Internet Tv

Getting broadband Internet into the homes of millions of ordinary Mexicans is turning into a scramble. Regulatory and market changes have cable TV companies rushing to upgrade their networks to broadband, which allows for high-speed Internet access and telephone service. Sales for such services should near US$500 million by 2008. Yet such a transformation means cable companies must make investments of up to $1 billion to upgrade networks.

On top of money woes, cable TV providers have competition. In broadband Internet, telecom providers like Mexican fixed-line giant Telefonos de Mexico (Telmex), controlled by Mexican billionaire Carlos Slim, are racing to beat cable companies to the punch. Prodigy, the brand under which Telmex sells broadband services, controls 51% of the current broadband market. The number of broadband users is small but could grow soon. Just 2 million people in Mexico used broadband Internet in 2002. That figure will jump to over 11 million in 2008, when annual sales hit $499 million, and that excludes sales of related equipment, says Pyramid Research.

Theft, however, remains a massive problem in Mexico. Cable pirates string wires from house to house and rob cable companies of business. Cablevision General Director Jean Paul Broc has a million users but just 400,000 paying subscribers. Far worse for cable companies are double concessions, where two cable companies operate in the same service area.

The government says double concessions foster competition. Broc isn't buying. "The government grants a double concession, based on false investment commitments, [and then] there's no investment, just threats to cannibalize the market until finally the double concession holder says 'Buy me out for $2 million and I wont compete,'" Broc says. Out of the total 625 concessions in Mexico, 150 are double concessions, of which 14 operate.

Hector Vielma, general director for Grupo Hevi cable company in Jalisco state, says such concessions lead to corruption. "We pay over $450,000 a month for programming yet double concessions often pay nothing, illegally downloading the signals," Vielma says. Double concessionaires subscribe to satellite television services and then turn around and sell them through their own networks, Vielma charges. "Consequently, this allows them to offer services at dumping prices," he says.

Double concessionaires, meanwhile, claim incumbents construct unfair market entry barriers. Grupo Telemedia, which runs 11 out of the 14 double concessions across Mexico, has had its fair share of legal tangles. Grupo Telemedia ran into trouble when its affiliate Belmark recently obtained double concessions for Guadalajara and neighboring Zapopan, where Grupo Hevi operates.

"We have been accused of everything short of murder--money laundering, drug trafficking, etc. It makes for an even better story than Kafka," says Grupo Telemedia counsel Rafael Samano.

Regulations require the government to analyze market conditions prior to giving out double concessions, says Samano. In the case of Belmark, the government did not conduct any analyses, and consequently, both Grupo Hevi and Megacable claimed Belmark's concessions were invalid, Samano says. The courts agreed, and the government cancelled Belmark's concessions. Telemedia has appealed.

Many cable companies see the government as a hindrance to modernization. Companies have been required to consult multiple government agencies for concession applications and for technical and marketing concerns. Delays are inevitable, yet they may be on their way out thanks to overhauled regulations, in force this year, that will better dole out oversight responsibilities among government agencies.

There still lies ahead the costly task of upgrading cable networks. Alejandro Puente, director of national cable television chamber Canitec, estimates that 40% of the national cable network has already invested in the necessary technology to offer high-speed Internet services. Upgrading the entire national network--which spans 76,000 kilometers--means spending $1 billion over the next five years.

Puente, who owns cable TV provider Amatel, estimates that it will cost him $217,000 to upgrade his 400 kilometer network. Given the costs, consolidation is likely. CableMas, the second-largest cable company with 400,000 subscribers in 45 cities, already has acquired seven firms as part of its expansion strategy.

Even if the money is there for cable TV companies to spend, telecom providers could still win. Companies such as Telmex and Avantel, an investment of Mexican bank Banamex and U.S. telecommunications company MCI, now offer interactive video and television via their own broadband networks. Recent technologies such as "voice over Internet protocol," where consumers plug a regular phone into a broadband connection to make and receive calls over the Web--only increase pressure on companies to transform networks. In the end, cable TV providers may need to put legal wrangling aside before other industry players step in and gobble up the broadband market.

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Not-so-tiny Bubbles

In the next five years, Internet growth in Latin America will far outpace other telecom services, like home and cellular telephones. Peru will grow fastest, followed by Ecuador. Chile and Brazil will have the largest share of their populations online. Internet revenues are expected to exceed US$5 billion across the region by 2008.

[GRAPHIC OMITTED]

Internet broadband market share

Prodigy     51%
Megacable   34%
Cablemas     7%
Others       8%

SOURCE: Pyramid Research

Note: Table made from pie chart.

COPYRIGHT 2004 Freedom Magazines, Inc.
COPYRIGHT 2004 Gale Group

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