Ahead or Behind the Curve?Puerto Rico’s Telecommunication Market

Inside the ReportReport Highlights 04

Introduction to Telecom in Puerto Rico 06

What Should We Expect 10

Telephone

Land lines 14

Mobile Subscriptions (Mobilephones) 15

Which Mobile Companies Dominate the Market 18

International Comparison - Mobile Subscriptions 20

Voice over Internet Protocol (VoIP) 22

Broadband

Broadband Subscriptions (Fixed and Mobile) 24

Broadband Speed 29

International Comparison (Fixed and Broadband) 30

Broadband Price 31

Mobile Broadband 32

Mobile Broadband price 33

International Comparison - Broadband Speed 34

Cable TV 36

Streaming is the New Cable 38

The Bottom Line 40

Apendix: Generational Profiles 45

02 03

Report Higlights

“Mobile is for the People, but Broadband is Exclusive…”

• The evolution of the Telecom sector has impacted how business and consumers interact, how governments manage

their services, how financial transactions are carried out, how people manage social interactions, how technology

interacts with business and communities, among other disruptions.

• Households continued to limit their use of landline phones, mainly due to a preference for mobile service. There are

almost 3.4 million active mobile phones in Puerto Rico vis-à-vis 687,000 active landlines.

• Mobile service subscription continues to increase in terms of broadband penetration via smartphones technology.

During 2019 the total number of home broadband subscriptions totaled 610,000 while mobile broadband represents

almost 3.2 million active users.

• “Mobile is for the People, but Broadband is Exclusive…” mobile internet users have incremented exponentially, while

home internet users have maintained relatively low. Even though, there could be multiple mobile users within a single

household, mobile users are almost 2X bigger. Primarily, households with higher incomes are the ones who can afford

both home and mobile broadband services.

• Mobile coverage is not equally distributed around the Island. The coverage by mobile providers is highly unequal.

Some providers have limited coverage within the Island’s central region.

• Given the high inequality of the local telecom market (provider’s coverage and consumer income inequalities), one

should expect multiple types of bundles, particularly crafted for each customer segment and considering the provider’s

coverage.

• Puerto Rican households spent an average of $48.00 per month on their home broadband services, very similar to

what Continental U.S. residents pay ($50.00). Consequently, Puerto Rican households spent more per month on mobile

communications than on Internet services, television and landline services.

• In fact, mobile broadband prices in Puerto Rico are higher than prices in the U.S. (in aggregate). Yet, Puerto Rico’s

median household income is less than a third of the household income of the U.S. Given that 45% of the Puerto Rican

population falls under the poverty line, locals are destining a large share of their household income to telecom. Thus,

like energy bills, telecom related expenses could be viewed as a utility.

• The way the market has cope with this reality is reflected in the increased tendency for pre-paid services. This

evidences that higher income households could destine a higher proportion of their income to telecom- related

services.

• Puerto Rico seems a non-traditional market, when compared to other jurisdictions in the U.S. or even to other

countries in Latin America. Income and infrastructure levels are somewhat higher than Latin America, however, usage

and speed still remains below that of U.S. jurisdictions, even though prices and bundles resemble those of the U.S.

• Puerto Rico is increasing its average download speed, but still lacks behind many countries in the Caribbean.

• Load shift - the COVID-19 crisis has shifted the traditional conception of work environments with

high telecom demand, with a new work environment shared between households and traditional office

spaces.

• More areas of the economy will continue to shift their operations to a digital environment. Such

tendency will add new business opportunities for telecom companies, as more robust and expensive

telecom services will be demanded.

• The new normal, particularly, limited incomes, uncertainty, higher e-commerce, higher number of

government services provided online, among others, will increase the dependence on telecom services,

and thus, consumers will be more “cautious” in the selection of their provider.

• Both consumer fixed services and mobile services will benefit from telecom plans which are able

to combine ancillary services within a single bill. That is, traditional telecom providers will need to

collaborate with streaming services, and other digital services.

The evolution has iterated in several transitions:

1. From land lines to mobile phones

2. From dial-up to broadband

3. From fixed broadband to mobile broadband

Primarily, households with higher incomes are the ones who can afford both home and mobile broadband services.

