26 Feb 2018

5G in Latin America: A region's global competitiveness at stake

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A white paper from Frost & Sullivan and Principal.

Latin America’s commodity-fueled economies have been slow to recover from the global economic crisis. A number of recent factors have further contributed to economic uncertainty, including corruption scandals in Brazil, the influence of North American Free Trade Agreement (NAFTA) renegotiations on Mexico, and Venezuela’s economic collapse. While the regional outlook has improved with increasing export demand for raw materials, growth prospects remain below those of both developed and other developing economies.¹ This sluggishness is amplifying ongoing discussions about economic resilience in Latin America.

At the heart of these conversations are two fundamental goals: improving global competitiveness and building a more equitable society. The internet revolution has shown that development of and broad access to telecommunications technologies are central to realizing both. Like many developing regions throughout the world, Latin America is quickly becoming a mobile-first region, raising the importance of mobile broadband for internet access.

Now, 5G—the next generation in cellular communication technology—is on the near horizon (with widespread commercialization in developed economies estimated to begin in 2020). 5G promises data speeds at least 10 times faster than current 4G networks and an almost unlimited ability to support both growing consumer demand and, importantly, emerging industry applications, such as advanced manufacturing and smart agriculture. Thus, mobile’s potential to play an even more prominent role in restructuring Latin American economies will grow because  of 5G-enabled innovations and efficiencies. However, critical questions remain: when will the 5G transformation in Latin America occur and what specific impacts will it have?

5G timeline for Latin America

The mobile telecommunications story in Latin America is one best characterized by continued rapid expansion. In Latin America, the number of unique mobile subscribers is expected to increase from 451 million in 2016 to 511 million in 2020, representing growth in penetration from 70% to 76%.² By our estimations of available data, mobile broadband subscriptions already outnumber fixed broadband subscriptions by a ratio of over five to one.³ And by 2020, penetration rates for 4G connections in Latin America will be approaching global averages, at 42% and 44%, respectively.⁴

Mobile adoption is thus growing in terms of sheer quantity and technological sophistication, with greater use of data-and internet-oriented devices, such as smartphones. Thus, this surge in mobile broadband activity is reflected in the growing contribution of data services to total mobile phone revenue: in 2020, revenue from data in Brazil will account for 62% of total revenue (up from 39% in 2015), with similar expectations for other countries with large populations, such as Mexico and Colombia.⁶ So the business case for supporting data-intensive mobile services has been mounting.

The response of mobile network operators (MNOs) has been to invest heavily in 4G networks to support growing smartphone use, particularly in terms of data-heavy applications such as video streaming and accessing social media. However, current investments in 4G networks may be one reason for delays in the large-scale build-out of 5G in Latin America.

With 4G investments still underway, the appetite for funding another generational upgrade in the very near future seems relatively low—especially given typically long returns on investment for telecommunications infrastructure in Latin America. Further, the fact that consumers will have to invest in 5G-enabled handsets means a smaller initial consumer base for 5G services until consumers decide to upgrade.

It is also worth mentioning that, as a radiofrequencybased technology, 5G relies on the availability of regulated spectrum. Latin America’s regulatory agencies have been slow to meet the spectrum-allocation goals recommended to support the growing number of connected devices in the region.⁷

It’s difficult to see 5G investment progressing until greater commitment to meeting adequate spectrum requirements for high-quality service is demonstrated. Without having yet achieved returns on current network investments, without a sizeable initial consumer base, and without spectrum availability secured, MNOs will likely push out 5G development beyond what we see in regions like North America and Western Europe, and in specific Asian countries (e.g., Japan, South Korea, and China) until compelling business cases can be made.

Country indicators for 5G in Latin America

All this said, Latin America is not immune from the hype of 5G, despite an extended projected timeline for scaled rollout. Brazil has arguably been proactive in exploring 5G’s potential in Latin America as part of the country’s digital agenda. Telebrasil, the Brazilian Telecommunications Association, has signed an agreement with countries at the forefront of 5G (China, Japan, South Korea, the United States, and the European Union) to help develop the technology and determine global standards. The Brazilian government has also established a partnership with Swedish telecommunications technology developer Ericsson to build an innovation center focused on the Internet of Things (IoT) and 5G in the state of Sao Paulo.⁸ The partnership with Ericsson extends an existing relationship for 5G trialing with Mexican telecommunication giant América Móvil, which has a number of Brazilian subsidiaries.⁹

In Mexico, the region’s second-largest economy, the government is taking notable steps toward connecting unconnected populations via an ambitious mobile telecommunications project called the Red Compartida. Controlled through a public-private partnership between Promtel, the Mexican telecommunications investment agency, and Altan Redes, a consortium supported by global infrastructure funds and a mix of public, institutional, and industrial partners, the Red Compartida aims to bring mobile broadband access to over 90% of the country’s population. To do so, the consortium will build a 5G-ready wholesale network using the latest 4G-LTE technology future proofed for eventual 5G rollout.10

