Telcel América, however, will be very different from Telcel Mexico. In fact Telcel’s U.S. incarnation will look an awful like Straight Talk Wireless, another MVNO run by TracFone. For $45 a month a customer gets unlimited voice, SMS and supposedly unlimited data, though I suspect as with Straight Talk, Telcel will probably cut you off if you regularly go over 2 GB a month.

But for $60 month, Telcel will tack on unlimited calling to set international destinations, including both landlines and wireless numbers in Mexico. BTIG analyst Walter Piecyk explains why that’s a big deal:

In Mexico, the 99 million mobile customers dwarfs the shrinking 15 million landlines in that market and those mobile phone customers do not pay for inbound calls. Telcel America will be differentiated by offering Unlimited calling to both mobile and landline. Sprint’s Boost Unlimited and MetroPCS charge $55/month for their “Mexico Unlimited” rate plans which [are] unlimited only to landline numbers but not the more prevalent mobile numbers.  MetroPCS and Leap charge $0.30/minute extra for calls to Mexican cellular lines while Boost Unlimited’s rates vary from $0.20 – $0.28 per minute.

Typically a U.S. carrier has to pay its mobile counterpart in Mexico to connect those international calls, but in this case América Móvil is that counterpart. It has a 70 percent market share in the Mexican mobile market, so the vast majority of these calls would be considered “in network”.

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Salt Lake City, Utah-based Alta Ventures has arguably done more than any other firm in terms of building the venture capital community in Mexico. The Mexican arm of the firm, led by Rogelio de los Santos and Paul Ahlstrom, started looking for a new optimal place to invest in startups back in 2005, and after crunching the numbers decided on Mexico. Mexico has high growth potential, a large market size of over 50 million people, a GDP per capita of under $14,000, political stability, a decent history of human rights, and enough business and entrepreneurship indicators like a small number of days needed to start a business.

Landing on Mexico as the perfect place for VC investment was even a shock for the firm. Ahlstrom told me during a talk in Mexico City in May that “Our image of Mexico was dusty, sombreros, drug problems, immigration issues. Not high tech.” But Ahlstrom worked for years on developing a VC ecosystem in Mexico, including working on enabling pension funds to invest in venture capital funds, and organizing conferences to bring together the community.

The $70 million fund is Alta Venture’s first fund in Mexico, and includes investment from International Finance Corporation (IFC), Fondo de Fondos (CMIC), the Multilateral Investment Fund (MIF), 29 families in Monterrey, Mexico, 500 Startups, and the Guadalajara Angel Investment Network (GAIN). Alta Ventures has already invested in Mexico startups across sectors including web invoicing company Diverza, cleantech company Energryn, social gaming group Juxta Labs, and Rhomobile, which was sold to Motorola in 2011.

Image courtesy of Arturusoft.

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Back in 2005, Ahlstrom, who was running a successful venture fund in Salt Lake City, Utah, asked himself and his investing team the question: if you could invest in any country in the world, where would it be? The group started collecting and crunching data points, like it needed a high growth potential, a large market size of over 50 million people, a GDP per capita of under $14,000, political stability, a decent history of human rights, and it needed business and entrepreneurship indicators like a small number of days needed to start a business.

At the end of the analysis the country that was spit out was Mexico. “We didn’t believe it. We were completely shocked,” says Ahlstrom, who told his team to go back and scrub the data and recrunch it. But again, the answer fell on Mexico. “Our image of Mexico was dusty, sombreros, drug problems, immigration issues. Not high tech,” says Ahlstrom. Nevertheless, a few years later Ahlstrom led a private equity growth fund in the region, and opened up Alta Ventures, based in Mexico City.

Alta, and Ahlstrom’s efforts, have really been one of the first major pushes to create an entrepreneur and investing community in Mexico. The ecosystem is still tiny compared to the Valley or even its Latin American counterpart Brazil, but it’s now growing. On the Geeks on a Plane tour through Mexico we participated in a Startup Mexico Weekend, which included a dozen teams pitching interesting ideas like RockMob, a Rockband for regular instruments, and Legal U, a startup creating online legal documents for landlords and small businesses. 500 Startups plans to focus more on the region, founding partner Dave McClure tells me.

Ahlstrom has worked tirelessly to kick start the industry. One of the problems with Mexico has been that pension funds were only recently able to invest in venture firms, and Ahlstrom began working on that problem as soon as he identified it. He also personally helped organize a conference in Mexico’s city of Monterrey in 2010 that he says was “a watershed moment and the launch of the venture capital industry in Mexico.”

Ahlstrom has done so much work that he has essentially helped clear the barriers for everyone else to come in. The pioneer is the man with a lot of arrows in his back, face down in the mud, says Ahlstrom.