04 05

Introduction to Telecom in Puerto Rico The telecommunication industry worldwide has recorded significant changes in the past 20 years, moving

from land lines to mobile phones, and from dial-up to broadband. The evolution of this sector has impacted

how business and consumers interact, how governments manage their services, how financial transactions are

carried out, how people manage social interactions, how technology interacts with business and communities,

among other disruptions. Essentially, changes in telecommunications have shifted the way our economy

operates. Moreover, telecom has disrupted not only how businesses and society communicates, but also how

systems and things interact with each other. Telecom is increasingly about communicating devices or what

some experts consider “operational interconnectivity”.

1 This is a term used for clients that choose to cancel their cable or satellite subscriptions in favor of using the internet to stream shows and movies. The

term could also be applied to the recent trends in eliminating fixed telephone lines in favor a mobile phone subscription.

2 Growth is potentially understated since total population loss has organically pushed the number of subscribers down.

As will be described along the

report, the telecom industry has

undergone a dramatic growth in Puerto

Rico during the past decade. Growth has not

been limited to a higher number of users2 , but

also more robust network, more industry players,

higher competition, more plans, more hardware options,

more usage and even a greater number of daily processes

which are executed via the telecom infrastructure. The results from the report evidence that Puerto Rico is a non-

traditional market when compared with other jurisdictions in the U.S. or even other countries in Latin America. As noted

in the report, income and infrastructure levels are somewhat higher than Latin America, however, usage and speed

remains below that of U.S. jurisdictions, even though prices and bundles resemble those of the U.S. Such trend is not

derived from the supply-side (telecom operators) but rather it’s partially due to the slow transition to a digital economy

in the Island. If economic activity does not transition to more digital ventures, one should expect modest changes in

terms of usage and optimization of infrastructure capacity. The fact that demographic trends show a rapidly aging

population, telecom companies must satisfy the consumer demands of such age cohorts (security and accessibility).

The telecommunications sector encompasses all companies that make communication possible, including

phone, internet, airwaves, cable, whether it be wireless or wired. During the last 10 years Puerto Rico has

seen significant changes in areas such as phone lines and cable subscriptions, areas most affected by “cord

cutting” 1 consumers. These changes come in part due to shifts in technology, but also as a result of changing

demographics. The recent events triggered by the COVID-19 crisis, have accelerated the abovementioned trends,

particularly how consumers manage their daily lives with a strong dependency on telecom-related technologies.

This report aims to present a snapshot of the telecommunications sector in Puerto Rico, as well as factors

that are influencing its growth and development, and what’s expected in the coming years. The analyses

presented incorporates data from public and private sources, as well as a survey conducted by ABEXUS

Analytics during the months of March and April, 2020. The report provides insight into which trends, particularly

those outside the telecom industry are pushing the internal disruptions. As any other analysis there are internal

and external factors that are influencing the market dynamics associated to the industry which are outside the

scope of this report.

. Essentially, Puerto Rico becomes a middle point between Latin America and US, or a bridge between the developed economies and those still in development.

06 07

When we compare Puerto Rico to the rest of Latin America, we find that in terms of gross national income per

capita 3, Puerto Rico has the second largest behind only the Bahamas. Essentially, Puerto Rico becomes a middle

point between Latin America and US, or a bridge between the developed economies and those still in development.

Figure 1 – Household Income in the United States & Puerto Rico (2018)

Figure 2 – Gross National Income per Capita (2018)

In fact, during the current COVID-19 crisis, telecom infrastructure has become the main support mechanism to

keep the economy afloat. Telecom, along with other vital services has become a new priority for local, state

and the federal government. This trend is not new to our economy, a report developed by ABEXUS Analytics

in 2019, already highlighted a new tendency to shift government services to a digital infrastructure. That has

been the case for multiple payment options for utility services, government services, and the fintech industry.

The COVID-19 crisis will force several industries to transition to a higher degree of digital processes in their

day to day operations. Retail will have to increase its share of internet sales, central government and municipal

institutions will need to accelerate their transition e-government (agencies, courts and legislative systems),

advanced services will grow dramatically, and traditional jobs will be displaced due to the automation associated

with the digital economy.

The report provides a detail assessment of 5 main “categories” of the Telecom industry:

1. Landlines

2. Mobile (pre-paid and post-paid)

3. Voice over Internet Protocol (VoIP)

4. Broadband (fix & mobile)

5. Cable

Each of the categories will be analyzed based on 3 main issues:

a) current situation and main traits within the category

b) benchmark with other jurisdictions (Caribbean and Latin America, mainly) and

c) survey results from an internal research developed by ABEXUS Analytics.

