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Archived Report
Telecommunications in Venezuela

by Bruce Kramer

Copyright 2017, Faulkner Information Services. All Rights
Reserved.

Docid: 00017957

Publication Date: 1701

Report Type: MARKET

Preview

The Venezuelan telecommunications market is growing despite enormous
inflation, an economic recession, and the government’s continued push toward
socialism. President Nicolas Maduro and his predecessor Hugo Chavez have nationalized
most of the country’s key industries, including the telecom market. CANTV, the
incumbent service provider, is once again a state-owned company that controls
most of the industry. However, as an entity controlled by a socialist
government, it offers subsidized service to people who cannot otherwise afford it. This report analyzes the
effect that the current political and economic
environment is having on the Venezuelan telecom market, identifying key players and providing
statistics about the state of the marketplace.

Report Contents:

• Executive Summary 
• Market Dynamics 
• Market Leaders 
• Market Trends 
• Strategic Planning Implications
• Web Links
• Related Reports

Executive Summary

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The Venezuelan telecommunications market is
very much like other countries in Latin America:
Mobile telephones have helped bring basic service to most of the population, and
the number of wireless connections far exceeds the number of landlines. However,
the
market is also unique. It was the first country in the region to have cellular
service, and the former state-owned monopoly was privatized in 1991, well before
several other countries. It is also unique in that Venezuela is one of the few
nations in the world pushing toward socialism.

Related Faulkner Reports

Telecommunications in South America Market Trends

The government has nationalized most of the country’s key industries
including the telecommunications sector, but the country’s left-hand turn into
socialism has had a negative impact on the economy. The inflation rate
is now 54 percent and the value of the bolivar has dropped dramatically. There are
widespread shortages of basic household goods like toilet paper. Despite this,
the market is still growing, although not as quickly as it once was.

Venezuela’s push into socialism has multinational corporations, especially
those in the United States, thinking twice before investing in the country, but
Venezuela has plenty of its own money to spend on technology thanks to its rich oil
reserves. Unfortunately, the money in many cases appears to have been
strewn over a wide range of projects, meaning that many of them never get
completed before the government moves on to something else.

Market Dynamics

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Venezuela is located on the northern coast of South
America. It is made up of a continental mainland, which shares borders with
Brazil, Colombia, and Guyana, and several islands in the Caribbean Sea.
Altogether, the country covers 912,050 square miles and is home to about 28.9
million people. The country’s total gross domestic product (GDP) was $408.8
billion in 2013, and the per-capita GDP is $13,634.

Venezuela was founded in the 1500s as a colony of Spain and gained its
independence in 1831. Since then, it has had a history of political instability.
The government was overthrown in 1899, 1908, 1945, 1948, and 1958. There were
also two unsuccessful coups in 1992 and another in 2002. The two in 1992 are
significant because they were led by Hugo Chavez and his Revolutionary
Bolivarian Movement-200. 

After spending time in prison for his involvement in the coup attempts, Chavez
was elected president in 1998 and helped implement a new national constitution
the following year. That document called for another presidential election in
2000 and allowed presidents to only serve two, six-year terms in office. Chavez
was reelected to office in 2000 and 2006, and in 2009, he passed a referendum
that abolished term limits, allowing him to run for office indefinitely. He was
reelected again in 2012 and remained president until he died of cancer in March
2013.

Former Vice President Nicolas Maduro assumed the role of acting president and
very narrowly won an election in 2013.

Presidents Chavez and Maduro are most famously known for turning the country
into a socialist state. The government nationalized several major industries,
including oil, agriculture, banking, gold mining, energy production,
transportation, tourism, and telecommunications. The trend toward socialism has
resulted in skyrocketing inflation, devalued currency, and major shortages of
basic goods.

Despite the challenges, Venezuela remains one of the world’s largest producers
of oil.

Figure 1 shows a map of Venezuela, while Table 1 provides a snapshot of the
country and its telecommunications market.

