to divest some assets in Brazil due to local regulations preventing pay TV operations from owning content producers.

Brazilian regulator Anatel also raised spectrum caps at the end of 2018, opening up the country's mobile market for consolidation. Embattled former iDEN carrier Nextel Telecomunicações SA has been looking for a buyer for years, and Telecom Italia SpA's TIM Participações SA has already announced it has made an initial offer. Regional telco Sercomtel Telecom may also choose to sell its spectrum assets — which may be allowed if a telecom reform bill currently under discussion in the Senate is passed — or even the whole company.

In Argentina, regulatory conditions for the approval of Telecom Argentina's merger with Cablevisión Argentina may lead the company to divest many assets in 2019. The operator must sell off its fixed broadband business in 28 areas of the country where the merger could affect competition, as well as excess wireless spectrum above the regulatory cap.

Already a client? Please click here for our annual global mobile spectrum roundup, and here for an overview of upcoming global spectrum auctions.

A final ruling by the Court of Cundinamarca put to rest the Bogotá municipality's proposal to sell Empresa de Telecomunicaciones de Bogotá SA ESP, or ETB. The court cited irregularities in the approval of the proposal as its basis to nullify the decision. Nevertheless, the court said the ruling does not prohibit the sale of ETB, but that the municipality will have to initiate a new approval process to achieve it.

Effects of election results

The election of Jair Bolsonaro in Brazil and Andrés Manuel López Obrador in Mexico introduced some uncertainty into the Latin American political picture. Both presidents are in the opposite side of the political spectrum, Bolsonaro on the right and AMLO on the left. Nevertheless, both candidates ran on a populist agenda, with ambitious campaign promises that pose a risk to fiscal discipline. Ivan Duque, Colombia's new president, is likely to maintain his predecessor's market-friendly policies, while Argentina's Mauricio Macri's inability to implement fiscal reform may cost him the presidency in general elections in October 2019.

In the telecommunications sector, AMLO pledged to promote market efficiency and close the gap in access to telecommunications, whereas Bolsonaro's program remains vague on issues related to media and telecommunications.

Already a client? Please click here for additional insights about AMLO election, and here for insights on Bolsonaro election.

LatAm countries with upcoming 2019 elections

Argentina
Bolivia
Dominican Republic
El Salvador
Guatemala
Panama
Uruguay

Virtual multichannel

DIRECTV Latin America launched Latin America's first virtual multichannel services in November in Colombia and Chile. The company is expected to expand the offer, DIRECTV Go, to Argentina and other Latin American markets during 2019. Telecom Argentina executives have also hinted that the company's video-on-demand/TV Everywhere service, Cablevisión Flow, which offers over 200 linear channels to pay TV subscribers, may soon be launched as a virtual multichannel service for nonsubscribers.

Telefónica has also been quietly rolling out access to its TV Everywhere platform, which includes several linear channels, to nonpay TV subscribers in some Latin American markets, such as Central America and Chile. The Movistar Play Full offer is available as a value-added service to Telefónica’s mobile and fixed broadband, and to voice subscribers for an extra fee.

Satellite broadband

Penetration of residential satellite broadband is set to increase as more Ka-band satellites become available in the region and new operators enter the market. Hughes Communications Inc. continued to expand its HughesNet service, launched in Brazil in 2016 and Colombia in 2017, to Peru and Ecuador during 2018. Competitors Al Yah Satellite Communication Co. PJSC and ViaSat Inc. also began operating in the Brazilian market during 2018, while satellite operator Hispasat SA launched a white-label service in the region.

Dish México announced it would partner with Hispasat SA and Gilat Satellite Networks Ltd. to launch satellite broadband service in Mexico. Dish México will leverage Amazonas 5, Hispasat's high-throughput satellite, to reach underserved markets. Amazonas 5 has the potential to reach 77% of Mexico's population. The broadband service will use Gilat's SkyEdge II-c platform to provide high-value services to Mexican consumers and small and medium-sized enterprises.

Already a client? Please click here and here to learn more about satellite broadband service offers currently available in Latin America.

Argentina quad-play

Following new regulations allowing telcos to offer multichannel services, Claro Argentina and Telefónica de Argentina SA launched IPTV offers during 2018, but coverage remains limited, as convergent services were initially only permitted in the major cities of Buenos Aires, Rosário and Córdoba, in order to protect small operators in other regions. In 2019, this will be expanded to cities with populations below 600,000. Delays in passing a telecoms reform bill allowing telcos to offer DTH may lead the two companies to abandon plans for a national satellite pay TV offer, choosing to focus on high-end convergent services based on their growing fiber networks.

Meanwhile, Argentina's largest player, Telecom Argentina, will be allowed to offer convergent services only in 2019, as part of antitrust regulators' restrictions for approval of its merger with Cablevisión Argentina.