As noted above, each category will be analyzed with the performance of other jurisdictions. This will provide

the basis to understand Puerto Rico’s competitive position in the international level and areas of opportunity

at the local level, since international trends usually forecast what will inevitably occur in the local market.

Before we can compare Puerto Rico’s telecommunications sector to that of the U.S. and other jurisdictions, it’s

important to understand how these populations differ. Most of Puerto Rico’s households have lower incomes

when compared to the U.S. As almost 40% of the Island’s households make under $15,000 a year, this is below

the federal minimum wage. Now, compare this to the U.S., were just 11% of US households make less than

$15,000 a year.

3Gross national income per capita in Latin America and the Caribbean in 2018 , by country (in U.S. dollars); World Bank (2020).

08 09

What should we expect?

S everal industry sources indicate that

e-commerce will grow almost 25% this

year. Telecom companies should prepare for

a shock-therapy due to the unexpected surge

in demand for telecom services. The surge

could have been higher, however, younger

population cohorts are smaller in size when

compared to older generational groups

(i.e. boomers) which still confront barriers

to a digital transition. Keep in mind that a

substantial portion of mature “millennials”

now live in the U.S. (diaspora) and such

consumers will keep close ties with the

Island, as older generation relatives remained

in Puerto Rico.

Even during these times of uncertainty,

telecom as an industry will be positively

influenced by the federal reconstruction

dollars from Hurricane María. It’s expected

that during Q-IV 2020, a substantial amount

of housing and infrastructure related

expenditures materialize in the economy.

As traditional supply-chain mechanisms

experience a disruption, one should expect

a dramatic increase -in the long-run- of

e-commerce. The fact that several U.S.

companies operate seamlessly in the Island,

will push consumers to digital markets to

acquire their goods and services. Internally,

the industry will continue to experiment

profound technological changes, efficiency

gains due to automation of traditional jobs and

outsourcing of certain backend services.

Puerto Rico’s Telecommunication sector 4 had a GDP

of almost $2.2 billion in fiscal 2018. Moreover, the

share of Puerto Rico’s GDP telecommunications has

remained relatively consistent between 1.6% and 2.1%.

Telecom as a sector is the 9th largest sector in the local

economy, being larger than even Accommodations and

food services, Utilities, Construction, and Transportation,

among others. One area where the telecom industry

greatly contributes to the local economy is through

their high wages. In 2019 the average annual pay in

the telecom industry in Puerto Rico was over $46.2k.

compared to the average annual pay in Puerto Rico of

$28.4k. Salaries in Telecom has increased since 2016,

when it stood at under $43k. These high paying jobs are

not only above the average for the Island as a whole, but

it’s one of the highest averages even when compared

the main industries in the local economy such as

manufacturing.

Figure 3 – Average Annual Pay by Industrial Sector and Telecom (2019)

4 NAICS 517 encompasses the Telecommunications industry

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TELEPHONE

12 13

Landlines Mobile Subscriptions (Mobilephones)

According to the most recent data

available, Puerto Rico currently has

687 fixed-telephone subscriptions, this

represents a 23% decline when compared to

891 subscriptions in 2010. This has been one

of the services reporting the most decline as

the proliferation of mobile phones has led

to a decline in subscriptions. Another factor

is that younger generations don’t see this

service as important as older generations.

This was corroborated in our survey, which

will be presented later on. Keep in mind that

numbers might be overstated, since several

telecom companies have created bundles

for broadband subscriptions which included

landlines.

One of the reasons fixed-telephone

subscriptions have remained high even

as consumers demand for this service has

declined could be bundles. Many companies

offer telephone service along with internet

and/or cable TV, in this bundle telephone

service could be seen as a nice addition

even if not a necessarily an important

one. Another factor is the demographic

changes that Puerto Rico faces, its aging

population places higher importance on a

fixed telephone service, as was confirmed in

ABEXUS’ recent survey.

23% Decline 2010-2019

Figure 4 – Fixed- Telephone Subscriptions (thousands)

Pre-paid mobile24% Increase

Mobile22% Increase

The decline in fixed telephone lines comes

at a time when mobile lines went from

2.7 million subscriptions in 2009 to over 3.3

million in 2019. More importantly, consumers

have changed the type of services they

demand from mobile plan providers. This

is because most of the increase in mobile

subscriptions came from prepaid plans,

rather than traditional contract or post-paid

subscriptions.

