affordability in Latin America Hernan Galperin, Ph.D. Universidad - - PowerPoint PPT Presentation

Mobile telephony tariffs and service affordability in Latin America

Hernan Galperin, Ph.D. Universidad de San Andrés (Argentina)

Regional Dialogue on Information Society

• “Affordable service” is required in every telecoms

law, but no definition provided

• Measuring affordability is necessary to estimate

the market efficiency frontier and design universal service programs

• How much are individuals or HH willing to spend
• n telephony services?
• Not only economic but public policy question

What is service affordability?

Low-cost areas High cost areas High income HH Low-income HH

Market efficiency frontier Access gap Demand Supply

100% coverage 100% adoption

Current access

Without affordability estimates, the market efficiency frontier is unknown

A quick literature overeview

• Strong correlation between

affordability and penetration

• High-income countries: 2-

3% of GNI. Low-income countries: up to 5%.

• Variation by income level

(inverted “u” shape typical)

• Beyond 5% of expenditure,

adoption drops sharply

Source: Milne (2006)

Methodology

• Gather tariff data for mobile operators in 20 countries in

LAC

• Metric: OECD mobile service baskets, with particular

interest on low volume, prepaid basket

• Basic profile: one call, one SMS per day on prepaid plan
• Gather income data by decil for same countries and build

affordability indicators

• International benchmarking

There is significant dispersion in mobile tariffs in Latin America

Monthly cost of OECD low volume prepaid mobile basket (USD, 2Q 2009)

Somewhat less dispersion if measured in USD PPP

Monthly cost of OECD low volume prepaid mobile basket (USD PPP, 2Q 2009)

$- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 Brasil Honduras United States Uruguay Spain Czech Republic Slovak Republic Mexico Argentina Venezuela Korea Perú Nicaragua Turkey Panama Hungary France El Salvador Greece Canada Italy Chile Japan OECD United Kingdom Portugal Ireland Austria Poland Belgium Australia New Zealand Dominicana (Rep.) Colombia Iceland Guatemala Trinidad y Tobago Ecuador Switzerland Luxembourg Netherlands Germany Bolivia Norway Philippines Sweden Paraguay Malaysia Afghanistan Singapore Finland Indonesia Denmark Costa Rica Maldives Thailand Sri Lanka Nepal Bhutan Jamaica India Bangladesh Pakistan

International benchmarking: Brazil, we have a problem

Sources: DIRSI, Lirneasia, OECD

Monthly cost of OECD low volume prepaid mobile basket (USD, 2Q 2009)

Diverging business models: LAC vs. Southeast Asia

Monthly cost of OECD low volume, prepaid mobile basket (USD PPP, 2Q 2009)

Sources: DIRSI, Lirneasia, OECD

Why I only use my mobile to receive calls…

5% affordability threshold

International benchmarking shows LAC has low affordability

Sources: DIRSI, Lirneasia, OECD

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% Nicaragua Afganistán Honduras Nepal Brasil El Salvador Bolivia Perú Filipinas Bangladesh Guatemala Panamá Paraguay Dominicana (Rep.) Argentina Indonesia Ecuador Uruguay India México Colombia Turquía Venezuela Pakistán Sri Lanka Chile Hungría Eslovaquia Bután Corea República Checa Maldivas Polonia Malasia Tailandia España Portugal Costa Rica Grecia Trinidad y Tobago E.E.U.U. Italia Jamaica Nueva Zelandia Francia Japón Canadá Reino Unido Bélgica Australia Austria Irlanda Alemania Islandia Holanda Singapur Suiza Suecia Finlandia Luxemburgo Noruega Dinamarca

OECD low volume, prepaid mobile basket as % of GNI (2Q 2009)

140.4 51.5 34.7 26.1 20.9 16.2 12.4 9.2 6.3 2.3 $0 $20 $40 $60 $80 $100 $120 $140 $160 10 9 8 7 6 5 4 3 2 1

Affordability gap

Cost of prepaid low volume basket (R$)

Telecom expenditure 5 (% income) in R$ Income decil

Affordability gap tool: Brazil

166,475 59,952 42,615 32,749 26,413 21,491 17,008 13,204 8,881 3,881 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 10 9 8 7 6 5 4 3 2 1 Cost of prepaid low volume basket (Gs)

Affordability gap

Afforddability gap tool: Paraguay

Telecom expenditure 5 (% income) in Gs Income decil

• Mobile tariffs in Latin America are among highest

in the world (2x OECD, 3x SEA)

• Variation within LAC is not explained by market

structure indicators but by presence of low-cost

• perators
• High tariffs result in low affordability thus inhibiting

use

• Rate of price reductions has slowed down,

competition on other attributes and VAS

Conclusions

• Lower entry barriers for new competitors:

 New spectrum reservations  Implementation of MNP  Promote resellers (MVNO)  Monitor interconnection rates  Promote infrastructure sharing

• Rethink tax structure on mobile handsets and

services: current structure is regressive

• Mobilize universal service funds to cover mobile

access gaps

Policy recommendations

Hernan Galperin hgalperin@udesa.edu.ar More information: www.dirsi.net

Diálogo Regional sobre Sociedad de la Información