Company Trend Analysis - Claro's Pay-TV Entry To Disrupt Sheltered Market - FEB 2018

BMI View: With its licence being valid, Claro will be able to quickly grow its market share with double-play bundles , pushing rivals to seek consolidation in the cable market. Other players like Telef o nica will try to also enter the market using the same decision , but this could be met with regulatory obstacles .

Uruguay's Court of Civil Appeals has declared America Movil-owned Claro's satellite pay-TV licence to be valid. This comes after a multi-year legal row between the Uruguayan government and the operator, starting when the latter was awarded a DTH licence in 2008. After several court rulings from the Court of Administrative Disputes overturned by presidential decrees, Claro has been effectively unable to offer services and had to keep appealing the decision. This development highlights the pervasive protectionism in the pay-TV sector, benefitting local pay-TV (mostly cable) players.

High Spending Power Supporting Pay-TV Growth
Uruguay - Pay-TV Historical Data
Source: URSEC, BMI

We believe Claro's entry into the market will have a significant impact on the pay-TV market. Claro is a dominant regional player with wide expertise in pay-TV in other LatAm markets. We expect Claro to offer double play (mobile and pay-TV) bundles, offering low prices to rapidly capture market share and threatening smaller local players. This is likely to push local cable players to seek consolidation through M&A to reach the scale to compete effectively. Although subject to regulatory irregularities, Claro might also seek to acquire some local players to be able to offer services through cable, the dominant technology representing 58% of subscriptions in Uruguay as of end-2016.

This development highlights the favouritism and protectionism seen in the mobile market applies to the telecoms market at large ( see ' Monetisation Opportunities To Arise From Additional Spectrum ' August 17 2017). This is reflected in Uruguay's Industry Risk subcomponent of our proprietary Risk/Reward Index, where the country scores 60 out of 100 points in Industry Risk, compared to a regional average of 62.5. Nevertheless, this might set a precedent for other international players to try to enter the market. Movistar ( Telefonica), running a mobile-only operation in the country expressed interest in joining in 2013 and might make a case for entering after Claro's success. Nevertheless, we still expect any bids from either Telefonica or Claro to enter other wireline segments to still be subject to many regulatory hurdles.

Claro's Entry To Trigger Consolidation Trend
Uruguay - Pay-TV Market Shares (%), 2016
Source: URSEC, BMI