The number of prepaid plans increased

from 443,261 in 2009 to over 1 million

in 2019. Although contract subscriptions

maintain a significant portion of the market

-over 70% in 2019-, the number of contract

subscriptions have remained between 2.2

million and 2.4 million for the period. The

increasing trend in pre-paid plans is similar to

what’s observed in the Latin American market,

which contrast with the trends observed in

the US.

2009-2019

14 15

This trend towards pre-paid plans could also be driven the Island’s economic downturn, as consumers have

less money to spend, they might be moving away from contracts that often tie them down with one company

and one rate for a longer period. In fact, using ABEXUS’ survey data, Gen Z (20 years old or less) has the highest

percentage of pre-paid mobile plans. This could be due to current economic conditions, particularly youngsters

with limited jobs and limited credit experience.

16 17

?

Which Mobile companies dominate the market

P er ABEXUS’ survey data, close to 40% of participants had AT&T as their mobile provider,

followed by Claro at 26% and T-Mobile at 25%. Sprint represents only 7%, while other

providers were used by only 2% of participants.

These mergers could cause significant changes in the local industry, at a time when companies are investing

in new infrastructure for their 5G networks. Over 75% or participants in the survey mentioned that a 5G

offering from their carrier was important to them.

S atisfaction with mobile providers was generally high among participants, with AT&T having

the highest satisfaction among their customers at 87%. On the other hand, only 57% of

Sprint customers reported their satisfaction. It’s important to keep an eye on this statistic as

two major mergers are to take place, with T-Mobile and Sprint, and AT&T with Liberty.

01 02 03 04 05

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International Comparison - Mobile Subscriptions

Figure 10 – Mobile Subscription per 100 Residents (2018)

In 2018, Puerto Rico had 104 mobile phone

subscriptions for every 100 residents. This places

Puerto Rico behind the US, South Korea, Trinidad

& Tobago, and Singapore. With this level of mobile

plan subscriptions Puerto Rico is closer to the level

observed in Mexico and Jamaica than it is to the US.

Yet, Puerto Rico’s distribution between contracts

and pre-paid subscriptions is quite different

from those observed in other Latin American

countries. In 2018 Puerto Rico had 32 subscriptions

for every 100 residents, a level that appears closer

to the U.S. than the rest of Latin America, which

has exceedingly high rates. Therefore, Puerto Rico

seems more like a hybrid between tendencies in the

U.S. and LATAM. That is, actual numbers portray

a market distribution similar to the U.S., but recent

trends are pointing towards a market similar to

LATAM.

As mentioned earlier, Puerto Rico’s pre-paid

mobile subscriptions have been increasing

in the previous years as a percentage of the total

market. This is contrary to the U.S. were the number

of pre-paid subscriptions has grown at a slower pace

than contract subscriptions.

Figure 11 – Mobile Subscription per 100 Residents (2018)

Meaning, that as time continues to pass, the Puerto Rico telecommunications market could look more like

that in Latin America, with an ever-growing number of pre-paid subscriptions. This is particularly true given

the results of the survey conducted by ABEXUS, were the younger generations tended to prefer pre-paid mobile

plans.

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Figure 12 – VoIP Subscriptions

(thousands)

Figure 13 – VoIP Subscriptions per 100 Residents (2018)

Voice over Internet Protocol (VoIP) P uerto Rico has a lower number of VoIP5 subscription when compared to other countries, particularly Trinidad

& Tobago which has an extremely high rate of almost 100 subscriptions per 100 residents. This is partially

explained by the robust infrastructure that was developed in Puerto Rico along landlines and the availability of

“nationwide” plans that proliferate in the local market.

Between 2010-2019 an increase was observed in the number of subscriptions in VoIP services like Skype,

Voice Chat, etc. These subscriptions also compete with fixed line telephone subscriptions. Although the

number of subscriptions has doubled since 2010, it appears that subscriptions in these services have plateaued

since 2015.

T his should have changed in the past few

months, particularly given the current

COVID-19 epidemic and the quick proliferation

of these types of services to substitute

conference calls and in-person meetings.

Because of COVID-19 more companies and

individuals will likely subscribe to these types

of services and maintain them even after

the pandemic. This could become a type of

insurance, allowing any company to maintain

operations in any future emergency.

