Company Trend Analysis - Telecom Argentina-Cablevisi?n Merger To Force Rivals' Hands - SEPT 2017

BMI View : As Telecom Argentina absorbs the largest cable player nationally, rivals Telefon ica and Claro need to consider aggressive consolidation strategies if they want to keep pace in rolling out converged services from early 2018 . Nevertheless, a s the future of pay-TV shifts towards fibre and IPTV platforms , operators should avoid distracting themselves from the end target.

Telecom Argentina and cable broadband operator Cablevision plan to merge to become a converged services operator. Cablevision is currently owned by Clarin Group, the largest media conglomerate in Argentina. This is an important move, as it will be the first multi-media cross-sector deal since the regulator, Enacom, rescinded rules prohibiting companies from providing converged pay-TV, internet, wireline voice and mobile service packages ( see 'New Regulations A Good Start, But More To Be Done' January 4 2017).

The timing of the deal is significant because:

  • the decree barred major telecom players Telecom Argentina, Telefonica and Claro from offering pay-TV services until January 2018, essentially giving cable TV players a one-year lead in the race to provide convergence services; and,

  • cable TV operators' infrastructure can be easily be adapted to provide telecoms services, while telecom operators would need to invest heavily to upgrade theirs to provide pay-TV services.

Cable Demand Stable, Broadband On The Rise
Cablevision Cable TV and Internet Subscribers ('000)
Source: Grupo Clarin

We expect Telefonica and Claro to respond to Telecom's pre-emptive strike by acquiring other pay-TV players as the end of the temporary restriction draws near. Acquiring a cable-TV provider, waiting to 2018 and starting to offer converged services using the combined infrastructure assets would be a more time-efficient strategy than building their own pay-TV infrastructures from scratch.

Telecom Argentina has gained a great advantage by absorbing Cablevision, a dominant operator in both the cable TV market and the wider pay-TV market. Telefonica and Claro would have to look to much smaller cable players - such as Supercanal and Telecentro - if they want to launch convergence services and prevent Telecom Argentina from cementing its leading position in the market. A cheaper alternative would be to bundle streaming video services, such as Netflix, with their pay-TV services, but they would thus have less traction in the market for locally-relevant content, whose broadcasting rights are likely to be held by pay-TV players such as Cablevision.

Despite Telecom Argentina being poised to dominate the converged services market in early 2018, medium and long term opportunities remain for rivals to regain lost ground. In the medium term, Telefonica's expertise in providing quad-play services, both in terms of implementation and provision of content, will be a key competitive asset. In the long term, as demand for advanced services grows, fibre will become increasingly important in delivering premium quad-play services. Operators can already prepare for this transition by tapping the federal fibre-optic network (REFEFO) wholesale services.