IPTV gets a boost from new Telefónica strategy

Telefónica made a strategic decision during 2017 to prioritize investments in fiber deployments to power ultrafast broadband and IPTV services, as well as expanding its VOD portfolio for fiber-based subscribers with STB-embedded over-the-top services such as Netflix and Amazon Prime. Based on this, as well as the continued entry of new players and migration of many existing telco and cable networks to fiber, we revised our IPTV forecast up for 2019.

Regulatory outlook

In Brazil and Argentina, "mini-reform" bills for the telecommunications industry remain stalled in Congress but are expected to finally be approved in 2019. Argentina's "Ley Corta," as it became known for being a reduced version of the government's originally proposed telecoms reforms, allows telcos to offer direct-to-home services in major cities starting in 2020, with gradual expansion to smaller towns up to 2022. Although passed by the Senate in July 2018, the bill, which also bans exclusive network agreements in order to encourage network sharing, among other measures, still awaits voting in the Chamber of Deputies.

Meanwhile, the Brazilian Senate is expected to resume discussions on the PLC 79 bill, which have been frozen since 2016. The reform would require telcos Telefônica Brasil and Oi SA to migrate their public fixed telephony concession contracts to a private service authorization contract, as is the case with their mobile and broadband businesses. In exchange, the companies would have to invest in broadband expansion the value of the public fixed telephony infrastructure they would be incorporating. The value of these "reversionary assets" and where these investments should be made are to be defined by the regulator Anatel and may take a year to implement. The PLC 79 bill also tackles several other measures favored by the industry, including a reduction in tariffs for satellite broadband services, which is expected to encourage more competitive prices, allowing telcos to sell spectrum assets and exempting broadcasters from regulatory tariffs.

The Mexican Congress reduced the annual budget for the telecommunications regulator, Instituto Federal de Telecomunicaciones, or IFT, by 25% compared to 2018. The budget cut would weaken the IFT amid regulatory battles with América Móvil SAB de CV's Teléfonos de México SA de CVand other important Mexican players.

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Global Multichannel is a service of Kagan, a group within S&P Global Market Intelligence's TMT offering.

This piece was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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Fiber Route Mile Leaderboard

Highlights

Our analysis of fiber networks held by U.S.-based companies found telcos in control of the three largest fiber networks.

Verizon has been the fastest-growing network over the past two years by fiber route miles, adding nearly 200,000 to end 2018 with more than 1 million globally.

Mar. 04 2019 — Optical fiber, long the backbone for broadband internet, will soon take on additional workload in the form of data backhaul for 5G wireless traffic. That has spurred the two fiber titans among U.S.-based companies to build out even further.

Our analysis of fiber networks held by U.S.-based companies found telcos in control of the three largest fiber networks. AT&T Inc. and Verizon Communications Inc. alone combine for more than 2.2 million route miles, more than half of the total in our survey of publicly available data.

Verizon is jockeying with AT&T to lead the 5G charge in the U.S.

Third on our list is CenturyLink Inc., which nearly doubled its fiber route miles in 2017 with the acquisition of Level 3 as it sharpened its focus on large-scale business functions.

Broadband and multichannel providers Charter Communications Inc., Frontier Communications Corp., Windstream Communications, Inc. and Comcast Corp., take up spots four through seven on our list. Their publicly available data on fiber route miles has been relatively static in recent years, perhaps because they are not under pressure to deliver next-generation wireless networks.

Our analysis is based on recent company filings or data found on corporate websites and is, consequently, an incomplete picture.

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Technology, Media & Telecom
M&A: A New Year Resolution For The South Korean Multichannel Market?

Feb. 25 2019 — The South Korean multichannel market should see a year of upheaval as the three incumbent telcos look to acquire some of their cable competitors to accelerate growth in 2019. LG U+ is already in discussion with CJ Hello while KT Corp. considers acquiring D'Live through its direct-to-home arm KT Skylife. Likewise, SK Broadband expressed interest in acquiring both t-broad Holdings Co. Ltd. and D'Live.

This is not the first time a telco has proposed a cable MSO acquisition in South Korea. SKB's proposed merger with CJ Hello in 2015 was banned by the South Korean Fair Trade Commission, which prohibits any operator from monopolizing the multichannel market with subscribers over one-third of the total subscriber base. Should the government have no intention of modifying the existing rule, KT would fail to acquire any other operator while SKB's plan to boost subscriber share to 30% would unlikely be approved. Given its relatively small subscriber base, LG U+ stands the highest chance of success from a regulatory perspective if it were to acquire any of the cable MSOs.

Cable has been the dominant multichannel platform in terms of subscriber share in the market and yet IPTV is expected to take over from 2019. As of December 2018, Kagan estimated cable and IPTV made up 43.8% and 42.9% of the total multichannel households, respectively. By the end of 2019, IPTV's share is expected to reach 45.3% as cable's share drops to 41.9%.