5Refers to the Voice over Internet Protocol.

22 23

BROADBAND

24 25

Broadband Subscriptions (Fixed & Mobile)

Another important component of the telecommunication industry is broadband internet, which saw a

substantial increase in subscriptions between 2010 and 2016. Even though subscriptions surpassed

680,000 in 2016, the number of broadband subscriptions has declined consistently since that point. By 2019

broadband subscriptions were nearly 610,000. Such trends are partially explained by the acceleration of out-

migration during the same period and the proliferation of mobile broadband, which allows many residents in rural

areas to access high speed internet via the mobile phones. This could change as migration slows down thanks

in large part to federal recovery funds.

Furthermore, consumers have consistently increased the use of mobile devices to access the internet,

and consequently reduced the use of home computers. As observed in Figure 17, mobile broadband

subscriptions have consistently increased since 2014, as opposed to fixed broadband subscriptions.

By 2017, the last year were data is available by category, the market was almost evenly split between DSL

internet at 52.7% and Cable modem internet at 47.2%. Fiber-to-the-home represented only a 0.03% of the local

market.

Figure 14 – Fixed-Broadband Subscriptions

(thousands)

Figure 16 – 2017 Fixed-Broadband Subscriptions by Type

Figure 15 – Puerto Rico Net Migration 2010-2019

26 27

Broadband Subscriptions (Fixed & Mobile)

Figure 17 – Mobile Broadband Subscriptions

(thousands)

Broadband SpeedBy 2019 close to half of all internet

subscribers had access to internet speed

between 1 and 5 Mbps. The other half had

speeds between 5 and 100 Mbps or over

100 Mbps. If one were to look at the average

download speed for broadband internet in

Puerto Rico, it has consistently increased in

the last three years reaching 8 Mbps. This is

still a low speed connection on average when

compared to other Caribbean countries, as

only St. Kitts & Nevis has a lower average

speed than Puerto Rico.

A recent report6 found that over

61% of Puerto Ricans use their

smartphones to shop online, a further

12% use their tablets. Meaning that

over 73% of Puerto Ricans shop online

in a device other than a desktop/laptop.

Another factor to consider when

analyzing the growth of the mobile

broadband market is the importance

consumers are placing on mobile

devices, these have become our

personal assistants. They maintain

information on our bank accounts,

email addresses, are the preferred way

to access social media, and online

shopping. The availability of products

and services online has led many

online shoppers, particularly in Puerto

Rico to choose mobile devices as the

preferred platform to access these

online markets.

MobileBroadband

485% Increase

DownloadSpeed25%

Increase

Figure 18 – Internet Subscriber by Speed (2019) (thousands)

2011-20182016-2019

S uch trend reflects the current socioeconomic condition of Puerto Rico, particularly the

fact that close to 46% of the population fall under the U.S. poverty threshold. If incomes

were to improve, one should expect higher broadband speed subscriptions. The above is a

good example on how Puerto Rico’s market follows the consumption trends and preferences

of the U.S. market, however, given the current economic conditions, the market performs

similar to many jurisdictions in Latin America and the Caribbean.7

7Differences in subscription prices and bundles could potentially distort the distribution of internet speed. 6Master Card, “Examining the Latin American and Caribbean E-commerce Market”, December 2019 .

28 29

International Comparison (Fixed & Broadband) Broadband Price

Figure 19 – Fixed Broadband Subscriptions per 100 residents (2018)

In terms of fixed-broadband subscriptions, Puerto Rico

finds itself at 19 subscriptions per 100 residents. This

is significantly behind developed economies like US,

South Korea, Singapore, and Canada. In fact, Puerto

Rico’s rate is similar to that found in jurisdictions such as

Mexico and Trinidad. Puerto Rico’s telecommunications

industry, particularly those companies which are

targeting fixed broadband subscriptions, appear

to have a substantial untapped market or growth

opportunities over the next 5 years.

The price of a fixed broadband is quite varied

throughout the Americas, with a clear difference

in price between general prices in the Americas

and the US and Puerto Rico. Even so, the highest

prices for fixed broadband connections are in the

Caribbean, with the average price closer to $60

in Trinidad & Tobago and Barbados with Aruba

averaging almost $70. Puerto Rico and the US

average close to $50.

