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Change in El Salvador - competitive mobile, ADSL monopoly, new government

A new report from Companies and Markets supplies information on the El Salvador telecoms market, stressing the challenges and changes that the country faces. El Salvador - Telecoms, Mobile and Broadband sets telecoms in the overall context of El Salvador before  commenting on recent developments.

El Salvador is the smallest country in Central America, with the third largest population. It suffers, in the words of the report, from “extreme income inequality, rampant crime rates, lack of infrastructure, inadequate social capital, and one of the highest homicide rates in the world.” In June 2009, moderate leftist journalist Mauricio Funes won the presidential election, pledging to fight poverty and crime and push for reform in education and health.

Telecommunications has been one of the most successful sectors in El Salvador's economy. This is particularly true of mobile services, which are emerging as the country's preferred avenue of communication. The use of text messaging and multimedia is gradually replacing voice, and there is a clear trend towards services supported by 3G networks.

El Salvador's fixed-line teledensity is about 19% lower than the Latin American and Caribbean average. In reality, considering the country's poor GDP per capita, this compares favourably with the rest of the region. Mobile penetration is remarkably high based on El Salvador's economic indicators, being about 35% higher than average for Latin America and the Caribbean. Of the estimated total number of telephones in the country, 13% are fixed and 87% are mobile.

El Salvador's telecom legislation has been hailed as one of the most liberal in Latin America because it encourages maximum competition in most aspects of telecommunications and permits foreign investment in all areas. All telecom sectors have been functioning in a competitive environment for many years, but there are no regulations to promote wholesale broadband; therefore the ADSL market is a virtual monopoly. The only meaningful broadband competition comes from cable modem access.

Although many companies launched services when the telecom sector was liberalised, the market has been undergoing a gradual process of consolidation, leaving a few dominant multinational operators (Millicom's Tigo, America Movil's Claro, and Telefonica's Movistar), which have managed to expand into almost all telecom sectors through a process of convergence.

The mobile market is served by five operators: Tigo, Movistar, Claro, Digicel, and Intelfon. Mobile telephony decelerated markedly in 2009, but mostly because of market saturation, with the country's mobile penetration passing the 100% threshold towards year-end.

The fastest growing sectors in 2010 are likely to be pay television and broadband, both fixed and mobile. The outlook is especially positive for mobile broadband, which may help to bolster the slipping mobile ARPU figures.

The longer-term prospect is more promising. The mobile market is likely to start growing again well past the 100% penetration rate. With increased GDP per capita, demand for broadband and ICT services should intensify.

Several operators are analysed in the report. For example, CTE Telecom, trading as Claro, is the incumbent fixed-line operator in the country. The CTE brand was discontinued in 2009 and all services were unified under the Claro brand name, including mobile and fixed-line telephony, ADSL and mobile broadband, as well as cable and satellite TV. Claro is the “dominant” fixed-line operator and ADSL provider in El Salvador.

Claro's main competitor is Tigo, originally only a mobile operator. However, since Millicom acquired cable TV leader and triple player Amnet, all services were unified under the Tigo brand name in 2009, including mobile and fixed-line telephony, cable modem and mobile broadband, as well as cable TV. Tigo is the “leading: mobile operator and provider of cable TV/cable modem services in El Salvador.

Telefonica/Movistar occupies third place in the country's telecom market. In 2010, all its services are gradually being unified under the Movistar brand name, including fixed-line and fixed-wireless services, mobile services, cable broadband, and cable TV.

In short, El Salvador has good long-term growth potential, especially in fixed and mobile broadband and in pay television.

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