For Ahlstrom, bringing his family down to Mexico, was actually more like coming home. His great great grandfather was a polygamist Mormon who brought his family down to Mexico to be able to keep the family together, and Ahlstrom tells a group at the U.S. Ambassador to Mexico’s house that the Romneys lived down the street (not exactly sure if that was a joke or not). Ahlstrom’s family (no longer polygamists) were driven out of Mexico for various financial and political reasons a couple times, but continued to return to Mexico over the years. Ahlstrom says creating the venture capital community in Mexico is “huge for my family.”

Image courtesy of Arturusoft.

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Employees at three major plants in Finland, Hungary and Mexico had been waiting anxiously for the announcement, which becomes the latest in a series of massive cuts to the company’s staff as it tries to find around $1 billion in savings to bolster the bottom line. Over the last year as Nokia tries to reorganize around its Windows Mobile strategy, the struggling mobile giant has slashed jobs, outsourced its Symbian development and closed a factory in Romania.

The company said that it reviewed its smartphone manufacturing operations and come to the conclusion that it made sense to move its manufacturing centers closer to the component suppliers, who are largely located in China. Instead, the remaining staff at the three locations would focus on receiving phones made in Asia and customizing them for the European or American market.

In a statement, executive vice president of Markets, Niklas Savander, said it would allow Nokia to act faster and be more responsive — two weaknesses that have been severely criticized as the business struggles to cope with the rise of rivals like Apple and Google’s Android.

“Shifting device assembly to Asia is targeted at improving our time to market. By working more closely with our suppliers, we believe that we will be able to introduce innovations into the market more quickly and ultimately be more competitive.”

Nokia hasn’t actually said how much money it hopes to save through the changes, but it is clearly hoping to squeeze more out of its relationships with suppliers and get products out without the extensive delays they seem to have been subjected to.

In many ways, the move has been a very long time coming — the vast majority of the electronics industry has already moved manufacturing to China, either in-house or outsourced to companies like Foxconn, and Nokia’s decision will add an extra layer to the ongoing question of whether Western factories can compete at all with the Asian market.

That was one of the subjects explored in a recent New York Times series focusing on Apple’s manufacturing operations, which have shifted from American factories to China over the years.

Of course, the job losses will sting — and cuts in Finland will hardly boost its standing at home. But the reality is that the company had few options: inside a generation, China has become not only one of the cheapest electronic manufacturing markets in the world, but also the one that sports the greatest amount of expertise.

Could Nokia have done anything else?

Photograph of Nokia plant in Salo, Finland, used under Creative Commons license courtesy of Flickr user uncle-leo

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Demand for the iPhone 4S helped Apple’s U.S. share of the smartphone market climb to 44.9 percent in the last quarter of 2011, Kantar said, doubling from the same period a year ago and gaining a very slight edge over Google’s platform. Android slipped to 44.8 percent from 50 percent during the quarter.

Apple’s success isn’t isolated to the U.S., either. Dominic Sunnebo, Kantar’s global consumer insight director told Reuters, ”overall, Apple sales are now growing faster than Android across the nine countries we cover,” which include the U.S., U.K., Australia, Brazil and Mexico, among others.

Other research firms have recently released data suggesting that iOS was rapidly closing the distance with its Android smartphone rivals. The NPD Group and Nielsen  both released their own studies earlier this month that showed iOS trailing Android slightly in the U.S. smartphone race, but Kantar’s is the first to put Apple on top.

In the U.K., Apple grew its share from 34 percent in the fourth quarter of 2011, compared to 22 percent for the same period in 2010. And while Apple grew most quickly in the countries covered, Kantar is quick to point out smartphones are experiencing strong growth in all the areas tested, meaning while Android may have dropped market share in some locations, that doesn’t necessarily translate to a drop in sales.

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Taboola provides a widget to publishers that provides recommended videos based upon the context of the story being read. Those videos can come from the publisher whose website an end user is on, or from multiple other providers that have agreed to make their content available as part of Taboola’s network. The website gets additional content from other providers, while the content creators get additional viewership opportunities from being seen on a wider range of publisher sites.

Now it’s taking that concept a step further, with the ability to have sponsored placement in those widgets. Publishers can now pay to have their content highlighted among the recommended videos, as a way to increase viewership from outside sites. While those videos are still recommended based on Taboola’s targeting technology, they are clearly marked as sponsored content.