A potential threat to such growth is the accelerated

development of mobile broadband technology

and/or consumer preferences that could cannibalize

this growth. It is important to consider that structural

differences between economies (i.e. socioeconomic

conditions and market maturity) will have a strong

effect in the abovementioned conditions. The

more developed the economy, higher broadbands

subscriptions should be expected.

The high price in the Caribbean is explained

by the high cost of this infrastructure and the

low potential number of users. This also serves to

explain why this Island’s residents tend to prefer

mobile broadband. The most surprising aspect is

how Puerto Rico has prices comparable to the US

even as our median household income is less than a

third that of the US8.

Figure 20 – Average Price of a Fixed Broadband Connection

8According the US Census Bureau and its 1-year ACS estimate in 2018 the median household income in the US was $61,937 and the Puerto Rico median household income was $20,296.

30 31

Mobile-Broadband Mobile Broadband Price

Figure 21 – Mobile-Broadband Subscriptions per 100 residents (2018)

In terms of mobile-broadband, Puerto Rico is ahead

of its Caribbean and Latin America counterparts,

at over 100 mobile broadband subscriptions per 100

residents. This is a rate higher than Canada, only

behind Singapore, the U.S., and South Korea. Given

the importance consumers place on their mobile

phones and mobile providers, this sector seems

poised to continue to expand. As an example, more

The average price9 of 1 GB of mobile broadband was found to be higher in Canada at $13 followed very

closely by Barbados, Puerto Rico, and Aruba at $9. The US rounds out the top four with an average

price of $8. Once again, this places the Caribbean and North America at the higher end of the price

spectrum and South America in the lower end.

than 75% of the participants in ABEXUS’ survey

responded that mobile providers offer them a 5G

network. The technological transition to mobile

technology, along with the high number of informal

housing in rural communities, they both provide a

strong incentive to increase the number of mobile-

broadband subscriptions.

Figure 22 – Average Price of 1GB of Mobile Broadband

9Estimates provided by www.cable.co.uk along with the average price of fixed broadband.

32 33

International Comparison - Broadband Speed

Figure 23 – Average Download Speed of Broadband Internet in

Puerto Rico & the Caribbean10

Figure 25 – Average Download Speed in the Caribbean (non-commercial users)

Figure 24 – Average Download Speed by Jurisdiction (non-commercial users)

10This measures the average speed confronted by consumers, primarily through their Wi-Fi, comprised mainly of households but also includes businesses.

34 35

Cable-TV

Figure 26 – Cable-TV Subscriptions

(thousands)

Additional options for consumers to access and

view content has affected the number of Cable

TV subscriptions in Puerto Rico. Subscriptions have

declined consistently since 2014. This industry finds

itself competing with mobile and fixed broadband

providers that offer access to streaming services.

Moreover, entertainment services have shifted

Cable TV17%

Decline

P er ABEXUS’ survey data11 , 49% of survey

participants had cable or satellite services,

and 44% considered it important to have this

service in their homes. Meanwhile, nearly 90% of

consumers had an internet connection in their

homes, while almost 99% considered it important

to have this service. Only 44% of participants had a

On the other hand, over 64% of participants had

considered canmobileing their TV subscriptions,

likely in favor of streaming services (mainly driven by

baby boomers who are currently retiring and revising

their typical expenses) 12. This is similar to what has

been observed in the US13 , were estimates placed

the number of cable subscribers that considered

Table 1 – Services & Their Importance to Consumers

2010-2019

towards streaming services, rather than “traditional”

cable-tv options. These changes have been driven

by Millennials which had the lowest percentage of

cable or satellite service at 29.3%. Gen Z has a rather

higher number of subscriptions, but this could be

due to living at home with their parents..

fixed telephone connection, and 46% considered it

important.

Even with cable cutting in the television industry,

a larger number of participants had this service

than fixed-telephone lines, although the level of

importance reported was almost identical.

cutting their cable at 56%. This presents downside

risk for the cable industry in the coming years, as

more consumers are expected to shift from cable

subscriptions to internet subscriptions. Our survey

did highlight an interest in certain bundles, were

a consumer would have both cable and internet

subscriptions, along with other services.

11As part of this report, ABEXUS Analytics carried out an online survey between March and April (2020) that had over 300 participants. They were asked a myriad of questions ranging from demographic to preferences and interests in different services. Participants were classified by generation based on their age. The following age groups were used: 20 years or less (Gen Z); 21-38 years of age (Millennial); 39-55 years of age (Gen X); 56-74 years of age (Baby Boomer); *No participants aged 75 or more were recorded in the survey.

