A little history
Blim launched February 2016 amid a flurry of memes and parodies from Netflix and others. Then, in October of the same year, Netflix was forced to remove all Televisa content, namely its telenovelas, from its catalog. This is where it stopped being funny.
Why I think this is a bold and smart move by Telefonica
Video is the fastest growing market for mobile network operators. Voice and data have become too hard to differentiate, and the margins are just not there anymore.
This deal is the differentiator that Telefonica needs to stem the loss of users it has been experiencing. According to the Instituto Federal de Telecomunicaciones (IFT), Telefonica lost 6.3 million users and acquired only 3.1 million users in 2016. Another advantage is that Blim is a national product, tailored to the Mexican market. If this play works well in Mexico, Telefonica is well positioned to replicate the model in other Latin American markets where it has a presence today. This includes every country in Central and South America, with a few noted exceptions.
Not that it will all be downhill, AT&T is a formidable adversary with “end of days” money that it is pouring into its Mexico play, as it rolls over national players.
On top of that, AT&T’s acquisition of Time Warner will give it an unlimited supply of prime content that it can serve out to its subscribers. However, the deal isn’t expected to go through until the end of this year, and its benefits will probably not be felt in Mexico for another 2-3 years. We cannot forget AT&T previous entry and calamitous exit from the Mexico market in the not too distant past.
All of this taken in aggregate, and if Telefonica and Blim play their cards right, this might be enough time and circumstance for them to establish a foothold.
Devil in the details
As a dubious congressman, Frank Underwood would say “The fine print is far more important than the sale price”. One thing to note about the rollout is that only postpaid users will enjoy what’s known as Zero Rating. This an industry term that means toll-free data or sponsored data. Prepaid users will have their streaming deducted for the MB supply included in their plan. To put it into context most users, about 83%, in Mexico are prepaid.
Telcel: The elephant in the room
No telecom discussion involving Mexico can leave out giant Telcel, the crown jewel of M. Slim. With 73 million mobile subscribers, a whopping 66% of the market, Telcel, of course, has its own OTT offering: Claro Video. You would think with this kind of hold they would easily command the market. Alas, there is an incongruity in strategy for Telcel. On the one hand, they want to leverage their user base to push their Claro Video product, but they do so at their own peril. The new telecom regulation introduced in 2013 forces Telcel to reduce its market share below 50%. If they push too hard with the Claro product, they come dangerously close to the preponderance laws and invite more regulatory scrutiny. With this in mind, This alliance between Blim and Telefonica will surely be a wake-up call for them to find a way to compete.
Netflix and other content providers
Just like Telcel, this should be a wake-up call to other content providers. Creating portfolios more tailored to the market they are serving will be an important progression. Another key aspect, as always, is delivery quality and by this, I mean low latency. Users today, in any country, won’t stand for glitchy video.