Latin America multichannel broadband market 2020 recap

The COVID-19 pandemic caused some unexpected changes in the Latin American multichannel and broadband markets in 2020, decelerating cord cutting in several markets despite a severe economic downturn and increasing fixed broadband adoption nearly across the board as operators faced demands for higher speeds to cope with the needs of homebound users. The over-the-top market, meanwhile, shot into full competitive mode with the launch of several new streaming offers in the region. M&A activity also saw a boost with the continued consolidation of small fiber ISPs in Brazil as well as telco Oi's divestment of assets, including the acquisition of its mobile operation, the fourth-largest in Brazil, by a consortium of competitors.

Economy

The COVID-19 pandemic severely aggravated the economic crisis that several Latin American countries had already been facing, with the UN's Economic Commission for Latin America and the Caribbean, or ECLAC, projecting an average contraction of 7.7% for the region in 2020, the largest in 120 years. This follows a period of 0.3% average economic growth between 2014 and 2019. The report also estimates unemployment in the region to have jumped to 10.7%, which is expected to contribute to an increase in poverty and inequality.

These adverse economic conditions have affected telecommunications operators in the region, accelerating subscriber trends and causing companies to make investment cuts due to uncertainty. The economic effects of the pandemic have also increased currency depreciation and accelerated inflation in some markets, with exchange rates severely impacting results for some telecommunications groups.

Already a client? Click here to read our 2020 LatAm groups report: Operational and financial review, which includes a brief summary of the impact of the COVID-19 pandemic on the results of the top 11 telecommunications groups in Latin America.

Multichannel overview

The pandemic helped slow multichannel cord cutting in the region, limiting subscriber losses to just over half a million in 2020 after a 2.2 million loss in 2019, according to Kagan estimates. This was largely due to several markets reversing the previous year's decline trend, including Latin America's largest pay TV market, Mexico, which is estimated to have grown subscribers by 3.2% in 2020 after registering a 3.5% drop in 2019. Brazil, the region's second-largest market, continued losing multichannel households at a steady pace.

Despite this improvement, pay TV penetration continued to decline in the region, reaching 37.4% of total households at 68.8 million subscribers. Cable remains the largest multichannel platform by subscribers with a 50.9% market share, having returned to growth in 2020 following losses in 2019, while direct-to-home continued to see rapid decline, ending the year at an estimated 41.8% market share. IPTV was the fastest-growing platform with a 21.3% year-over-year increase.

Currency depreciation also accelerated revenue decline, with Latin American multichannel operators generating a total of $16.40 billion in 2020, down 6.8% compared to the previous year. AT&T, the region's second-largest pay TV provider through its DTH subsidiary Vrio Corp., reported a revenue impact of $225 million in the fourth quarter of 2020 due to exchange rate fluctuation.

Please refer to the article linked here for an analysis of Latin America's top multichannel groups.

Already a client? A review of recent multichannel market trends in Brazil and Venezuela can be found in the articles linked here and here.

Fixed broadband overview

Meanwhile, broadband adoption in Latin America accelerated in 2020, resuming a trend since 2015 that had slowed in 2019, with the uptick likely due in part to work-from-home demands brought about by COVID-19. Fixed broadband subscriptions in the region grew 6.6% to 86.2 million, or 43.3% of total households, according to Kagan estimates.

This was largely due to fiber growth, especially in Brazil where the platform shot up 46.5% in 2020, making up for DSL losses as telcos across the region migrate their subscribers to new networks and small ISPs start to challenge existing players. However, cable remains the top broadband platform in Latin America, with a 40.0% share of total broadband households.

Market leader Brazil led subscriber growth with 43.4% of total net additions, followed by Mexico with 23.0% and Peru with 10.1%, despite only representing 3.1% of total fixed broadband households in Latin America. Fixed broadband revenues, on the other hand, are estimated to have dropped by 1.2% in Brazil to $5.60 billion due to double-digit currency depreciation. The impact of exchange rates was less severe in Mexico, Colombia and Peru, which are all estimated to have registered revenue growth.

Please refer to the article linked here for an analysis of Latin America's top broadband groups.

Already a client? Click here for an analysis of broadband speeds in the region's largest countries. A review of recent fixed broadband market trends in Mexico can be found in the article linked here.

Top groups

The top 11 Latin America and Caribbean telco groups bore the brunt of the impact of multichannel losses and also showed clear signs of the increased relevance of fixed broadband in their revenue mix. Cord cutting and accelerated disconnection of DTH subscribers led multichannel operations to lose 2.0 million subscribers in 2019 for the top 11 groups covered in this report. On top of local currencies' depreciation and lower average revenues per user, subscriber losses sent revenues on a downward path during the year. The start of the COVID-19 pandemic led most of those 11 groups to reduce capital expenditures during 2020.

Already a client? Please refer to the report linked here for an in-depth group-specific analysis on the multichannel, broadband and telephony market in Latin America. The report analyzes the top 11 telecommunications groups in the region: América Móvil, Telefónica, AT&T, Liberty Latin America., Millicom, Grupo Televisa, Megacable, Telecom Argentina, Oi, Entel Chile and Telecom Italia.

A summary of the report is available for non-clients here.

Disney+ launch set to heat up OTT wars

The Walt Disney Co. launched Disney+ in Latin America on Nov. 17 with presale promotional offers for annual subscriptions. The OTT service also partnered with a variety of regional service providers for bundling opportunities, such as Latin American ecommerce giant MercadoLibre, which is offering up to six months free Disney+ together with an annual subscription to its service. A similar offer is also available in partnership with Brazilian bank Bradesco, and the streaming service is also offered bundled with mobile and broadband services from a handful of operators, as well as with other OTT services, such as broadcaster Globo 's Globoplay.