Mexican MNO Telcel has also announced some 5G network deployment in 2020 (coming off of its announcement that it would share infrastructure with the Red Compartida network).¹¹ The announcement by Telcel, also a subsidiary of América Móvil, should be viewed in light of increasing competition from AT&T, which has a number of 5G trials currently operating in the United States. The evidence, thus, points to the strong possibility of Mexico leading large-scale 5G rollout in Latin America. Further supporting this hypothesis is the presence of Mexico’s large manufacturing sector—an area ripe for 5G deployment as a connectivity enabler for the Industrial Internet of Things (IIoT), which applies the concept of the IoT to commercial settings such as factories. If Mexico succeeds in winning the 5G race in Latin America, rollout will help strengthen Mexico’s global competitiveness and broaden its social inclusiveness.

Additional Latin American countries have made 5G-related announcements, as well. MNO Movistar, with support from Ericsson, has lab-tested 5G in Argentina.12 In Colombia, telecommunications service provider TigoUne has announced 5G network tests. And, in Chile, Chilean Undersecretary of Telecommunications Subtel has supported 5G tests with the aid of MNO Claro Chile and Finnish telecommunications multinational Nokia, while Huawei and MNO Telefonica have launched a lab focused on narrowband IoT (NB-IoT)—an important stepping stone for 5G technology.13 Further, Uruguay’s Antel, the country’s state-owned telecommunications company, has also announced that it is developing 5G technology.14

Clearly, Latin America has begun to embrace the 5G revolution, and technology partnerships are emerging, setting the roadmap for future 5G development. But, for the near term, Latin American MNOs will likely stay focused on strengthening their 4G networks before fully investing in large-scale 5G capabilities. While pockets of 5G commercialization may emerge in the early 2020s in business districts of large metropolises or through private networks supporting specific industry use cases, wider commercial launch will be a longer-term prospect for most Latin American countries.

5G use cases for regional leaders

The discussion of 5G timelines for Latin America is important because advanced telecommunications infrastructure has become integral to globally competitive and innovative economies. Further, economic growth and sustainability cannot be achieved without broad economic inclusion. Mobile technologies have shown tremendous potential for broadening access to banking and financial services, as well as to services that indirectly impact a person’s economic wellbeing, such as education and healthcare. As the next generation of mobile connectivity, 5G promises to enable a wide range of technologies and services that will impact Latin America’s most vital economic sectors and its citizens.

For instance, the Brazilian government has labeled the IIoT as a priority area of focus for developing smart cities and in the healthcare and agricultural sectors.15 In Brazil, the IIoT is currently in early growth stages, but by 2020, the market will double over 2016 figures, to reach more than $2.68 billion.16 5G is expected to be the enabling connectivity architecture of choice for the IIoT because it will offer ultra-high levels of reliability with minimal latency so that lags between a device’s sending and receiving of data become imperceptible.

Of Brazil’s focus areas for the IIoT, agriculture is particularly interesting because of the sector’s size in Latin America. Cultivating a center of expertise in, for example, drones for agricultural use, autonomous tractors, and other precision agriculture technologies could position Brazil as a leading exporter of smart farming solutions and services. But for Brazil to compete regionally and globally in this area, use of 5G networks will be required. From a commodity standpoint, 5G-enabled smart agriculture will also yield data-driven insights to address long-term challenges, such as climate change, and increase yields to contribute to a growing global population.

As 5G networks build throughout the region, other important agricultural production centers, including Argentina, Colombia, and Mexico, will also benefit from expansion of smart agriculture technologies for both livestock and crop management.17 Further, it should be noted that other commodity areas, such as mining and oil and gas, will see similar 5G-enabled IIoT technologies gain footholds in countries like Chile as well as in countries already noted. In addition to smart agriculture, smart cities, especially in terms of urban transport, will be a leading application for 5G in Brazil as well as in the rest of Latin America. Latin America is one of the most urbanized regions in the world, with 80% of the population living in cities, resulting in highly congested traffic.18 Citizens heavily rely on public bus systems for urban mobility. Cellular networks—at first 4G, then migrating to 5G—are already improving the intelligence gathering for public transport, reducing emissions, and equipping buses with fleet tracking capabilities and wireless CCTV for better safety and monitoring. Once 5G becomes dominant in urban centers, it will offer a future connectivity solution for additional smart traffic solutions, such as smart traffic signals and more advanced real-time traffic monitoring.19

Mexico’s manufacturing sector also offers a compelling use case for 5G. The machine-to-machine (M2M) connectivity market in Mexico is a relatively small but fast-growing market, with lines in services requiring cellular connectivity expected to triple by 2021. Industrial applications, such as manufacturing automation, will be a primary driver of this growth.20 The Mexican government has already released a roadmap for Industry 4.0 (advanced/smart manufacturing) that highlights technologies such as augmented reality, robots, artificial intelligence, and the IoT.²¹ Coupled with its larger push to bridge its digital divide by expanding mobile broadband coverage, Mexico’s Industry 4.0 roadmap presents a thorough strategy, but will require 5G to be fully enacted.

