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COGNIZANT 20-20 INSIGHTS

Weighing Telecom
Opportunities & Challenges
in New Growth Markets
South of the Border
As digital becomes the business rule rather than the
exception in Latin America, demand for exceptional
mobile networking and consistent Internet access
is growing exponentially across the region, creating
tremendous opportunity for CSPs looking to expand
their footprints through thoughtful M&As and post-
merger integration strategies.

Cognizant 20-20 Insights | April 2017


Cognizant
Cognizant 20-20
20-20 Insights
Insights

EXECUTIVE SUMMARY

Mobile devices and broadband connectivity are entrenched in the fabric of modern society;
in many ways, they are the impetus for technological change, supporting the rise and
growth of the worlds most recognized companies.

Until recently, Latin Americas (LATAM) old-fashioned telecom industry was under the
control of monopolies such as Telcel (owned by America Movil), which has limited the
regions ability to improve its cost-competitiveness locally and on the global stage.

Companies across the region are clamoring for a more modern mobile network and faster
and more reliable Internet connectivity, challenging the tight reign of traditional CSP
businesses within these countries.

As a result, government regulators throughout LATAM countries have recently created a


regulatory environment to promote M&A activities in the region. These changes have
enabled North American (NA) CSPs to accelerate their entry into LATAM markets and
challenge incumbents (e.g., Nextel and Iusacell merging with AT&T1,2) by stimulating
competition and innovation and thereby lowering costs for consumers and businesses.3

Despite a more favorable M&A market, cultural, socioeconomic and operational hurdles are
hampering progress, in terms of new services, offerings and cost savings.

This white paper highlights the challenges faced by NA CSPs attempting to expand their
LATAM footprints, and it offers strategic insights to help turn threats into opportunities.

Weighing Telecom Opportunities & Challenges in New Growth


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Cognizant 20-20 Insights

DECONSTRUCTING LATIN instrumental in bringing telecom companies to


AMERICA Latin America. After arriving in LATAM, these
companies continue to invest and innovate to
Most of Latin Americas telecom sector is meet the communications needs of their
booming,4 which has attracted the major consumers.
worldwide telecom giants, many of which are
seeking to expand into growth markets. Latin Making Sense of Mexico
America continues to provide ample opportunities Mexico is one LATAM country where major M&A
in the wireless market, which can be attributed to activities abound.6 One prominent example is
numerous factors: a stronger demand for mobile AT&Ts entry. By acquiring telecom companies
subscriptions, the existence of robust 4G/LTE including Iusacell and Nextel, the U.S. company
and 3G networks, and the regions insatiable has brought extra wireless competition to the
appetite for smartphones. country. In fact, AT&T Chairman and CEO Randall
Stephenson announced7 that the company plans
In fact, Internet usage in Latin America is
to invest approximately US$3 billion to extend its
expected to reach approximately 400 million
high-speed, mobile Internet service to Mexico,
users by 2019, which explains why LATAM is
covering 100 million people in Mexico by yearend
attractive to the worlds telecom giants willing to
2018 (see Figure 2, next page). This is in addition
explore its horizons (see Figure 1).
to the US$4.4 billion that AT&T invested earlier
Economic growth, consumer demand and this year to acquire Iusacell and Nextel Mexico.
favorable regulatory changes have been

The Rise of the Internet in Latin America


South America, Central America: 2013 2015

500

400
NUMBER OF USERS IN MILLIONS

387.2
362 375.1
347.1
300 327.8
305.2
278.1

200

100

0
2013 2014 2015 2016* 2017* 2018* 2019*

Source: eMarketer5 * ESTIMATED


Figure 1 Statista 2016

Weighing Telecom Opportunities & Challenges in New Growth Markets South of the Border | 3
Cognizant 20-20 Insights

