South America : According to the Yankee Group Chilean Mobile Market Forecast, by 2007, mobile users will generate US$1.3 billion revenue for Chile’s mobile operators, a compounded annual growth rate (CAGR) of 2.3 percent (see Exhibit 1). Chile’s mobile user penetration (41 percent) is higher than the 19 percent average penetration of Latin America and one of the highest penetration rates in the region. The limited buying power of the remaining population will be the major barrier to further increases in the number of mobile users; by the end of this year virtually everyone who can afford mobile service will have it.

Inset above shows Chile’s Mobile User Forecast, 2003-2007.

Limited future growth rates will force operators to change their market strategies from acquisition to retention and stealing share from competitors. An effective retention strategy will improve relationships with current customers and minimize churn. Share stealing will require using brand and customer service to attract a competitor’s customers. Instead of looking for new mobile users that provide low revenue, carriers should focus on existing mobile users.

To do this, operators have to decrease cost per-user as much as possible and increase their service portfolios. The result will be an increase in the gross addition cost, as operators increase retention marketing expenses, advertising and branding.

Vendor Recommendations
· Application and content providers should add value and be flexible. Chilean operators are looking for new sources of revenue (such as messaging and data services) to compensate the voice revenue competition. However, operators can’t do it all. Application and content providers should convince operators to participate in the risk and rewards of new services, using a revenue-sharing business model. Application providers should also start offering regional solutions to Chilean operators that also have operations in other Spanish speaking countries. Those operators include Entel (TIM), Telefonica Moviles, BellSouth Chile and Nextel.

· Network vendors should help operators offer enterprise services. Operators created corporate plans based on voice rate discounts to improve their relationships with Chilean enterprises. The next step will be the increasing the sophistication of data services to improve enterprises’ productivity. Network vendors should use their expertise to go directly to enterprises or help carriers approach corporations.

· For handset manufacturers, the increase in churn will be an opportunity to sell more handsets. To attract a competitor’s customers and create a long-term relationship, operators might want to offer new handsets. New data services generally require next-generation handsets. Unless handset manufacturers stay close to operators, the market for used handsets might grow. From the operators’ point of view, activating a new user with an existing handset is very attractive because those handsets don’t carry a subsidy. Handset manufactures should negotiate deals involving countries other than Chile (such as Brazil, Argentina, Paraguay and Uruguay) when dealing with the considerable bargaining power of the operators.

Carrier Recommendations
· BellSouth and Smartcom PCS should look for operating synergies. With a minority market share, CDMA-based operators should look for ways to cut operating costs. Although full network sharing is difficult, operators can take advantage of coincident or complementary coverage to share sites and civil infrastructure costs.

· BellSouth should look at Smartcom as a potential merger or acquisition target. Smartcom will find it hard to get any larger or more profitable. Telecom is not a core business for its major shareholder, so it may listen to interesting offers.

· Look at applications already available in Spain and other Spanish speaking countries. Although the majority of Chilean content is local (such as traffic, news and weather), operators can easily replicate applications—especially if the application is in the right language.

· Reinforce the portfolio of corporate services. There is a big overlap between early adopters and high-end corporate users. The largest bills come from customers that use their mobile phones for business. Creating loyalty in this segment demands continual new products and services.

· Don’t ignore mid-level and low-end prepaid users. Although ARPUs are normally low in these segments, they can help operators increase market share and gain scale.

Forecast Methodology
The mobile user forecast model considers Chile’s income disparity and varying age distribution. We begin by limiting the addressable market of potential users of mobile services by age, excluding those younger than 14 and older than 65. We use a socioeconomic stratum filter that considers the average expenditure on communications services and the minimum and maximum each household can afford. By analyzing the purchasing power of each stratum and its average communications expenditure, we were able to establish distinct spending parameters for each consumer class. By cross-referencing these spending parameters with current and future spending minimums for mobile services in the target country, we quantified the addressable market for each country. To estimate the growth of the actual market, we applied the Bass New Product Diffusion Model adjusted to Chile’s historical mobile user growth. The result of these calculations is the total number of users.