Connected industries will ultimately increase Latin America’s economic potential, which will raise standards of living, assuming growth is shared equitably. Citizens will benefit from 5G in other ways. Despite high mobile penetration rates, Latin America still has a tremendous digital divide. This means that a large portion of the population cannot afford mobile or fixed broadband service despite available coverage.²² 4G has the potential to offer broadband internet access to underserved populations. However, 5G has the potential to elevate that access by supporting more data-heavy applications, such as video, real-time communications, and augmented reality—all vital to the next generation of digital literacy. However, governments and MNOs will have to find ways to make internet-accessible devices like smartphones more affordable. They will also have to ensure affordable service costs, as well.

One area that could greatly benefit people’s lives via improved internet access is financial services, given the fact that 49% of adults in Latin America remain unbanked.²³ Financial services providers are beginning to offer digital solutions that will greatly change consumers’ ability to access monetary products and save for retirement. BB Seguridade and Principal Financial Group, for instance, have launched Ciclic Corretora de Seguros to offer pension services through digital channels in Brazil. However, as the region becomes more connected through increasingly advanced networks, like 5G, digital channels will expand the idea of financial inclusion, bringing services once only accessible in developed economies or by the elite to mass populations.

Implications for the investment community

Despite a tremendous amount of promise, 5G in Latin America is somewhat of a wait-and-see prospect. The region has been late in preparing for 5G. Further, political disruptions and regime changes may disrupt any regional plans that have been set to develop this and other emerging technologies. That said, the foundation for surgically precise investments in the early 2020s is being laid, and we’ll likely see more pilot projects surfacing in the next few years, revealing a clear trajectory for 5G advancement in the region.

Ultimately, though, advanced telecommunications has become vital infrastructure for innovation, and progress in this area will determine how competitive Latin American economies are globally in the coming years. In Latin America, 5G is about two prospects: first, enabling technology to generate new efficiencies in top export markets, such as agriculture, oil and gas, and metals and minerals; and second, inspiring innovation so that services, manufacturing, and technology make up a greater portion of regional exports. The issue with slow deployment is that it could set Latin America up to trail economically, as regions like Asia move ahead quickly. This means that industrial users, rather than the consumers, must be trailblazers in the region. Some industries, such as manufacturing, will be pressured earlier than others, depending on the extent to which 5G is integrated in Latin America and elsewhere. For example, Mexico’s manufacturing sector, with exports primarily to the United States, must stay competitive withautomation and advanced manufacturing or risk seeing production migrate to other regions with better connectivity infrastructure. The telecommunications companies that can corner the connectivity needs of one or more industrial segments will have a leg up in establishing 5G dominance.

From a regulatory standpoint, a focus on what governments and agencies are doing to expedite development and build public-private partnerships supporting 5G is important for gauging the timing of widespread rollout—particularly in the consumer segment. Attention to spectrum allocation and harmonization will be a key factor in the success of 5G within the region because when MNOs are aligned, economies of scale can be leveraged to improve service quality and lower costs throughout the region.

Finally, from a business perspective, the eventual adoption of 5G by consumers will result in the growth and evolution of connected services in areas such as financial services, healthcare, and education—improving social equity overall and aiding in economic sustainability. Those companies developing these services now are strengthening their presence and position in the Latin American market for when 5G ushers in even more connected disruptions. Once rollout occurs, 5G adoption will likely follow trends similar to 4G. International suppliers of necessary telecommunications and computing technology will face intense competition while standing to gain significantly, as Latin America primarily imports these technologies.

Latin America has seen tremendous momentum in mobile adoption and will be a mobilefirst region in the coming decade. However, despite advantageous conditions for 5G, a large question as to whether this technology will be deployed sooner or later exists. Latin America has many reasons to implement this technology—with benefits that would impact both business and consumers. But the challenge will be in prodding regulators and MNOs to commit to development in the same way we’ve seen in other developing countries like China and India.