Ever since the launch of IPTV in 2008, telco-owned IPTV operators have successfully gained traction in building their respective subscriber bases. A key factor has been the bundling of IPTV with the telcos' data, fixed voice and/or mobile services at affordable prices. Therefore, many of the cable TV subscribers are willing to take IPTV as a secondary multichannel connection. This also explains why the market has maintained a multichannel penetration rate of over 100%. As of year-end 2018, the market's multichannel penetration was estimated at 167% and is expected to reach 177% by 2023.

In terms of subscriber share, KT is currently dominating the market with its IPTV service branded Olleh TV and DTH-services branded KT SkyLife and Olleh TV SkyLife. KT's subscriber share as of June 2018 was 31.07%, followed by SKB with 13.8%, CJ Hello with 12.83% and LG U+ with 11.49%. The potential tie-up of LG U+ and CJ Hello would secure about a quarter of the market's subscribers, superseding SKB's existing share and posing a threat to KT's long-term dominance.

In response to the potential threat, KT is considering the acquisition of D'Live, the third-largest cable MSO with 2.4 million subscribers as of June 2018. SKB, on the other hand, is interested in buying both cable MSOs Tbroad and D'Live to secure a subscriber share of over 30%. The telcos aim to quickly boost and retain their subscriber bases and hope to accelerate revenue growth in the long run through the potential M&A deals.

Low average revenue per user has always been a challenge to South Korean multichannel operators, especially cable MSOs, which can hardly raise the price due to churn concerns. As of December 2018, IPTV's average blended ARPU was $15.15 per month while cable's average blended ARPU of both analog and digital was significantly lower at $8.69 per month. Cable operators had a hard time fulfilling their digitization commitments while not shifting the cost to subscribers and facing significant churns for six years until 2016. Merging with one of the telcos could be a surviving opportunity for operators of the declining platform.

The potential wave of M&A would consolidate the market into fewer players. The telcos would secure a bigger subscriber share and further dominate the market while the remaining cable operators would find it even harder to stay relevant. Yet it is uncertain if the growth of the country's multichannel subscriptions can be sustained. Many multichannel households that currently have both cable and IPTV connections would likely cancel cable service if it were offered by the same company, and the cable platform would further shrink as a result.

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Global Multichannel Market Up 3.1% In 2018 As IPTV Subscriptions Overtook Direct To Home Platform

Highlights

With year-over-year growth of 14.3%, IPTV was the fastest-growing of the three major pay TV platforms in 2018

Number of multichannel subscribers worldwide is modelled to grow at a 2.4% CAGR over the next five years from 1.07 billion in 2018 to 1.21 billion in 2023.

Global multichannel economy generated $230.06 billion in video service revenues in 2018, which are projected to increase to $245.41 by 2023.

Feb. 18 2019 — In 2018, IPTV overtook direct-to-home as the second-largest multichannel platform in the world by subscribers after cable, accounting for 23.4% of the total market of 1.07 billion. With year-over-year growth of 14.3%, IPTV was the fastest-growing platform in 2018, driven by large subscriber additions in Asia-Pacific and, to a lesser extent, Western Europe. Over the next five years, IPTV is projected to post a 7% subscriber CAGR, second only to pay digital terrestrial television with a projected 8.5% five-year CAGR.

While cable remains the dominant multichannel platform globally, cable subs are modeled to continue declining over the next five years at a 0.3% CAGR, largely due to migration to IPTV in Asia and Western Europe.

China, India and the USA remain, by far, the largest multichannel markets, collectively claiming 57% of the global subscriber total in 2018. China and India alone are expected to account for half of the global market by 2023.

The global multichannel economy generated $230.06 billion in video service revenues in 2018, a 1.1% year-over-year increase, while multichannel penetration breached 60% by year-end. North America remains the most lucrative multichannel region accounting for over half of global revenue.

The effects of cord cutting are only observed in North America where multichannel subscribers, revenue and penetration are projected to decline in the foreseeable future, as well as in a handful of oversaturated markets, including Singapore and Hong Kong. In Europe, the biggest threat to traditional multichannel services is posed by free-to-air DTT and lies in the integration of over-the-top and catch-up TV services into DTT platforms as well as the ability to stream channel packages via hybrid boxes.

Global multichannel market overview

Kagan estimates that in 2018, the global multichannel market grew by 3.1% year over year, down from 3.9% in 2017, as rapid subscriber growth is slowing down in China. After the global multichannel market breached 1 billion subscribers in 2017, 32.3 million new homes adopted pay TV services in 2018 to reach 1.07 billion multichannel homes by year-end. We project that the global multichannel household growth will continue to decelerate in the foreseeable future with most markets across Europe, North America and advanced multichannel markets of the Asia-Pacific reaching saturation. The global market is forecast to post 2.7% year-over-year gains in 2019 with a 2.4% 2018-2023 CAGR.

