Mobile telephony tariffs and service
  affordability in Latin America

          Hernan Galperin, Ph.D.
   Universidad de ...
What is service affordability?


  •   “Affordable service” is required in every telecoms
      law, but no definition pro...
Without affordability estimates, the market
efficiency frontier is unknown


                                             ...
A quick literature overeview

• Strong correlation between
  affordability and
  penetration

• High-income countries: 2-
...
Methodology

 • Gather tariff data for mobile operators in 20 countries in
   LAC

 • Metric: OECD mobile service baskets,...
There is significant dispersion in mobile
tariffs in Latin America
            Monthly cost of OECD low volume prepaid mob...
Somewhat less dispersion if measured in
USD PPP
          Monthly cost of OECD low volume prepaid mobile basket (USD PPP, ...
$-
                                       $5.00
                                               $10.00
                    ...
Diverging business models: LAC vs.
Southeast Asia
        Monthly cost of OECD low volume, prepaid mobile basket (USD PPP,...
Why I only use my mobile to receive
calls…




                5% affordability
                threshold
10.00%
                                                                                                            12.00%
...
Affordability gap tool: Brazil
                                             $160

                                        ...
Afforddability gap tool: Paraguay
                                             $180,000


                                ...
Conclusions
  •   Mobile tariffs in Latin America are among highest
      in the world (2x OECD, 3x SEA)

  •   Variation ...
Policy recommendations

  •   Lower entry barriers for new competitors:

         New spectrum reservations
         Imp...
Hernan Galperin
hgalperin@udesa.edu.ar

  More information:
   www.dirsi.net




    Diálogo Regional sobre
   Sociedad de...
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Tariffs and the affordability gap in mobile telephone services in Latin America

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GALPERIN, HERNAN - Tariffs and the affordability gap in mobile telephone services in Latin America

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Tariffs and the affordability gap in mobile telephone services in Latin America

  1. 1. Mobile telephony tariffs and service affordability in Latin America Hernan Galperin, Ph.D. Universidad de San Andrés (Argentina) Regional Dialogue on Information Society
  2. 2. What is service affordability? • “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 on telephony services? • Not only economic but public policy question
  3. 3. Without affordability estimates, the market efficiency frontier is unknown 100% coverage High cost areas Access gap 100% adoption Supply Market efficiency frontier Low-cost areas Current access High income HH Low-income HH Demand
  4. 4. 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) Source: Milne (2006) • Beyond 5% of expenditure, adoption drops sharply
  5. 5. 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
  6. 6. There is significant dispersion in mobile tariffs in Latin America Monthly cost of OECD low volume prepaid mobile basket (USD, 2Q 2009)
  7. 7. Somewhat less dispersion if measured in USD PPP Monthly cost of OECD low volume prepaid mobile basket (USD PPP, 2Q 2009)
  8. 8. $- $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 have a problem 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 International benchmarking: Brazil, we Finland Indonesia Denmark Costa Rica Maldives Thailand Sri Lanka Nepal Bhutan Jamaica India Bangladesh Monthly cost of OECD low volume prepaid mobile basket (USD, 2Q 2009) Pakistan Sources: DIRSI, Lirneasia, OECD
  9. 9. Diverging business models: LAC vs. Southeast Asia Monthly cost of OECD low volume, prepaid mobile basket (USD PPP, 2Q 2009) Sources: DIRSI, Lirneasia, OECD
  10. 10. Why I only use my mobile to receive calls… 5% affordability threshold
  11. 11. 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% 2.00% 4.00% 6.00% 8.00% 0.00% Nicaragua Afganistán Honduras Nepal Brasil El Salvador Bolivia Perú Filipinas Bangladesh Guatemala Panamá Paraguay Dominicana (Rep.) Argentina Indonesia Ecuador Uruguay India México Colombia Turquía has low affordability 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 International benchmarking shows LAC Irlanda Alemania Islandia Holanda Singapur Suiza Suecia Finlandia Luxemburgo OECD low volume, prepaid mobile basket as % of GNI (2Q 2009) Noruega Dinamarca Sources: DIRSI, Lirneasia, OECD
  12. 12. Affordability gap tool: Brazil $160 140.4 Telecom expenditure 5 (% income) in R$ $140 Cost of prepaid low $120 volume basket (R$) $100 $80 $60 51.5 Affordability gap $40 34.7 26.1 20.9 16.2 $20 12.4 9.2 6.3 2.3 $0 10 9 8 7 6 5 4 3 2 1 Income decil
  13. 13. Afforddability gap tool: Paraguay $180,000 $160,000 Telecom expenditure 5 (% income) in Gs 166,475 $140,000 $120,000 $100,000 $80,000 Cost of prepaid low $60,000 volume 59,952 basket (Gs) $40,000 42,615 $20,000 32,749 Affordability gap 26,413 21,491 17,008 13,204 $0 8,881 3,881 10 9 8 7 6 5 4 3 2 1 Income decil
  14. 14. Conclusions • 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 operators • High tariffs result in low affordability thus inhibiting use • Rate of price reductions has slowed down, competition on other attributes and VAS
  15. 15. Policy recommendations • 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
  16. 16. Hernan Galperin hgalperin@udesa.edu.ar More information: www.dirsi.net Diálogo Regional sobre Sociedad de la Información

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