In November 2017, Miguel de Godoy, the head of ENACOM, (Ente Nacional de Comunicaciones – Argentina’s National Communication Regulator) announced that ENACOM is working on a project that would block all devices that were imported illegally into the country.

This regulatory project has been informally called: “La Lista Blanca” (the White List) in Argentina. This is different from the so-called “Lista Negra” (Black List). The latter is compiled from IMEI numbers of all mobile handsets reported stolen, so when activated, the carrier would automatically block the device. La Lista Blanca is different. It is intended to target devices that have been illegally imported into the country, often from a neighboring country such as Chile or Uruguay.

Around the same time, ANATEL (Agência Nacional de Telecomunicações – Brazil’s National Telecommunications Regulator) announced that project “Celular Legal” has been approved by the congress. Starting Feb 22^nd, 2018 carriers will start blocking all mobile devices that have not been homologated with ANATEL.

Chart 1: New Regulatory Project implementation Schedule

Sources: Anatel, ENACOM, Telam(Argentina National Press Agency)

Potential Impact of This Regulation

Samsung, Motorola and other brands’ sales in the affected countries have been most impacted by the smuggling, as their sales have underperformed expectations since 2014.  Meanwhile their colleagues in neighboring countries have exceeded sales targets.  Some OEMs/assemblers have been actively lobbying the local regulators, to enact and approve this regulation.

Chart 2: New Regulation Procedure and Impact

 Sources: Anatel, ENACOM, Telam (Argentina National Press Agency)

Brazil

1. Between 60%-70% of the illegally imported mobile devices in Brazil, arrive from Paraguay. Many brands have many models that are not approved by ANATEL and these brands will be most impacted.
2. When the regulation is implemented, the quantity of imports in Paraguay will likely diminish by between 20% to 40%.
3. The rest of the illegal mobile devices are from other neighbouring countries, such as Peru, Bolivia and Colombia. The volume of product being imported to these countries will also undergo a slight decrease.
4. Brazil’s TAM in 2018 should increase by 5% to 10% in addition to the market’s own growth.
5. However, we expect many consumers to lengthen their rate of replacement as local, approved, handsets are generally 40%-50% more expensive than illegal imports.
6. The second-hand devices market will also likely increase in the short-term. Most of these devices are sold, informally, from consumer to consumer, rather than back into official channels.

Argentina

1. In the case of Argentina, about 70%-80% of the illegally imported mobile devices enter from Chile. This was the principal reason that total imports of devices, had more than 20% growth, in Chile, between 2014 and 2015.
2. Samsung, Apple, LG, Huawei and Motorola were the main brands “traded”. So much so, that recently some of these OEMs, have taken a measure to decrease the number of units shipped to Chile.
3. The rest of the units arrive from Bolivia and Paraguay and brands such as Blu will likely experience the biggest impact.
4. If the regulation passes in Argentina, sell-in is expected to increase by at least 10%. However, it likely won’t recover the 25% of the market volume represented by the grey market currently.

As this regulation is set to be implemented in stages, its impact will not be felt until 2H 2018:

-          Sell-in in Chile, Peru, Paraguay, Bolivia and even Colombia will most likely be impacted.

-          Locally-established OEMs are not expected to fully recover the impacted volume until 3Q 2018.

-          Used devices will likely see an uptick I demand (and prices) in the short term to fulfill the needs of consumers that cannot afford a new phone; cheap new smartphones will not be available.

The LATAM region’s overall TAM will see a slight reduction during 2018 driven by reductions in grey trade between countries and a lengthening replacement cycle. For full regional recovery, it will require these two countries to open their markets leading to lower device prices. One other consequence is likely an upswing in sales of second hand devices, though the refurbished handset market remains at a nascent stage across the region.