12More than 60% of non-baby-boomers considered cutting their cable in the last 6 months. 13Lendedu 2018, “After Axing Cable, Cord-Cutters Are Saving An Average of $115.34 Per Month”; https://lendedu.com/blog/cord-cutters-saving-money/

Figure-27

36 37

Among participants of the survey, Netflix is the preferred streaming service, with almost 80% subscribed at

the time of the survey. Amazon is second with 37.7% of participants subscribed, followed by Disney+ with

33.7%. The last service within the top four is Hulu, with a 27%.

With respect to bundles, over 90% of survey participants mentioned interest in a Cable TV, landline, internet,

and mobile phone services. Only half of participants were interested in cable TV and mobile phone

bundles. Furthermore, all generation have an interest in Cable TV + Landline + Internet + Mobilephone bundles.

However, as you remove services from the bundle interest declines, particularly among millennials.

Based on the information provided by participants, the amount spent monthly on streaming services was

estimated. Baby Boomers spent the list on these types of services with an average of $14, while millennials

spent the most at $23 on average. Per ABEXUS’ survey data, Netflix was the overwhelmingly preferred streaming

service, but second place differs by generation. With Gen Z and Gen X placing Disney+ in second place,

Millennials preferring Hulu as a second option, and Baby Boomers selecting Amazon Prime.

Streaming is the new Cable

Figure 28 – Streaming Services Currently Subscribed to

Figure 29 – Spending on Streaming by Generation

Figure 30 – What Bundle would interest you if it were available?

Bundles have proven to extend the life of changing telecom trends

38 39

The Bottom Line...

A decade ago, telecom was viewed as a perk or a technological advantage of a limited number of players in the

market. However, nowadays the internet, along with mobile technology have become the main tools to operate an

economy. As society continues to transition to a digital operation, systems, households, businesses, and governments

will be forced to fol-low suit.

As noted in the report, telecom-related services have transformed from analog to digital, the same way consumers

have transitioned from real to virtual. In the past, businesses operated with their local computers, with their local

accounting systems, or even households had their own DVDs or their physical catalogs. Yet, today most of the systems

associated with a business are run in a “cloud” which is dependent on another telecom tool. Households follow the

same principle due to the surge in streaming services or the retail services they consume. Telecom is not just about

communicating individuals and businesses, it is increasingly about communicating things, devices, institutions, and

systems.

As explained along the report, Puerto Rico has a strong penetration in terms of broad-

band and mobile internet access. When compared to the Caribbean, the Island remains

at the forefront. As it happens in other areas of the economy (i.e. utilities), telecom in

Puerto Rico confronts challenges in terms of its geographical distribution. As an island-

economy, with an irregular geography, there are high infrastructure costs associated with

the distribution of telecom infrastructure. Moreover, households in Puerto Rico tend to live

outside the main urban corridors, which add to the distributional effect. Such characteristics

have profound effects on prices and total market penetration.

The value of the telecom market is substantial, as prices for broadband and other

services are relatively high when compared to other jurisdictions. For instance, even

when Puerto Rico has income levels which represent almost a third of those in the U.S.,

the telecom market in the Island has a price structure similar to that of a highly developed

economy. Such a trait indicates that local market consumers are willing to destine a greater

portion of their incomes to telecom-related expenses.

The characteristics of the industry when compared to Latin America and

the Caribbean, is that of a middle ground between developed nations

The evolution of telecom has caused such a system to be viewed as a basic infrastructure. In fact, the telecom

industry in Puerto Rico is one of the core infrastructures of the island. The Island has evolved in a relatively short

period of time, however, the pace of growth has somewhat halted due to aging demographics and the generational

barriers associated with internet consumption. The recent COVID-19 crisis and the 2017 hurricane season has made

aware that firms and families have underestimated the value and magnitude of such services. Even though the industry

has undergone internal disruptions, the main market indicators continue to provide a healthy picture in the near future.

Moreover, as the economy contracted over the past decade, telecom continued to increase its infrastructure within the

Island and more families and businesses are able to stay connected, even in times of crisis.