Amazon also launched Prime Video Channels in Brazil, with add-on content from Paramount+, Starz Play, MGM, Looke and Noggin, as well as Prime Delivery, which is expected to expand Prime Video subscriptions in the country. The service has been available in Mexico since 2019, where it also includes Acorn TV, CBeebies, HBO, Love Nature and Póngalo, as well as TV Azteca's local pay TV networks Mundo, Corazón, Clic and Cinema.

After a dip in net adds in 2019, OTT market leader Netflix resumed subscriber growth in Latin America during 2020, reporting a total 37.5 million paid memberships in the region by year-end. The number represents 54.6% of total multichannel households, with some media reports suggesting the streaming service has already overtaken traditional pay TV in the region's largest market, Brazil.

Expansion of live streaming

2020 also saw an expansion of linear streaming options in Latin America, with AT&T's DIRECTV GO virtual multichannel service adding new markets, the launch of streaming box bundles by several players and the inclusion of pay TV networks in existing OTT services.

DIRECTV GO launched in Brazil in November 2020, following a regulatory decision allowing linear streaming in the country. AT&T cited the product as helping the company record 49,000 video connection net adds in Latin America during the fourth quarter, despite being available for only one month. The service was also launched as a stand-alone offer in Argentina, where it had so far only been available to existing DTH subscribers as a TV Everywhere platform. The service was first launched in Colombia and Chile in 2018 and later expanded to Ecuador, Peru and Uruguay.

ViacomCBS's Pluto TV ad-based video-on-demand platform also launched in Latin America during 2020, initially with 24 linear channels in 17 Spanish-speaking countries in April and eventually expanding to Brazil in December. The service has since expanded its catalog to include over 150 content providers and over 20,000 hours of video-on-demand content.

Another major addition to the live streaming segment in the region was the September 2020 launch of the Globoplay + canais ao vivo offer, which added 17 linear channels from Globo's basic pay TV lineup to the Globoplay OTT platform for an additional 27 reais/month. The Brazilian broadcaster and network provider has so far held back on providing access to its channels through operators' TV Everywhere platforms, while being the first to offer stand-alone streaming access to its premium sports channels Premiere and Combate.

September also saw the launch of the Entel TV app in Chile, as the country's largest telco began offering OTT access to 41 linear cable channels, as well as premium add-ons and carrier billing for third-party OTT Netflix. Existing Entel customers can subscribe to the service at a discount.

América Móvil's Claro Brasil launched its own Claro Box TV in October 2020. The product is similar to a pilot offer launched in 2017, which provided Claro's broadband subscribers with access to VOD content on a set-top box for an additional 20 Brazilian reais. With Claro Box TV, customers can either subscribe to the VOD offer, also for 20 reais/month, or can add 50 linear channels from programmers such as Discovery, Disney and Viacom — missing are the more popular Globo channels — for a monthly subscription 49.90 reais. Add-on OTT services include Netflix, HBO, Fox Premium, Starzplay, Paramount+ and Looke.

The service is also available to non-Claro subscribers, who can buy the set-top box for 250 reais. The new service uses IP distribution, meaning the box can be used anywhere with an internet connection.

Liberty Latin America also launched a stand-alone box, +TV Total, in October 2020 in Panama.

Consolidation in Brazilian market ramps up M&As

Despite the pandemic, 2020 was a busy year for LatAm operator mergers and acquisitions, with consolidation among small fiber ISPs and the breaking up of assets from Brazilian telco Oi driving M&A activity. Out of the 16 regional transactions tracked by Kagan in the sector, 10 involved investment groups increasing their portfolio of regional fiber ISPs in Brazil, with Vinci Partners' Vero Internet and ACON Investments' Triple Play Brasil solidifying their positions as some of Brazil's largest broadband providers. Both Vinci Partners and Triple Play Brasil recently launched initial public offerings, although the latter eventually back down due to unfavorable market conditions.

Brazil also saw consolidation in the mobile sector as Oi sought to divest several assets as part of its debt restructuring plan, including its wireless operation, the fourth-largest in the country, with 36.5 million subscribers in the third quarter of 2020. The sale was closed in an auction in December, with competitors Telefônica Brasil, Claro Brasil and TIM SA set to acquire the operation for the equivalent of $3.1 billion at the date of the announcement.

The telco also sold off five data centers to Piemonte Holding's Titan Venture Capital /Elea Digital for $60.7 million at announcement and its mobile infrastructure, including 637 towers and 222 indoor sites, to Digital Colony's Highline Do Brasil for $194.7 million at announcement. Oi also plans to sell its retail pay TV operation, which includes DTH infrastructure and satellite contracts, as well as a total 1.6 million DTH and IPTV subscribers, with the minimum price set at 20 million reais.

In February 2021, Oi received a binding offer from private equity funds represented by Banco BTG Pactual for its fiber infrastructure operation, InfraCo, which the company is splitting from its remaining retail operation with the objective of increasing returns by turning its nationwide fiber backbone into a neutral network. Oi had set a minimum enterprise value of 20 billion reais for the operation, of which it plans to sell between 25.5% and 51.0%.

Several other operators in the region also announced similar plans during 2020 to split their fiber infrastructure into a separate structure to attract third-party investors and operate as a neutral network, including Telecom Italia's TIM in Brazil and Telefónica's Telefônica Brasil, Telefónica Chile and Telefónica Perú. On February 22^nd, Telefónica Chile announced the sale of 60% of its InfraCo subsidiary, with a total 2 million homes passed, to investment group KKR, for $600 million. An overview of future potential M&As can be found in our 2021 outlook report.