AT&Ts 4G LTE Coverage in Mexico

100

85

70
MILLIONS OF PEOPLE

55

40

25

10
3Q15 4Q15 1Q16 4Q18E
Figure 2 Source: AT&Ts Filings and Webcasts

Despite its hearty investment appetite, AT&T (as Sub-par infrastructure, sub-par business
well as other market insurgents) will need to pay climate, and poor training and schooling of
attention to potential changes in Mexicos local labor result in a growing skepticism of
regulatory environment. By facilitating ongoing doing business with U.S. companies.
M&A activities in the region, the countrys
regulatory environment plays a crucial role in the The need to adhere to Latin America culture
well-being of the telecom sector.8 and work ethics creates organizational
issues. It is essential to learn and follow local
culture practices which can determine the
LATAMS M&A CHALLENGES
success or failure of CSPs trying to expand
We foresee the following foremost challenges to their footprint in LATAM.
telecom giants entering the LATAM markets:
The lack of local skilled telecom workers
LATAM has a multiplicity of operational can pose additional operational challenges.
challenges that impact both domestic Service prices must be in line with other
CSPs as well as foreign companies, providers and need to be affordable to the
including those based in the U.S. Expanding average customer.
an existing business or starting a new business
in Latin America takes more time and cost There is a need to make investments
due to delays in securing construction and in efficient infrastructure to ensure
electricity permits, and contending with local secure development of telecommunications
regulations. corporations.

Weighing Telecom Opportunities & Challenges in New Growth Markets South of the Border | 4
Telecom giants must become accustomed with
more empowered consumers and business
customers who will assess them based on
services offered, customer experience delivered,
local capabilities and shop-based offerings.

Among the biggest agenda items affecting the AT&Ts biggest obstacle in the aftermath of its
regions telecom industry for the past several recent acquisitions is to deliver outstanding
years are the politicization of government policy service to local customers as well as customers
and direction combined with regulatory moving from the U.S. to Mexico. It must ensure
uncertainty. These factors had made it difficult that customers get the very same experience as
for telecom companies to freely expand and delivered in the U.S., in terms of products,
function in the past. customer service, offers, etc.

Theres also a need to bridge the digital divide Moreover, telecom giants must become
between the rich and poor. Research suggests accustomed with more empowered consumers
that two out of three homes in LATAM are not and business customers who will assess them
connected to the digital backbone yet. The based on services offered, customer experience
primary challenge is in making the investment to delivered, local capabilities and shop-based
connect them a task that must be carried out offerings, as well as numerous factors influenced
jointly by government and corporations. by telecom services experienced in countries
outside the region.
Across LATAM there are more than 696 million
cell connections among 322 million customers.9 To remain relevant, we believe telecom operators
To be both effective and efficient, operators must and entrants must focus on the following areas
ensure that they can provide value-added of building customer trust and loyalty:
services to customers while maximizing their
investments in fresh networks and offers. Customer experience must be outstanding.
In spite of the built-in differences and all the
Unquestionably, these challenges can be best other factors, telecom operations must make
addressed through enhanced collaboration. a concerted effort to understand new and
Telecom companies must bring together public existing customer needs and work toward
as well as private endeavors in all the subdivisions meeting those needs by providing a
that are linked with a shared goal to grow best-in-class seamless customer experience.
digital infrastructure in Latin America.
Building brand trust is essential, and it
must be a central pillar in terms of offerings
OVERCOMING M&A CHALLENGES
and usability; hence, design thinking must be
Post M&A, the telecom industry faces innumerable meticulously applied. (For more on design
challenges.10 Among the top priorities is to offer thinking, read our Cognizanti article
seamless customer experiences to all customers Human-Centric Design: How Design Thinking
new or existing. Can Power Creative Problem-Solving, Drive
Change and Deliver Value.)

Weighing Telecom Opportunities & Challenges in New Growth Markets South of the Border | 5
Cognizant 20-20 Insights

M&A activities in telecom and wireless are


expected to be on a fast-track trajectory
throughout LATAM.

