Devaluations directly impact company strategies. What will happen now, when new budgets must be defined?
Within a year and a half of the announcement of large-scale investments in the telecommunications market, the exchange rate stampede and the sharp rate escalation caused a sharp deceleration of the plans of the main companies: if they used to advance at highway speed, now hardly They do the maximum allowed to circulate in the streets.
In other words, the "telcos" maintain the planned plans, but the pace is altered by the behavior of the greenback.
– For the 2017-2019 triennium, Telefónica had confirmed $ 47,000 million
– For the biennium 2018-2020, Telecom accounted for disbursements for US $ 5,000 million
– Meanwhile, Claro ratified the traditional US $ 400 million annually
In all cases, these are dollar amounts since the equipment is quoted in that currency. But, in return, revenues are subject to what happens in the domestic market, where services are charged in pesos. That makes an exchange rate change the disbursement rate. It happened last year and now it is repeated again.
These days marks almost a year of that devaluation that brought the price of $ 30 to $ 40: after the holiday of August 17 (2018), the US currency went from $ 30 to almost $ 38 and then, in September, flirt with the $ 40 and then cross that threshold. This escalation caused the first cimbronazo in the telco sector.
In those days, Carlos Moltini, CEO of Telecom, although he confirmed the investments for US $ 5,000 million, he warned that they would occur at a slower pace since the company's turnover is in local currency.
Those disbursements, which were going on the highway, had to take the next descent and adapt to the maximum speed imposed by the street. The rest of the companies had to maneuver in the same way.
History that repeats
In 2019 it was not necessary to wait for the Father's Day holiday: the STEP advanced everything. To the point that telco sector sources anticipate a new change of pace after the dollar skyrocketed from $ 47 to a level close to $ 60. This, not forgetting the "slapping" received by Argentine assets in the stock market.
"The investments are in dollars and budgets, in pesos. Inflation is so high that no matter how many rates are recomposed it is not enough to balance that gap," he says. iProUP Alejandro Adamowicz, Technology Director of GSMA for Latin America.
For now, companies have no choice but to await the arrival of a calmer political, economic and financial landscape to rethink their action plans. Moreover, at these times when operators are beginning to analyze budgetary issues for 2020.
"The investments announced continue in progress. But, logically, before the change of the conjuncture they will take another rhythm and will extend in the time", they indicate to iProUP Telecom sources, statements that coincide with what Moltini himself expressed a year ago.
As for the planned strategic movements, Telecom continues to deploy its 4G network with which it reaches more than 1,600 locations in the country, as reported by the firm. Speaking in silver, in the first six months of 2019 he made disbursements for $ 24,000 million (+ 2.3% compared to the first half of last year.
The funds focused on projects aimed at strengthening networks and the development of products and services that meet the needs of their customers. Mainly, in terms of connectivity and availability of data and content.
Sonia Agnese, senior analyst at Ovum for Latin America, affirms iProUP that "worldwide companies usually allocate a percentage of their income, which ranges from approximately 15% to 20%, to infrastructure."
"As the income is in pesos and most of the investments in dollars, the amount destined for that purpose becomes smaller in terms of hard currency. That is, if the budget is in local currency, the yield is reduced," underline
Experts insist on the strong impact generated by this mismatch. And although the rates increase, the truth is that companies cannot go beyond what the Argentine pocket supports.
On the Telefónica side, it disbursed 175 million euros (US $ 194 million) in the first half, equivalent to 14% of sales. That percentage was lower than the first half of 2018, when it had reached 17% of turnover.
Anyway, these contributions rose 23% year-on-year, but fell 31% in euros.
"In the short term, the effects of the devaluation will not be felt, but in the medium term. Because the equipment that had already been purchased had to be installed and put into operation. But, from now on, acquire new equipment and develop the next budgets will become more complicated, "says consultant Sebastián Cabello.
With the pencil and the expectation
The companies confirm on their balance sheets the current state of affairs and give some clues as to what will come: they raised the foot of the accelerator and now maintain cruising speed when sinking capital.
Total revenues for Argentina decreased 7% and those for mobile services decreased 7.2%, as customers have been reducing their consumption levels in line with the contraction of purchasing power, and this effect has been felt more in the segment of prepaid, graph from América Móvil, Claro controller.
Carlos Elizondo, the company's chief financial officer, says: "Argentina has been considered a hyperinflationary economy and that is why the financial results will be presented in constant terms in Argentine pesos."
About to begin the last four months, caution prevails in the Telco sector. Especially, as a result of an electoral situation that cannot be ignored and which, beyond the results, anticipates a totally different scenario from the current one.
"It must be remembered that investment plans are made for the medium and long term, it is not a mere change of stock as can happen in another sector. It will continue advancing with what is already underway, by inertia. Then, based on the definitions of the new government, you will see what decisions to make, "says Agnese of Ovum.
The concern today, adds the specialist, is to make the ongoing projects profitable. "In recent years, investments were more strategic and timely, such as platform and core, but those of network deployment, coverage are the ones that are most affected and will be those that take a little longer, "he says.
In the vision of Adamowicz, of GSMA, that disbursements take a slower pace "will affect the quality of service in the medium term because, without pretending to be alarmist, current deployments are buried, that is more expensive." In this way, users do not quickly receive the benefits of having benefits based on new technologies.
Fiber optic networks are a very illustrative example of this situation. They are, without a doubt, the ones that users demand as a result of the new consumptions that are made through them, especially those of video and audio. Companies move forward but taking into account the purchasing power of Argentine homes.
To date, Telefónica de Argentina has 481,000 homes connected to its "Movistar Fibra" services, launched less than a year ago, out of a total of 1.9 million past homes. And 90,000 customers of Movistar Play, which allows them to access video streaming services via the mobile network.
On the Telecom side, they indicate that the improvement of capacity and network coverage are a key factor not only to evolve towards convergent services, "but also to leverage the content business, with Flow as an entertainment center and comprehensive content platform" .
In relative terms, investments represented 25% of consolidated sales, compared to 22% in the first half of 2019. These figures show, in short, how decisions are being made in the middle of an Argentina that does not stop succumbing to its own situation and the blows of what happens abroad.
Given the succession of unexpected events, the most reasonable departure for now is to continue traveling, but through the streets and at no more than 40 km per hour. The expectation is that, at some point, you can return to the avenue and, when the economy stabilizes, step on the accelerator and get on the highway.