Telecom Argentina Expands

Telecom Argentina (TEO - Analyst Report), the leading telecom player in Northern Argentina and Paraguay, recently announced the expansion of its Triple-Play services (called SuperPack), which is marketed in collaboration with the leading U.S. satellite TV operator, Direct TV.  The companies have broadened their service coverage to include Argentine cities of Santa Fe, La Rioja, and San Salvador de Jujuy. 

The Triple-Play offering, which bundles voice, Internet, and pay-TV services, represents one of the most significant new business initiatives by the company this year. Under a joint-venture pact with Direct TV (signed in April 2009), the company initially began commercial deployment of the new bundled service in the Salta province, northwest Argentina. The agreement with Direct TV eliminated the need for a broadcasting license as telecom carriers in Argentina are currently barred from entering the pay-TV market under the existing regulatory framework.  

The recent roll-out of the Triple-Play offering in other Argentine cities is part of Telecom Argentina’s plan to eventually expand this service to include areas where its broadband network (marketed under the Arnet brand) overlaps Direct TV’s service territories.

Telecom Argentina is the leader in domestic broadband Internet with a roughly 31% market share. However, competitive challenges have limited opportunities in the wireless market as the company is currently facing intense competition from operators backed by Spain’s incumbent service provider Telefónica (TEF - Analyst Report) and América Móvil (AMX - Analyst Report), the dominant wireless operator in Mexico. Both of these companies have extensive Latin American operations supported by strong financial backing of their parent companies.

Growth for Telecom Argentina’s wireline business has stagnated in recent quarters, partly due to the beleaguered domestic economy. This underscores the need for bundling services at attractive prices to boost subscriber growth.

Going forward, we envision profitability for the company’s fixed-line business to remain under pressure by frozen tariffs, inflationary impacts on cost structure, and volatility of the local currencies against the U.S. dollar.

Nevertheless, revenue growth will be driven by the ongoing expansion of broadband Internet infrastructure, 3G wireless services, and the expanded deployment of Triple-Play offerings.