Instant measures must be sorted out LOOKING FORWARD


beforehand. That way, operators can speed
the remediation of customer experience While the deregulation by LATAM governments
breakages or other issues. of the telecom market has created a favorable
environment for NA CSPs to enter these markets,
Testing customer experience, from every it is critical that they invest in infrastructure
perspective ranging from advertising to upgrades and rapid technology integration to
quality of service (QoS), is mandatory. meet customers evolving communication needs.
Otherwise, operators cannot deliver a smooth
customer experience over the long run. Cost and capital synergies need to be carefully
planned and implemented, and CSPs need to
Post M&As, interdependencies should be approach mergers with a customer-centric
acknowledged as early as possible; it is vital to mindset.
ensure that processes and systems are stable
enough to deliver a durable experience end to Just as they do at home, NA CSPs will also need
end. to deliver a world-class customer experience to
win loyalty and create stickiness in markets.
IT integration is among the most demanding
tasks, as the assets of the merging companies Inorganic growth by M&As will require early
have to be carefully assessed, rationalized and detection of complementary capabilities, product
then integrated. Operators must develop a offerings, processes and seamlessly integrated
thorough plan for the overall merger roadmap. systems. Therefore, a thorough merger and post
For example, in Mexico, AT&T is making substantial integration roadmap will be the most critical
investments and concentrating on merging and ingredient for NA CSPs successful expansion in
advancing its own and its partners IT and LATAM.
network systems.11
M&As will continue to accelerate market growth
M&A activities in telecom and wireless are in LATAM. However, the regions success will
expected to be on a fast-track trajectory depend on effective planning, implementing and
throughout LATAM. The regions accomplishment integrating strategies, and on overcoming the
will be highly dependent on ongoing preparation complexity and challenges of bringing together
and integration strategies (at a reasonable cost), two often widely different entities.
which would significantly ease the complexity of
bringing together two dissimilar units.

Weighing Telecom Opportunities & Challenges in New Growth Markets South of the Border | 6
Cognizant 20-20 Insights

FOOTNOTES

1
http://about.att.com/story/att_completes_acquisition_of_nextel_mexico.html

2
http://about.att.com/story/att_completes_acquisition_of_iusacell.html

3
Mexican government recently introduced an entirely new set of rules defining new telecom laws and regulations,
www.excelacom.com/resources/blog/m-as-defining-latin-america-telecom-landscape

4
http://knowledge.wharton.upenn.edu/article/why-latin-america-is-the-next-big-mobile-battleground/

5
www.statista.com/statistics/274860/number-of-internet-users-in-latin-america/

6
http://marketrealist.com/2016/05/atts-4g-lte-expansion-progressing-mexico/

7
http://about.att.com/story/att_to_invest_approximately_3_billion_in_mexico_to_extend_mobile_internet_to_100_million_
consumers_and_businesses_by_year_end_2018.html

8
The Mexican government recently established an entirely new set of regulations related to foreign telecom companies seeking
to enter the market, with a focus on challenging the monopolies and promoting an even playing field.

9
www.caf.com/en/currently/news/2014/09/main-challenges-to-expand-connectivity-in-latin-america/

10
www.excelacom.com/resources/blog/m-as-defining-latin-america-telecom-landscape

11
www.developingtelecoms.com/business/trends-forecasts/6404-how-consolidation-is-gaining-traction-in-latin-america.html

ABOUT THE AUTHOR

Amit Jindal Amit Jindal is a Senior Program Manager within Cognizant Business
Consultings Communications, Media and Technology Practice. He
Senior Program Manager, has led multiple program management and management consulting
Cognizant Business engagements focused on retail sales operation, business process
Consulting transformation and IT strategy. Amit has expertise in driving digital
Amit.Jindal@cognizant.com strategy within M&A integration, streamlining digital business
operations and vendor relationship management. He received a
bachelor of electronics engineering degree from Nagpur University,
and has an M.B.A. from Pune University.

Weighing Telecom Opportunities & Challenges in New Growth Markets South of the Border | 7
ABOUT COGNIZANT BUSINESS CONSULTING
With over 5,500 consultants worldwide, Cognizant Business Consulting offers high-value digital business and IT consulting services that
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ABOUT COGNIZANT
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