Figure 1. Venezuela

Source:
CIA Fact Book

History of the Telecommunications Market

The modern-day Venezuelan telecommunications market was started in
1930, when Felix Guerrero received a license from the government
to build a telecom network around the capitol. His company, the Compania
Anonima Nactional de Telefonos de Venezuela (CANTV), grew and acquired
several other regional carriers.

The Venezuelan government started nationalizing several industries in the 1950s,
including the telecom sector. It purchased CANTV for $7.1 million, merged it
with several other providers it bought out under the nationalization plan, and
created a monopoly.

CANTV was a state-owned provider until 1991, when the government privatized the
company. It sold 11 percent to employees and another 40 percent to
VenWorld Telecom, a consortium made up of GTE (now part of Verizon
Communications), AT&T, Telefonica, and a pair of Venezuelan investors.

The government also started liberalizing the telecom market in 1991. It gave
oversight of the market to the newly created Ministry of Transport and
Communications (MTC), which in turn created CONATEL as an independent regulatory
authority. In 2013, President Maduro made CONATEL part of the Ministry of
Popular Power for Communication and Information.

CANTV’s monopoly on fixed-line services ended in 2000 and
foreign investment flooded into the country as the government issued licenses to
15 new fixed-line companies.

In 2007, then-President Chavez announced plans to
renationalize key parts of the Venezuelan economy, including the telecom
industry. It bought Verizon’s stake in CANTV, which was 28.5 percent at the
time, for $572 million. The government now owns about 87 percent of the company.

State of the Marketplace

Venezuela has one of the highest teledensities in
Latin America and, like many countries in the region, mobile services have
emerged as the most popular form of communication. 

Fixed-Line Services. CANTV began investing heavily in its network when
the company was partially privatized, and the fixed-line sector has improved
significantly in the last decade. According to the most recent data published by
CONATEL, Venezuela had 7.8 million local access lines at the end of 2015, which put the penetration rate at 26 percent.

The following figure shows how the fixed-line market has evolved from 2005 to
2015. 

Figure 2. Fixed Lines, 2005-2015

Source: CONATEL

Additionally, Figure 3 shows the amount of domestic and international long
distance traffic sent over the Venezuelan network between 2005 and 2015. 

Figure 3. Domestic and International Long
Distance, 2005-2015
(Minutes)

Source: CONATEL

Wireless.

In 1991, Venezuela was the first country in Latin America to have mobile
telephone service. Since then, wireless technologies have become the primary
method of communication for most of the country and the market has grown
rapidly. At the end of 2015, the country had 30.6 million
subscribers for a density of 100 percent The following figures show how the
wireless market has evolved over the past 10 years.

Figure 4.
Mobile Customers, 2005-2015

Source: CONATEL

Fourth-generation mobile services are starting to be slowly introduced in
Venezuela. Digitel became the first company to offer next-generation wireless
there when it launched LTE service in a handful of major markets, including
Caracas, in 2013.

In December 2014, the government issued 4G licenses to CANTV, Mobilnet, Movistar,
and DirecTV, the satellite television company that is being acquired by AT&T.
DirecTV said it will initially just use the spectrum to provide mobile
broadband. All four of these new players have to meet service requirements as conditions of
their license. They were required to offer 4G service to the 20 most populated markets by
the end of 2015, all state capitals by 2018, and 75 percent of the population by
2020.

Internet. Venezuela has the slowest Internet speeds in the world: the
average connection delivers just 1.9M bps of bandwidth. At the end of 2015, there were 2.5 million Internet subscribers (eight
percent density), although there are still over 250,000 people using limited
dialup connections.

The broadband penetration is low, and the Venezuelan
government has made improving Internet access a major priority. The government
is currently investing in a nationwide fiber-optic backbone network that will connect 18 states and
support voice and data services.

The government is also involved in a project called Wi-Fi For All through CANTV,
where it is building out a nationwide network of wi-fi hot spots in schools and
public areas. This project was about half way done at the end of 2014.

Figure 5 shows how the Venezuelan Internet market evolved from 2005 to 2015.

Figure 5. Venezuelan Internet Market, 2005-2015

Source: ITU

Market Leaders

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The
following companies are leaders in the Venezuelan telecommunications market.

