The Venezuelan branch of Telefónica Móviles (TEM) has consolidated itself as the first cell operator in the country, with more than 6 million clients. In 2005, Movistar Venezuela grew by 39% and added close to 1.7 million new subscribers, followed by Movilnet of Cantv (5.2 million lines), the new Digitel, now in the hands of Oswaldo Cisneros (1.7 million clients) and Digicel & Infonet, covering the east and south regions of the country, that between both do not surpass 200,000 clients.

Within an exclusive talk with Convergencialatina, the Argentine, Luis Malvido, president at Movistar in Venezuela, exposed his vision on the new cell market scenario. On one hand, the growth registered last year will double and reach 17 million subscribers. On the other hand, Cisneros is waiting for the approval from authorities to merge Infonet and Digicel with the former TIM. The executive, founder and former stockholder of Telcel-BellSouth returned to the sector with the idea to strengthen GSM operations in a sector dominated by CDMA.

Convergencialatina (CL): In 2006, it is expected that mobile telephony will expand just like last year that surpassed the regulating body and operators` expectations. How do you see the local market today and what is your growth forecast for this year?

Luis Malvido (LM): 2005 was an exceptional year. A year in which we stated that the market would give more and month-by-month surpassed our expectations. Movistar`s action, based on the launching of its brand and competition, strengthened the local industry a lot. Movistar generated enthusiasm and gave a lot to speak about in a market with moderate growth. It opened the way and many people who did not consider purchasing a cell decided to buy one. This produced significant growth and allowed Movistar to pick up a part of the delayed expansion.

At the moment, Movistar has already surpassed 6 million clients, compared to its 4 million registered in 2005. We estimate that mobile telephone growth will once more be very important in 2006. Moreover, the entrance of the new GSM operator will make the industry gain a new rhythm and once more have a market with the need to talk. We will take the risk and say that the market will reach 17 million clients; it all depends on the local economic evolution as well as the operators. Nevertheless, without any doubt, the potential is great.

CL: will there be changes in Movistar`s growth strategy?

LM: in 2005, Movistar recovered a lot of ground compared to the situation in which it was when it acquired the operation Telcel-BellSouth. At the time, Telefónica Móviles embarked in Venezuela its penetration did not reach 30%, while that at the moment it is around 46%. This implies a more than 50% growth. In Venezuela, the mobile segment is an atypical market, because the consumer registers very high minute traffic and data consumed. For example, today we are registering more than four text messages per day by client, within our base of 6 million clients. This number is unthinkable in other markets. However, the high SMS traffic responds to a very particular rate scheme that Venezuela has, where high consumption with low rates in almost all prepaid clients is promoted. Our high ARPU is due to that we are servicing the real necessities of our clients that demand many communications very well. Meaning that, in spite of having the lowest prices throughout Latin America, we have the highest ARPU. The client consumption is atypical.

CL: If the penetration is increased, could the ARPU fall?

LM: in Venezuela, the ARPU is related with the evolution of its exchange rate. This year, our ARPU as well as our client park has already grown by more than 40%. It is unprecedented.  That is why; we believe that there is a growing necessity for communications that we are managing very well. The direct impact is in the amount of lines and the minutes consumed by our current clients.

CL: What role will EVDO occupy this year?

LM: Movistar announced the deployment of EVDO once the technology is installed in 26 cities of the country in December. We are committed to expand EVDO until reaching a similar coverage to that of our voice. At the moment, we are offering several services that are different from what the local market could offer today, as well as other technologies like GSM. For example, our quality in TV transmission is very superior to that of our competitors. Likewise, content transmissions through EVDO are becoming more and more important each time. EVDO, is not only bandwidth or capacity to connect a laptop or a PDA at high speeds, it also is of content. In that point, we are really advancing. Entertainment will come in hand with Movistar`s cells and devices that each client has to download music or entertainment. We have still have a lot ahead of us to offer the high consumption market

CL: What kind of investment do you foresee for this year?

LM: In qualitative terms, we expect to keep growing in capacity, which is a permanent demand due to simply growing, in both functionality and technology. We will try to make a technological jump in our networks to prepare them for next generation. In addition, 2006 will be a year of great effort in terms of investments, which will be bigger than the previous year.

CL: What place does mobile occupy in billing?

LM: In relative terms, we have one of the highest percentages within Telefónica Móviles` operations, considering that SMS, including pure data transmission, content downloads and photo transmissions. Approximately, 40% of our prepaid client revenues come from data. It is difficult to say if we will increase our billing percentage, however we do know that we will increase the use. We will be very happy by only maintaining our indexes, because it represents a very high indicator.

CL:  Are you going to focus on obtaining lower income clients?

LM: If we believe that mobile penetration will reach 60%-70%, it is because we are thinking to conquer lower income as well as the younger segments. The young market has a lot of potential because it has a low penetration rate and they consume a lot of added value services, although with limitations. Within the lower income segment, the power of purchase reaches 24 million residents – signifying that only 3.5 million will be left out – the penetration will increase a lot. Especially in segment E, that has almost half of the total population, we project that in 2006, the penetration will surpass 40%. That is where the growth will be and that is why we will concentrate in that segment.

CL: How will you compete with GSM equipments?

LM: Although we purchase more expensive cells, a fact in relative terms, it does not mean that we have to sell them more expensively. If it is the market that defines the sale price of equipments, we could speculate if we are more or less rentable in technology. On the other hand, the CDMA technology offers enormous traffic management at the beginning of the investment, compared to the investments necessary to manage GSM traffic. This allows us to be more efficient and attractive at the hour of offering minute prices. Our rates are the lowest throughout Latin America, between US$ 0.02 and US$ 0.04 the minute for high consumption clients. This does not occur with GSM because the investment demand is immediate.