Taboola is offering the model on a pay-per-click basis, meaning content owners don’t pay for a video’s placement unless someone chooses to watch it. It’s a good way of ensuring the videos shown are relevant, and that content creators don’t get charged based solely on impressions. Taboola then shares a cut of the revenues from sponsored videos with the publisher whose sites they ran on. (For a good example of this in practice, check out this local Hearst affiliate, which is offering recommended videos at the bottom of the page — including sponsored content from other providers.)

In addition to its most recent product addition, Taboola has also been making some progress in expanding beyond the U.S. market. Domestically, it powers video recommendations for clients like the Bloomberg, CNN, Hearst, the New York Times and USA Today, but it has obtained some top international customers as well. Those include Agora in Poland, Esmas in Mexico, IG.com in Brazil and Ynet.co.il in Israel.

Taboola wants to expand even more internationally, and CEO Adam Singolda told us he is looking to add more salespeople outside the U.S. The startup, which has offices in New York and Israel, recently raised a $9 million round of funding led by Crescent Point, with participation from Evergreen VC. To date, Taboola has raised $15 million since being founded in 2007.

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Netflix CEO Reed Hastings has long said that his company isn’t primarily competing with cable TV or other paid services but with piracy instead. In Latin America, Netflix faces a major challenge: The region is a piracy hotbed, according to the U.S. Trade Representative (USTR), which has been keeping Argentina, Chile and Venezuela on its priority watch list of piracy worst offenders.

Ten other countries from the region that Netflix is now targeting are on the USTR’s regular watch list, and the agency complains in its most recent 301 Special Report that countries like Guatemala spend too little money enforcing intellectual property laws, that pirated products are widely available in retail stores in Ecuador, and that online piracy is on the rise in Brazil.

Latin piracy by the numbers

The USTR’s report is a little shy on actual details about piracy in the countries it singles out, but a study released earlier this year by the Social Science Research Council helps to provide a little more context into what Netflix is going up against. The study titled Media Piracy in Emerging Economies highlighted Mexico and Brazil and said:

• 48 percent of Brazilians purchased pirated or counterfeited goods in 2010, according to IPSOS numbers.
• Mexico is estimated to have up to 70,000 vendors for pirated DVDs and audio CDs.
• In a Mexican survey, 71 percent of respondents said they had bought pirated DVDs and CDs.
• Only 2 percent of respondents agreed with the assessment that buying these discs supported “a business based on stealing others’ idea or art.”
• 71 percent said that price was the biggest factor for piracy.
• 61 percent said that they have had problems with the quality of pirated audio or video products.

How people pay for The Dark Knight DVD around the world, including adjusted prices based on the "comparative purchasing power." Click chart for bigger version.

It’s all about pricing

The study also highlights pricing discrepancies to show that anything but piracy is oftentimes unaffordable for people in countries like Mexico and Brazil. Consider this: A legitimate copy of The Dark Night on DVD costs $15 in Brazil. Factor in how much money people make and how much they have to spend, and it’s as if the same disc was sold to U.S. consumers for $85.50. Pirated copies, on the other hand, only cost $3.50, which is about the same as $20 when adjusted for comparative purchasing power. (See the chart on the right for all the details.)

How will these pricing issues play out for Netflix? First of all, the company isn’t giving its new markets any break: Netflix is charging consumers in Central America and the Caribbean $7.99, and subscribers in Brazil even have to pay the equivalent of $9 per month. Adjusted for comparative purchasing power, a subscriber in Brazil is asked to fork over the equivalent of $60 every month.

However, the company’s service is self-selective, catering only to people who have access to and can afford broadband Internet. And for this middle class, the pricing doesn’t seem completely out of reach. Consider this: Subscribing to Netflix’s streaming-only plan costs U.S. consumers just a tad more than a bootleg DVD on the streets of Los Angeles or New York. People in Brazil are asked to pay a little less than they’d pay for three bootleg DVDs and still less than one single legitimate DVD would cost them.

This means that pricing-wise, Netflix may just be the first legitimate offering capable of competing with the street vendors in Brazil and beyond. Sure, it won’t be able to attract consumers who can barely afford pirate copies, but its flat-fee model may be a great alternative for middle-class consumers who have been struggling with quality issues of bootleg DVDs.

In the end, it may all come down to licensing. Netflix hasn’t officially said which titles will be made available in Latin America, but a walk-through of the service that made its way to YouTube (hat tip to Richard Greenfield, registration required) shows major studio content from Disney, Paramount and Fox, as well as TV shows like Mad Men and Grey’s Anatomy. Making these titles available with localized subtitles and a flat-fee pricing scheme could go a long way toward beating pirates on their own turf.

Image courtesy of (CC-BY-SA) Flickr user nist6dh.