Fixed-Line
Services

There
has been some minor consolidation in the Venezuelan fixed-line market. There
are 10 companies licensed to provide local service, nine licensed for domestic long distance, and
12 licensed for international
long distance. Some of the major players in the fixed-line sector are:

CANTV. The
Venezuelan telecom market is fully opened to competition, but CANTV continues to
dominate the local and long distance markets. The company was reacquired by the
Venezuelan government in 2007 as part of President Chavez’s plan to create a
socialist country, and the government now owns about 87 percent of CANTV. The
company owns more than 98 percent of all the local access lines in the country
as well as a fiber-optic network that runs nearly 12,000 kilometers and connects the major cities.

NetUno.  NetUno,
a cable company, is the second largest local and long distance provider in
Venezuela. The company has been investing heavily in building out its network in order to
effectively compete with CANTV, and it now reaches 50,000 people
and businesses in Venezuela. It provides service to several banks, insurance
carriers, other telecom providers, and other corporations.

NetUno now operates a fiber-optic network capable of delivering speeds of 9.5G bps
with rings in Barquisimeto, Caracas, Maracay, Maracaibo, Maracay, and San
Cristobal.

Inter. Inter
is Venezuela’s largest cable operator and another competitor in the fixed-line
market. The company entered the fixed-line market in 2006 and provides
service over a fiber-optic network that connects 80 cities. It offers telephone
service in 12 major markets.

Entel Venezuela. Entel Venezuela
is a subsidiary of one of the largest telecommunications company in Chile. 

The
Venezuelan government has not released updated market share information since it
nationalized the industry. 

Wireless Services

There
are three wireless companies operating in Venezuela.

Movilnet.
Movilnet is the wireless division of CANTV, the
incumbent service provider. The company uses both CDMA and GMS technologies
in its network, and it offers next-generation services over UMTS, HSDPA, and
LTE networks. In 2015, the company installed about 600 LTE stations across
the country.

The company has not released individual subscriber data since the
Venezuelan government nationalized its parent company.

movistar.
movistar is a division of Telefonica, the sixth
largest wireless carrier in the world and a major player in Latin America.
The company has 26.9 million customers in Central America, but it does not break
out its subscriber base by each country. Next generation services are available over HDSPA, HSUPA,
and LTE. 4G service was introduced in January 2017 after almost two years
of trials.

movistar also operated a
CDMA network until March 2014. It shut down this part of its network to focus on
GSM technologies. movistar invested $1.4
billion into its Venezuelan operations in 2015, which is twice as much money as
it invested the year before. A big part of this investment was spent on the
company’s 4G network.

Digitel.
Digicel is the smallest of Venezuela's three mobile
providers, and it claims to have 6.5 million users. It was the first company to operate a GSM network in Venezuela, and
4G service is available in several markets across the country.

Digitel invested $800
million in 2013 and 2014 in upgrading and expanding its network. It now has a
fiber-optic backbone that spans 3,000 kilometers as well as a fully modern IP
transmission network that connects 1,500 base stations. Lastly, its 4G network
covers 108 markets in 21 states.

Table 2 provides a snapshot of the three Venezuelan wireless
carriers. It shows how many customers they have, their market share, and the
network technologies they use. 

Internet

According
to CONATEL, there are 86 ISPs providing service in Venezuela.
CANTV.net, a subsidiary of CANTV, is the dominant player. Other major
players are Telcel.Net, the ISP division of
Movistar; NetUno; IFX Group; and Genesis Telecom.

Market Trends

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Political and Economic Uncertainty Is Shaping the Market

Venezuela’s political climate has
created a level of uncertainty for the telecom market. President
Chavez decided to move his country more toward a socialist state by
nationalizing
several industries, including the telecommunications, oil, and
electricity
sectors. When Chavez announced these plans, Verizon Communications
had a
pending deal to sell its 28.5 percent stake in CANTV to a joint
venture
between Telmex and America Movil. The venture was prepared to pay
$21 per
share, when Chavez swooped in and ordered the company to accept a
buyout of
$17.85 per share. This type of activity, and a widening rift with
the United
States, could hamper any potential international investors. 