End notes

1 International Monetary Fund. 2017. World Economic Outlook.

2 GMSA. 2017. The Mobile Economy: Latin America and the Caribbean 2017.

3 ITU. 2017. “Global and Regional ICT Data: Key ICT Indicators for Developed and Developing
Countries and the World.” Statistics. https://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx;
OECD. 2018. Wireless Mobile Broadband Subscriptions. https://data.oecd.org/broadband/wirelessmobile-broadband-subscriptions.htm; OECD. 2018. Fixed Broadband Subscriptions. https://data.oecd.org/broadband/fixed-broadband-subscriptions.htm#indicator-chart

⁴ GMSA. 2017. The Mobile Economy: Latin America and the Caribbean 2017.

⁵ Frost & Sullivan. 2016. Brazilian Total Telecommunications Services Market and the Impact of
Mega Trends. https://cds.frost.com/p/297734469/#!/nts/c?id=K0A0-01-00-00-00&hq=Argentina%20
total%20telecommunications%20services%20market; Frost & Sullivan. 2016. Mexico Total
Telecommunications Services Market. https://cds.frost.com/p/297734469/#!/nts/c?id=K0C8-01-00-
00-00&hq=mexico%20telecommunications%20services%20market; Frost & Sullivan. Colombian
Total Telecommunications Services Market, Forecast to 2021. https://cds.frost.com/p/297734469/#!/

⁶ Ibid.

⁷ 5G Americas. 2017. Analysis of ITU Spectrum Recommendations in Latin America:
Understanding Spectrum Allocations and Utilization in Latin America. http://www.5gamericas.org/

⁸ Presidency of the Republic of Brazil. March 2017. Brazil-EU Partnership will Focus on Internet
of Things and 5G. http://www.brazilgovnews.gov.br/news/2017/03/brazil-eu-partnership-will-focuson-
internet-of-things-and-5g; 5GPPP. June 2017. Projeto ‘5G Brasil’ Joins Leading 5G Visionary
Organizations in China, Europe, Japan, South Korea and the Americas for “Global 5G Event.”
japan-south-korea-and-the-americas-for-global-5g-event/. Ericsson. April 2016. Brazilian
Government and Ericsson to Innovate Together for Internet of Things. https://www.ericsson.com/en/

⁹ Ericsson. October 2015. Ericsson to Bring 5G to Brazil. https://www.ericsson.com/en/

10 Secretaria de Comunicaciones y Transportes. November 2016. “The Ministry of Communications and
Transportation of Mexico (SCT) Announces the Result of the International Tender for Red Compartida.”
Economico_ENG_v1.pdf; Altan Redes. 2017. Red Compartida. http://altanredes.com/en/red-compartida/

11 Antonio Cahun. October 2017. “Telcel Migrara a la Red 4.5G a Finales de 2017, en 2020
Lanzaran su Red 5G.” Xataka Mexico. https://www.xataka.com.mx/telecomunicaciones/

12 Ericsson. November 2017. Movistar and Ericsson Bring First 5G Trial to Argentina.

13 TigoUne. TigoUne Will be the First Operator to Test 5G Networks in Colombia. http://saladeprensa.
une.com.co/index.php/1914-5g; Patrick Nixon. December 2017. “Claro Chile, Nokia Carry Out First
5G Lab Trials in Latin America.” BNAmericas. https://subscriber.bnamericas.com/en/news/ict/clarochile-
nokia-carry-out-first-5g-lab-trials-in-latin-america/; Telefonica. June 2017. Telefonica and Huawei
to Launch NB-IoT Open Lab to Boost the Internet of Things. https://www.telefonica.com/en/web/

14 Montevideo Portal. September 2017. “Antel Develops 5G Technology for the
Mobile Phone Network.” http://www.montevideo.com.uy/Ciencia-y-Tecnologia/

15 Smart Cities World Forums. August 2017. “Brazilian Government to Accelerate IoT Services
for ‘Smart Cities’ Initiative.” http://www.smartcitiesworldforums.com/news/smart-cities-southamerica/

¹⁶ Frost & Sullivan. 2017. Brazilian Industrial Internet of Things Market, Forecast to 2021.

¹⁷ Frost & Sullivan. 2017. Connected Agriculture in Latin America, Forecast to 2021.

¹⁸ United Nations. 2014. World Urbanization Prospects, 2014 Revision.

¹⁹ Frost & Sullivan. Latin America Bus Market: Growth Opportunities, 2016 to 2022.

²⁰ Frost & Sullivan. 2017. Mexican Machine-to-Machine (M2M) Market, Forecast to 2022.

²¹ Secretaria de Economia. 2016. Crafting the Future: A Roadmap for Industry 4.0 in Mexico.

²² GMSA Intelligence. 2016. Connected Society: Digital Inclusion in Latin America and the Caribbean.

²³ The World Bank. 2014. Global Findex. http://datatopics.worldbank.org/financialinclusion/region/

²⁴ Frost & Sullivan. 2017. Mexican Machine-to-Machine (M2M) Market, Forecast to 2022.



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