Brazil's import duties can double the price of DSL or fiber optics gear, one expert points out. Here Sao Paulo health system workers using their computers. (Photo: M. Kahn/IDB)
Latin America's broadband penetration rate is lower than natural demand thanks to price limitations, experts say.
BY LATIN AMERICA ADVISOR Inter-American Dialogue
Last year, the average monthly price for fixed broadband access (at purchasing power parity) was $28 for developed countries and $289 for developing countries, according to the International Telecommunication Union, a U.N. agency. How does Latin America compare to other regions when it comes to the cost and penetration of fixed broadband access? Why are costs so much higher for broadband connections in the developing world, and what public policy changes could help narrow that gap? Why is it important (or not) that Latin American policymakers focus on communications technologies among the other pressing economic and social priorities in the region looking ahead?
Wally Swain, senior vice president of Yankee Group's Emerging Markets group in Bogota: The comparison should not be as dramatic for Latin America if only because the differences in purchasing power parity are not so pronounced as in the countries in the original International Telecommunications Union study (the poorest countries of Asia). The ITU methodology compares price as a proportion of household income. Even if absolute prices were the same, developing country broadband would be more expensive because incomes are so much lower. To the extent that absolute prices reflect the inherent economics of broadband services, comparisons like these say more about relative income levels than they do about things governments and operators can do to make broadband more affordable. Put another way, developing country governments could require prices to match the cheapest available anywhere in the world and broadband would still be out of reach to most households. These comparisons force us to be realistic about what can be achieved and to be more creative about solutions. Community Internet centers will reach households that will never be able to afford broadband at home. Prepaid solutions will expand the addressable market beyond those who would qualify for monthly fee-based plans. Targeted subsidies to households will expand the base even further. Colombia's implicit method of subsidizing public utilities is one idea. Mobile broadband will often be the access method of choice with extensive prepaid options and usually broader coverage. Some of these need government help and some will arise naturally from operators seeking to increase revenues by increasing subscribers. But governments can help by eliminating taxes and import duties on telecom. For example, Brazil's import duties can double the price of DSL or fiber optics gear. What impact does that have on broadband prices and penetration?
Ryan Hill, director of global policy at the Information Technology Industry Council in Washington: Latin America lags behind other regions in broadband penetration. Internet usage, however, is often much higher, suggesting there is a large number of Internet users who are accessing the Internet through cafes or workplaces. One study found, comparing development and broadband penetration in Latin America with the rest of the world, that Latin America needs to increase current broadband deployment by as much as 41 percent to meet current needs. Brazil, Mexico and Venezuela top the list of countries in the region with the most unfilled demand. Costs for broadband in the region are significantly higher than costs in much of the rest of the world. For example, considering purchasing power parity, the price per bit for cable broadband in Peru is about 6 times higher than in the United States. Many countries in Latin America seem to consider broadband access as a luxury, and taxes can be quite high. Other added costs may be due to regulatory barriers, and in many countries, a lack of competition. With the current economic crisis, government budgets are being pulled in all directions, but investment in broadband is more effective than other methods of fiscal stimulus. Building out broadband networks can be labor intensive, creating direct employment benefits right away, while also establishing the foundation for longer term growth and productivity. In fact, studies have shown that for every 10 percentage points in broadband penetration, there is a 1.3 percent increase in GDP. Broadband also, of course, provides benefits which are more difficult to quantify, such as greater access to government services, better market information for producers and increased social inclusion.
José Otero, president of Signals Telecom Consulting in Buenos Aires: Using purchasing power parity (PPP) for telecom services is not the best way to measure this, because for any technology service, the price by PPP is going to be higher for anything that has already been manufactured [and imported]. When it comes to PPP, you are taking into account agricultural products or raw materials that are going to be cheaper in developing countries, so it's not such a good way to measure this, especially when the telecom operators in developing countries are paying the same price more or less as those from developed countries. In nominal terms, prices in developing countries, such as those in Latin America and the Caribbean, are actually lower that those in the United States. For example, if you are looking at broadband services in Jamaica or Trinidad and Tobago, you can get almost 10 megabits per second (Mbps) for $30 to $35, which is much cheaper than what you can get in the United States. Also, broadband has been defined at different speeds depending on the country. The U.S. Federal Communications Commission is using 128 kilobits per second for broadband services, while Colombia just increased the definition of a broadband connection from 512 kbps to 1 Mbps. So, with all these factors, I don't see how a PPP comparison for broadband services is the best one. In addition, when you are looking at developing countries as a whole, this measure is going to be tilted toward the high price of the Internet offering you're going to get from African countries and maybe places in Asia. You are not going to get an Internet price of $290 for PPP in any Latin American country nowadays.
Nestor Bercovich, coordinator for the Information Society Program of the United Nations Economic Commission for Latin America and the Caribbean: The digital divide isn't based on preferences or interests; it is derived from socioeconomic factors that restrict the possibilities of consumption of ICT services and the capacity to use them. In Latin America, access to the Internet in the richest segment of households reaches up to 30 times the access levels of the poorest segment (in 11 of the 14 countries for which OSILAC has data). Countries of the region have made great strides toward reducing the digital divide. Still, they haven't been able to avoid falling behind in broadband Internet. In 2008, just 5 percent of the population in the region had access to this service, versus 26 percent in OECD countries, and services were more expensive and slower than in more developed countries. The average connection speed in those countries is 17 Mbps, while in the most advanced countries in Latin America and the Caribbean it is no higher than 2 Mbps. The lowest monthly subscription rate for broadband in the OECD countries averages $19 (in PPP), while in Mexico or Chile, such service reaches $29 and $35 respectively. This situation is worse when we compare the level of service tariffs with the capacity to pay, which shows that broadband in the region is out of reach of a large part of the population. Given the potential of ITC, particularly the Internet, for economic and social development, the implementation of public policies to stimulate broadband is fundamental. These should be part of a framework of long-term national development policies that see technologies as tools to boost productivity and competitiveness of countries, and to promote social inclusion due to their positive externalities. Access to broadband should be seen as a good in the public interest; therefore, it should have a place in countries' development agendas together with other policy priorities. If not, we run the risk of remaining at the margin of the dynamics that underpin modern economies and societies.
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