Why Turkey Matters to Postpaid in Latin America

By the end of 2012, 38% of mobile subscriptions in Turkey will be postpaid contracts. In the four largest Latin American markets of Brazil, Mexico, Argentina and Colombia, which have comparable mobile penetration levels, the share of postpaid subscriptions is much lower.

In 2008, before 3G was introduced in Turkey, mobile penetration stood at over 92%, but in 2010 it had dropped to 84%. Meanwhile postpaid subscriptions grew from 13.4m in 2008 to 19.1m 2010, while prepaid subscriptions decreased from 52.4m in 2008 to 42.7m in 2010.

Exhibit 1: Postpaid vs. prepaid mobile penetration rates, Turkey, 2008-2017

Source: Pyramid Research

Between 2009 and 2010, many customers dropped their prepaid subscriptions to upgrade to a contract including data services and a data-capable handset, often a smartphone. The impact of multi-SIM ownership, which is typical of prepaid-heavy markets, was significantly reduced.

Exhibit: Percentage of postpaid subscriptions, select countries, 2012

Source: Pyramid Research

The success of Turkish operators in migrating customers to postpaid platforms challenges the assumption that postpaid strategies are always more effective in markets that are more penetrated and where customers have comparatively higher disposable incomes. This assumption is often accepted because it is believed that in those markets customers tend to be less price-sensitive and more inclined to take up a contract for their mobile services. Yet in Turkey penetration is still considerably under the 100% mark, and Pyramid Research believes that it will still take a few years before the market reaches this milestone. When it comes to disposable incomes, average Turkish GDP per capita is expected to reach just under US$10,900 by year-end, with Brazil at $12,400, Argentina at $11,500 and Mexico at $10,300.

Certainly, market concentration plays an important role in operator postpaid strategy. In more concentrated markets, operators have more “control” over the customer and have the option, for example, to include large on- net allowances as part of postpaid contracts to make their offers more attractive and encourage migration. And yet, although Turkey is certainly a highly concentrated market (with the incumbent Turkcell holding a 54% share), it is considerably less concentrated than markets such as Mexico and Colombia, where the leading operator holds close to 70% share.

What has worked that could apply to Latin America?

But what are Turkish operators doing right when it comes to migrating customers to postpaid platforms that perhaps Latin American operators could learn from? The answer lies in their ability to leverage the demand for data services, which swelled after the introduction of 3G in 2009.

In the case of the largest operator, Turkcell, this has been possible by focusing their subsidy strategy at mid- to low-level smartphones, which would be offered at the lowest possible price with postpaid data plans. Turkcell had also made a strong effort to expand and improve its retail network. A better retail network and better customer service ultimately translated into a higher opportunity to retain customers and to upsell higher value services such as postpaid subscriptions to customers. This is especially important in emerging markets, where low online and banking penetration limits the potential of the Internet as a sales channel.

Like in Turkey, price is one of the most important success factors in the emerging markets of Latin America. While average prices are falling, operators still need subsidies to sell smartphones at affordable prices. However, they can and should refocus their subsidy strategy. The example of Turkcell shows that concentrating the most attractive subsidies on mid- to low-level and cheaper, operator-branded smartphones can bring some very positive results to postpaid migration. Telefonica’s launch of the Android OS ZTE-made Movistar ONE smartphone and ONE Pad tablet across Latin America is a step in this direction.

The example of Turkey also shows the importance of maximizing the potential of the retail network — both operator-owned stores and independent points of sale — to upsell postpaid plans and devices. Because most Latin American countries have low online and banking penetration, physical stores are best positioned to help operators leverage their brand name and display their best offers and promotions. Leveraging one’s retail network to pursue postpaid growth can mean, for example, undertaking initiatives such as linking dealer and postpaid commissions to the postpaid value created.

— Daniele Tricarico, Analyst