...local market consumers are willing to destine a greater portion of their incomes to telecom-related expenses.

in the north, and less developed economies in the south. Such a picture is not surprising, as Puerto Rico has the same

relative position in other areas of its economy. Nonetheless, the local economy represents a sizeable market of over 3

million internet users, in which approximately 40% of the web traffic is generat-ed via computers, while mobile phones

represent almost 55%. Moreover, the Island is the frontrunner in the Caribbean in terms of the share of households with

broadband internet access. As noted in the report, almost 55% of all households have internet access. The Dominican

Republic follows with a mere 36% of all households with internet access. Likewise, Puerto Rico’s download speed is

around 8 Mbps, and 2.2 Mbps in the Dominican Republic.

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Mobile subscriptions have grown steadily for the past years, with the exception of

2012, 2013 and 2018. However, if one looks deeper, there was actually none to

little reduction during the above-mentioned years. For instance, the number of mobile

subscriptions per 100 inhabitants in Puerto Rico from 2000 to 2018 have kept steadily

growing. The overall size of the mobile market (in terms of total users) is relatively

small when compared to other Latin American countries. Yet, the value of such market

is almost $1.5B in annual revenues. This renders an average of $35-$40 per month,

per mobile user. When compared to total household expenditures this represents

almost 50% of household expenditures on energy bills. Keep in mind that changing

demographics, particularly smaller households and migration patterns have bifurcated

the market between those in the Island and a sizeable Puerto Rican population in the

Continental U.S. The Puerto Rican diaspora will continue to provide remittances to local

households which could also represent an untapped market for telecom companies.

Given the above, pre-paid services are expected to continue an upward tendency

and product offerings should equate with traditional post-paid services.

The technological transition has created a trend known as “cord cutting”,

that is, households and businesses are migrating to mobile

technology. Also, as landlines continue to decline, mobile usage

will keep a steady growth. Moreover, mobile broadband will

cannibalize fixed broadband, particularly on economically

constrained households. Higher income households or post-

COVID “home office arrangements” could provide a boost

for fix broadband services. To cope with these changing

dynamics, telecom companies will probably collaborate on

developing service bundles which include data, voice and

complementary services such as streaming subscriptions.

The results from ABEXUS’ survey show that “bundles” are generational, that is,

millennials will prefer multiple subscriptions while boomers will require a single service.

Moreover, bundles are also geographical, since the post-COVID consumer will be

substantially more cautious selecting a provider with high quality infrastructure in their

home location. As noted in the report, well crafted bundles could provide a cushion to

cable TV providers which are directly competing with streaming services.

In the case of businesses, one should expect a greater number of establishments

which will pivot their traditional operations into the digital economy. That is, both

consumers and businesses will intensify the use of broadband technology, which will

require additional infrastructure investments from telecom companies.

As evidenced above, future disruptions in the telecom sector driven by intrinsic

changes in the demographic profile, will require the industry to adapt its offerings

to the needs of an aging population. Security and usage capability are concerns which

must be address in the short-term. Keep in mind that this is a zero-sum market thus,

market penetration will be driven by older age cohorts as they get access to the internet

via mobile devices.

The Bottom Line...42 43

APENDIX: GENERATIONAL PROFILES

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www.abexuspr.comABEXUS, LLC is a Data Analytics company

Calle C Ste 791 Urb JuliaSan Juan 00922Puerto Rico

https://www.wundermanthompson.com/puerto-rico

+1 787 781 1616

*The analyses suggested along this proposal are preliminary and do not constitute an opinion from ABEXUS Ai or any of its affiliates/associates. The information is intended to illustrate industry actors on market dynamics, aggregate com-parisons and scenarios used for business development. This document does not constitute an official industry report or an industry feasibility analysis. ABEXUS Ai. make no warranty, express or implied, to any third party with respect to the information contained herein and expressly disclaim any such representations or warranties. ABEXUS Ai. relied upon pre-liminary information and case-specific information provided by government statistics and other industry data sources. As such, ABEXUS Ai has made certain assumptions that may materially change in time. ABEXUS Ai do not accept any duty or responsibility to any reader or recipient of this document, whether in contractor tort, and shall not be liable for or in re-spect of any loss, damage (including without limitation consequential damages or lost profits) or expense of whatsoever nature of such third party that may be caused by, or alleged to be caused by, the use of this document or that is otherwise consequent upon the gaining of access to this document by such third party. ABEXUS Ai do not undertake any duty to update the information contained herein. ABEXUS Ai takes no responsibility for the accuracy of the data published by government sources. All rights reserved. Reproduction and dissemination of material in this information product is strict-

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