President Chavez promised to
continue investing in the country’s telecom infrastructure, but there is
speculation that CANTV will have little incentive to invest in its market.
The company has, however, moved forward with a
program that subsidizes basic telephone service for low-income people.
Qualifying citizens can save 15 percent on domestic long distance and 10
percent on local calling. This is a good sign for the people of
Venezuela, since CANTV is clearly the dominant player in the fixed-line
market. The country's three mobile operators are also involved in a plan
where they are jointly building and operating wireless base stations in
parts of the country where there is no service.

Since President Maduro took office, Venezuela has gone into a steep economic
recession as the value of the currency has dropped and inflation has soared.
This has hit all parts of the economy, including the telecommunications market.
The economy is now consider hyper-inflationary and the devalued currency has had
a rippling impact on the telecom industry. For example, AT&T said it may have to
take charges of more than $1 billion for DirecTV's Venezuelan assets. In April
2016, both Digicell and Movistar indefinitely suspended roaming and
international calling services because they cannot procure foreign currency to
pay other operators due to the extreme inflation. At the same time, prices for
telecom services have increased nearly 10 times over the last several years.
There are concerns that Internet services could eventually be cut off if
companies cannot pay their bills.

In the bigger picture of the overall
industry, the mobile and Internet sectors are the fastest growing parts of the
telecom market and the areas where there is some competition. Like many countries in Latin America, wireless service has
emerged as the most popular form of telecommunications, outnumbering
landlines by more than four to one.

The Internet
sector has also grown quickly, and there are now about one million
subscribers. The Internet market, however, has been subject to
increasing censorship since the government privatized the telecommunications
industry. In late 2010, the government implemented a new Internet policy
that blocks certain web traffic it deems inappropriate. Critics argue
that the government will use these laws as a way to stifle anyone who is
critical of it.

AT&T Enters the Market

AT&T entered the Venezuelan market through its acquisition of DirecTV. This is
worth noting because DirecTV was one of the companies that acquired a 4G
wireless license in December 2014. The Venezuelan government
is forcing all of the companies with 4G licenses to meet specific thresholds for
network coverage, but AT&T has suspended any infrastructure projects in the
country because of the terrible economic conditions.

Strategic Planning Implications

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Traditionally, for outsiders, Venezuela has always been a volatile market and a potentially high-risk environment
for services. US investors have been disadvantaged as Telefonica and Mexico’s Telmex have gained further strength in the
Latin American region. The Venezuelan market
for equipment, however, has been strong and is US-dominated, with US
companies providing 90 percent of all equipment. There may be
investment opportunities as the country attempts to catch up from several
years of recession, but most investors will likely take a wait-and-see
approach and move cautiously for anything requiring a long-term commitment.

Venezuela’s infrastructure is modern. The fixed-line network is 85 percent digital, with
a fiber-optic cable network connecting all major urban areas.  The
country connects to four international submarine networks, including the Pan
American fiber-optic network, which stretches 7,500 km to connect Venezuela,
Panama, the US, the US Virgin Islands, Chile, Colombia, Ecuador, Peru, and Aruba.
Venezuela maintains a domestic satellite system with three earth stations as well as
connecting to PanAmSat and Intelsat. Also, over 1,200 VSATs are in place. Data
and voice transmission are also offered, along with videoconferencing,
international paging, Internet, and satellite-based telephony.

Web Links

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• AT&T: http://www.att.com/
• CANTV: http://www.cantv.com.ve/
• CONATEL: http://www.conatel.gob.ve/
• DirecTV: http://www.directv.com/
• Entel: http://www.entelchile.net/
• Intercable: http://www.inter.com.ve/
• NetUno: http://www.netuno.net/
• Telcel.Net: http://www.telcel.net/
• Telefonica: http://www.telefonica.com/

About the Author

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Bruce Kramer is a
regular contributor to Faulkner Information Services who has written
over 200 articles and white papers on the technology industry over the
last 16 years. In addition to working as an independent author and
analyst, Bruce is a former Senior Editor for Faulkner Information
Services and has over a decade of experience in the supply chain
management and business process outsourcing industries.

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