Industry Trend Analysis - Telecoms Reforms To Spur Market Development - MAR 2018

BMI View: Updated telecoms legislation would help the mobile market to develop as it would provide better competition and lower prices. Furthermore, the reform s could set a framework for the entry of MVNOs in the future, developing more advanced services in the long-term.

Telcor, the Nicaraguan telecoms regulator, is committed to overhauling the outdated telecoms legislation, first published in 1995. The reform process will start in April 2018 and will be overseen by external consultants. In 2011 Telcor similarly developed a draft to update the telecoms legislation, but the draft was ultimately scrapped. Nicaragua needs a regulatory framework that is up to date with current industry paradigms for its telecoms market to develop. As the market is, Nicaraguans face some of the highest costs for mobile services in the region, with a prepaid tariff of around USD1.16 per minute. Ideally, the reform would also set a framework for regulation of broadband and IPTV services, to future-proof regulation and allow faster development of advanced wireline services.

New Telecoms Law To Drive 3G/4G Uptake
Nicaragua - Mobile And 3G/4G Forecasts
e/f = BMI estimate/forecast. Source: Operators, Telcor, BMI

We expect the new legislation to regulate three important aspects for the development of the mobile market. These were present in the scrapped 2011 update and we believe they will be revisited as they are necessary for market development.

  1. Number portability, which would allow subscribers to change operator without losing theirnumber and having to rebuild their contacts network. This reduces subscriber stickiness, and makes competition more effective.

  2. Cost of mobile services, which would set tariff ceilings for services, helping to start a downward trend in prices.

  3. A framework to define and distinguish network operators and service providers, establishing the possibility of offering wholesale telecoms services. This would be a crucial development as it would set the ground for mobile virtual network operators (MVNOs) to enter the market in the future, a staple of most developed mobile markets.

The combination of these would bring wide-ranging benefits to the mobile market. In the short term, there would be downward pressure on prices from better competition and tariff ceilings. Operators would have incentives to offer better quality of service at more competitive prices as subscribers would be free to migrate operator while keeping their number. In the medium to long term, the entry of MVNOs will also bring more affordable 'no-frills' services, while also targeting niche segments. Lower prices mean some low-income customers will now be able to afford mobile services, implying some opportunities for organic growth. Despite Nicaragua having a high mobile penetration rate of 129% at the end of 2016, we believe this figure is bloated by many inactive SIMs.

We forecast 3G/4G mobile subscriptions in Nicaragua to reach over 7.6mn in 2022, representing 90.8% of the mobile market, up from 29.4% in 2016. A successfully reformed telecoms regulation would pose an upside risk, as more competition means operators will try to aggressively upsell their customers onto more advance voice-and-data plans.