Golden mile: major market reforms are driving Latam’s data infrastructure revolution

As Latin American countries, with Mexico in the vanguard, reform their legacy telecom operators, they are clearing the way for greater investment in the next generation of technologies. Valtin Gallani, director, TMT, at ING Americas, discusses the current state of reform and how this is opening the door to new fiber, tower and data technologies in Mexico and beyond.

Regulatory reform in Latin America, and the ongoing process of restructuring telecoms market monopolies, is poised to create exciting opportunities to drive forward adoption of the latest fiber, tower and data technologies throughout the region.

Mexican Milestones

According to the OECD’s Telecommunication and Broadcasting Review of Mexico 2017, the country saw an increase of 50 million mobile broadband subscriptions between 2012 and 2016 — a growth rate of 390%. Average data use also grew by 91% over the period, and between 2013-2016, 20 million new people gained access to the internet in the country. Mexico’s large metro areas are already well connected, but the country’s rural areas suffer from a severe lack of connectivity. This is especially problematic in southern Mexico, where the telecoms infrastructure is threadbare and the region has virtually no last-mile solutions for consumers or businesses.

The government has instituted most of the reforms suggested by an OECD review in 2012 to overhaul the telecom market monopoly, create a more level playing field for private operators and reinforce its domestic telecommunication infrastructure. But the average broadband speed is still below OECD average and a low penetration of fixed broadband. While government-backed efforts to break up the existing monopolies are essential, banks and investors are also critical to the evolution of the market — and are helping to push market transformation by providing feedback on the proposed reform agenda for the telecoms industry. Crucially, these reforms must extend beyond Mexico’s major cities, through the various levels of municipalities and deep into rural areas.

Alongside this program of reform, the government can also educate businesses and consumers on the value of fair competition – how it can improve service and lower costs.

Infrastructure Backbone

And as this work progresses, all participants will have to ensure that Mexico develops not only a modern telecoms backbone but also an integrated network of last-mile solutions that can connect all of the country’s businesses to each other. This is the way to foster growth and enterprise.

Data usage is rising rapidly, and fiber technology will be essential to meeting this demand. The rollout of fiber in Mexico may have been delayed, but immense pent-up need for it exists — and is ready to be served.

Exponential Regional Data Growth

The same trends are apparent throughout much of the wider Latin American region. Internet traffic, particularly through mobile, is growing at an astounding rate all over the continent.

For example, Latin America’s monthly IP data usage is expected to rise from 5.99 exabytes in 2016 to 15.46 exabytes by 2021 – almost trebling in just five years. Mobile data, alone, will surge from 0.46 exabytes per month in 2016 to 3.1 exabytes per month by 2021, with a compound annual growth rate of 47%. This, in turn, is propelling an infrastructure boom for the towers and fiber-optic cable networks that allow the data to flow.

Infrastructure Boom

In the tower space, the Brazilian and Mexican markets – Latin America’s largest – are dominated by a few independent operators. Tower companies may now look to other markets for growth, such as Colombia, Chile, and Peru.

Telecom and mobile network operators have traditionally dominated the market, as political and currency risks have hampered the rise of independent tower operators. But throughout Latin America, where low urbanization rates and high operational costs have pushed some network operators into aggressive cost-cutting efforts, incumbent telecoms groups have increasingly segregated or sold off their tower infrastructure over the past five years.

This is creating a vast opportunity for growth in the tower and fiber space in Latin America — and many new projects are under way. One such project, financed by ING in 2018, is building a wireless infrastructure designed to meet the needs of the next generation of communications and technology. QMC, a developer and operator of wireless cell sites in Brazil, and ING, arranger, came together for a Br 150m credit facility. QMC’s towers and Distributed Antenna Systems (DAS) are used by the wireless carriers to mount wireless transmission equipment, and the proceeds from the credit facility will be used to fund the build out of additional cell sites to support wireless infrastructure coverage in Brazil.

Another notable project by CenturyLink, for instance, is making significant fiber and subsea investments in Latin America. The Red Compartida and Red Troncal projects in Mexico are both building wholesale fiber and wireless networks across the country that will provide better coverage. Several operators, are reportedly looking to raise money to build fiber networks to complement their existing VoIP business.

As it costs around US$30,000 to lay a kilometer of fiber. At that rate, building a 4,000 kilometer fiber network would require US$120m of capital expenditures.

Such construction is taking place all over Latin America. Around 102 fiber-to-the-home (FTTH) or business (FTTB) initiatives were underway in the region in the third quarter of 2017, a 24% increase on the previous year. This is not idle infrastructure, either: there was a 43% increase in subscribers to FTTH or FTTB in Latin America between the third quarter of 2016 and the equivalent period of 2017.

One of those projects was financed by ING. In June of this year, ING arranged and syndicated a US$75m credit facility for Metrotel in Argentina. Metrotel builds and operates fiber-optic networks across five of the largest cities in Argentina including Buenos Aires. The project will provide high quality connectivity service to thousands of wholesale and enterprise customers in Argentina.

With years of experience in the TMT and infrastructure sectors, and a longstanding presence in and focus on Latin America, ING is perfectly placed to assist operators and investors finance their expansion in this exciting and rapidly growing market.