Global multichannel video subscriptions are forecast to increase to 1.21 billion by 2023, adding 136.3 million net subs over a five-year period, while multichannel penetration is forecast to increase to 61.2% in the next five years, up from 60.1% in 2018.

Global multichannel subscribers by platform

While cable TV is expected to remain the largest platform on a global scale in the next five years, its share is forecast to decline from 52.3% in 2018 to 45.8% by 2023, largely due to analog subscriber churn and market share gains by IPTV operators. IPTV, the fastest-growing of the three major pay TV platforms, is modeled to capture a 23.2% market share by 2023.

Global multichannel revenue

The global multichannel economy generated $230.06 billion in video service revenues in 2018, a 1.1% year-over-year increase, with more than half earned by North American pay TV providers. The region's pay TV operators, however, lost 2.4% revenue year over year due to steep subscriber declines, despite growing average revenues per user. Western Europe remained the second-largest multichannel economy, accounting for only 17.7% of the global total in 2018. Latin American multichannel revenues expressed in U.S. dollars declined in 2018, mainly due to exchange rate fluctuations in most of the region's markets.

Given its comparatively high video service ARPUs, North America is expected to remain the most lucrative multichannel economy in the coming five years, despite being only the third-largest by subscribers and experiencing subscriber declines. The region is modeled to account for 43.2% of global video service revenues by 2023. Despite having the lowest multichannel ARPUs among the six regions analyzed, Asia is projected to overtake Western Europe as the second-largest multichannel economy by 2023, due to the sheer size of its market accounting for 18.8% of global multichannel revenue.

IPTV remains the fastest-growing multichannel platform, except in North America and the Middle East and Africa, where increasing pay DTT rollouts are driving revenue growth. Pay DTT is the only platform in Western Europe that is losing revenues, largely due to falling ARPUs. Although cable experienced overall subscriber declines in Western Europe and Asia in 2018, revenues increased on the back of digital subscriber and ARPU gains.

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Global Multichannel Market Up 3.1% in 2018 as IPTV Subscriptions Overtook Direct-To-Home Platform

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Global multichannel market up 3.1% in 2018 as IPTV subscriptions overtake DTH

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Technology, Media & Telecom
2019 Outlook Turbulence But Cards To Play

Jan. 24 2019 — Multichannel faces headwinds in 2019, including persistent cord-cutting, a maturing broadband market and the launch of high-profile subscription online video services backed by media heavyweights. With the next 'big thing' continuing to elude the sector, debt levels and the possibility of additional Federal Reserve rate hikes could weigh on share prices.

Maturing wireline penetrations and the emergence of 5G promise to slow the reliable broadband growth engine while the internet of things further embeds the role of connectivity as a basic utility. Choice is a watchword for the upcoming year, but next-generation content bundling approaches run the risk of consumer aggravation from re-aggregation.

Kagan, in its 2019 outlook listed the top areas to watch along with the possible impacts and repercussions. Below is sample of the full outlook.

Launch of AT&T, Comcast, Disney online subscription bundles

  • Additional pressure on legacy multichannel subscriptions.
  • Possible long-term disruption of content licensing deals, particularly with direct competitors in the streaming video universe.
  • Consolidation of global home video entertainment market with the top U.S. providers dominating worldwide.
  • Pressure on incumbent subscription video on demand services' growth.
  • Increases in budgets and production of exclusive original content.
  • Bloated online subscription marketplace with $10-$15 offerings piling up, crowding the field.

5G rollout

  • Negligible impact on wireline broadband in 2019 due to limited deployment initially and belated entry of leading U.S. mobile handset maker Apple.
  • Restrictions on wireline broadband rate increases with wireless looming larger.
  • Smooth, reliable streaming of live events on the go, notably sports, which could boost virtual multichannel value proposition.
  • Enables mobile viewing, notably among millennials and younger generations.
  • Democratization of wireline 1-Gig broadband with lower rates on high-end tiers.

Wireline broadband maturity

  • Cable market share gains in areas with belated/slow telco transition to fiber and possibly vice versa.
  • Limited upside and fierce competition — including 5G rollout — for existing customers likely a strong deterrent for widespread implementation of usage-based billing.
  • Subscriber slowdown to weigh on market valuations accustomed to broadband growth in last 10 years. 
  • Net neutrality debate rekindles with Democratic Congress but lacks firepower.
  • Telcos to focus on fiber deployment to support fiber to the home and 5G backhaul.
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5-Year Virtual Multichannel Revenue Forecast Underscores Segment's Opportunities

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Broadband Only Homes Log Record Gains In Q3

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