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There are about 600 million residents between Mexico, Latin America and the Caribbean, which makes the addressable market about twice the size of the U.S. That by itself offers a lot of opportunity for growth. But rapidly expanding economies, the growth of broadband connectivity and a wide-open market for low-priced entertainment could be a winning combination as Netflix looks to expand its offering outside the U.S.

Rapidly expanding economies

Many economies in the area are still developing, but many are poised to see dramatic growth over the next several decades. Mexico and Brazil, in particular, are expected to boom, as Goldman Sachs has forecast that those two countries will join the top 15 global economies by 2030, and both could be in the top five by 2050. But growth isn’t just limited to those two countries, and economic growth should drive opportunity throughout the region.

Jumping into the mix for media and entertainment in these emerging economies could be one way for Netflix to stake a claim before those markets develop. By doing so, Netflix may be getting in relatively cheap, compared to entrants that come later. By trying to tackle the entire market at once, Netflix also should benefit from the type of economies of scale that it wouldn’t see if it were just going after France, the U.K. or Germany.

Increasing access to broadband

While economies throughout Latin America and the Caribbean are growing, so is access to broadband throughout the region. Broadband access may be a limiting factor to Netflix growth in Latin America, at least in the short term, as Internet connectivity and available broadband speeds tend to be lower in most markets than in most areas of the U.S. But that, too is rapidly changing.

Dan Rayburn does a good job of breaking out what broadband penetration rates are like in six of the largest Latin America markets: Brazil, for instance, had a 37.8-percent Internet penetration rate with 75 million users and average broadband speed of 4.46Mbps, while Mexico had a 27-percent Internet penetration rate with 30.6 million users and an average broadband speed of 3.54Mbps. In both cases, we expect those numbers to increase dramatically as infrastructure improves and the economy expands.

Citi’s Latin American telco analyst James Rivett estimates there are approximately 45 million broadband subscribers in Latin America and the Caribbean, with 36 million of those in Brazil, Mexico, Chile, and Argentina. In a research note this morning, Citi estimated Netflix could achieve 8-percent penetration among broadband subscribers in the region, based on its 8-percent penetration of broadband households in Canada within seven months of launch there.

Going global, staying local

Netflix has done an excellent job of attracting subscribers in the U.S. and Canada, but expanding into new markets isn’t easy. With this expansion, it may have benefited by taking a region-wide approach rather than picking one country or another to launch in. It’s likely Netflix was able to secure rights for Hollywood content for much of the Latin American region, rather than bargaining country-to-country. That’s possibly one reason why it’s tackling Latin America and not Western Europe, where the media landscape is much more segregated.

By launching region-wide, Netflix shows it’s taking its global expansion very seriously. But it’s also going local: Rather than just source content from the Hollywood studios, Netflix also plans to ramp-up content from local programmers. This two-pronged approach could allow it to offer a combination of content with broad appeal while also ensuring it has content relevant to subscribers in different counties.

Challenges ahead

All that said, it won’t be easy. Any time a company attempts to tackle an entire region, there are bound to be local nuances attached to reaching customers in each individual market. While the Latin American region is more homogenous than, say, Western Europe, such an aggressive launch will require Netflix to have a local presence in multiple countries rather than a rollout into a single market.

And it’s not clear if Netflix’s particular brand of subscription service will be popular in those markets. A lot depends on the content mix, and if local consumers believe the company provides value to them. Much will depend on the price of the offering, as well, which Netflix hasn’t yet disclosed.

But the opportunity likely outweighs the risks. The good news for Netflix is that it’s getting in on the ground floor in a region where there’s mostly upside to be had.

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“We are in very serious discussions with Netflix about doing a deal in Latin America, doing a deal in Canada, and those deals might happen fairly quickly,” Moonves told investors. The CEO noted that CBS’s current deal with Netflix only includes streaming rights for the U.S., which means that CBS still has an opportunity to license its content for streaming in Canada and other new international markets.

Certain Latin America markets — in particular Mexico and Brazil — have been rumored as possible targets for Netflix’s next effort at international expansion. But Netflix has remained quiet on where that expansion might actually happen.

When asked for comment Netflix VP of Corporate Communications Steve Swasey downplayed the comments by Moonves. In an email, he wrote:

“That’s not a confirmation. Les said we’re negotiating, just as we’re negotiating all the time with all the studios, networks and independents for future expansion worldwide. But negotiations do not mean we have completed deals for any specific content or markets.”

That leaves the door open for other possible new international markets, and we should find out where Netflix plans to launch next soon. Based on its early success in Canada, Netflix has said it expects to expand into one additional market by the end of the year.

Photo courtesy of (CC BY-SA 2.0) Flickr user rvaphotodude.

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