Research done while in PwC Mexico. A short version was included in the PwC publication "Future of Pacific Alliance", presented at the presidential summit of Chile on July 2016.

1. 1
Pacific Alliance: Digital Connectivity
a) Relevance1
There is a clear positive
correlation between the
capacities the countries have to
develop digital technologies and
their level of income per capita.
The importance of the digital
technologies for economic
growth is increasing. It has been
estimated that the share of
Internet on GDP lies in between
0.5% to 5.4% in developing
countries, while its average
contribution to GDP growth is at 7%.2
The number of Internet users,
the volume of information
available and the number of
downloads per user has
increased exponentially in recent
years.
The value chain of the industry
has evolved and now features an
integrated digital content and
services configuration. This is
the arena of competition in which
national and regional leading
companies will compare to
global leaders. They are also
new links emerging in the chain, such as that of the developers of applications for
different markets.
1
This section is based largely on research conducted by ECLAC in July 2015 titled “The new digital
revolution: from the internet of consumption to the internet of production”.
2
Ibid.

2. 2
The increase in services for
mobile platforms has a
special dynamism. Specific
attention has been given to
applications for distance
learning, various aspects of
telemedicine, climate and
market information for
farmers, and the
development of mobile
money in financial services.
There will be consolidated
services from machine to
machine (M2M) in the coming years, specific for manufacturing value chains, as
well as household applications based on the interconnection of objects.
E-commerce in 2014 represented almost 2% of the World’s GDP. The main
platforms in this arena are impacting significantly on the flow of goods and
services, reducing search times and aligning prices at a global scale.
The new technological revolution leverages the high-speed broadband and the
increasingly "intelligent" mobile devices to develop applications and cloud solutions
that can manage large volumes of data and multiple analytical tools.

3. 3
The combination of these technologies is precisely what can lead to disruptive
innovations in various fields of business, government, and the average citizen:
such as home automation3, smart urban services, and industrial internet.
In terms of penetration, the mobile broadband network reached 32% of the world
population in 2014, while the fixed network reached 10%. 3G and 4G mobile
technologies accounted for 43% of all connections. By 2020, the emergence of 5G
technology is anticipated. The average global speed of mobile connections was of
over 10 Mbps4 in 48% of the cases, and over 25 Mbps in 29% of them. Latin
America is lagging behind in this field, as only 27% of its mobile connections
exceed 10 Mbps, and only 9% are higher than 25 Mbps.
Public cloud services are estimated to reach 200 billion dollars in 2016 worldwide.
Latin America accounts for 5% of this amount, but its annual growth rate is
amongst the highest ones in the world.
The "internet of things" is expected to connect 28 billion objects to the network by
2020, including personal consumption goods (wearables such as smart watches
and clothes), automobiles, household equipment and industrial machines. Major
investments in this category will be recorded in the manufacturing industry in
coming years, followed by logistics activities (transport and storage).
3
This is the set of house automation-oriented techniques for safety, energy management, wellbeing and
communications.
4
Megabites per second.

4. 4
In particular, the industrial Internet is based on the interconnection of machines,
parts and systems around smart networks that control each other. A result of this is
the practice of predictive maintenance, which reduces failures, repair times and
maintenance costs.
Considering the global average of Internet users (50.1% in 2014), two member
states of the Pacific Alliance are above the average (Chile and Colombia), and the
other two are under this level (Mexico and Peru). However, between 2000 and
2015, growth in internet penetration among the four Pacific Alliance states
averaged 14.6% per year; this trend is expected to continue. 5
As for broadband penetration, Chile is above the average for Latin America in both
fixed and mobile, Colombia and Mexico are above the regional average in fixed
broadband, and Peru is below the average in both indicators. All four countries are
far from the average penetration levels in the OECD.
5
http://data.worldbank.org/indicator/IT.NET.USER.P2

5. 5

6. 6
There is an important Internet access gap between urban and rural areas of the
Pacific Alliance member states.6
The percentage of connections that can actually operate at a speed over 10 Mbps
is still very low, but the offer is growing at high rates: 155% in Colombia, 162% in
Peru, 429% in Chile, and 77% in Mexico.
6
Source: ECLAC, Latin American Information Society Observatory, in El ecosistema y la economía digital en
América Latina; Raúl Katz, Fundación Telefónica, 2015.

7. 7
The lag is even more
remarkable when you
consider that most of the
new applications require
greater bandwidth.
E-commerce sales in the
region represent around
4% of global sales. Its
growth between 2014 and
2018 is expected to be
from 63 to 87 billion
dollars, despite a
decrease in their market
share to 3.7%. Regarding
retail sales, e-commerce
share by country for the
Pacific Alliance region
goes from a 0.5% in Peru
to a 2.4% in Mexico.
The low-income population in Latin American countries and the Pacific Alliance
region has considerably less access to the Internet. Thus, in the case of Peru,
almost 50% of the population with higher income (quintile V) has access to the
Internet, while only 2% of the lower income population (quintile I) has access to it.

8. 8
Although the computer is still Latin America’s primary means of access to the
Internet, connection via smart phones is gaining share at a very high rate. The
increase in connections through this platform was of 77% a year between 2010
and 2013. The region is estimated to have 600 million connections through smart
phones by 2020 (about two thirds of all connections).

9. 9
Regarding prices, the rate for
the postpaid mobile broadband
service (which includes at least
a one year contract) is higher in
Latin America compared to
other developed countries, but
(except for the case of Peru) it is
below the maximum level
recommended by the Digital
Development Broadband
Commission..
Without the post payment requirements, prepaid services are easier to obtain, but
with higher effective rates.
As for internet contents, the largest visitor traffic is logged on global platforms like
Google, Facebook and Microsoft sites with little participation of local or regional
platforms.

10. 10
Compared with other regions in the world, Latin America lags behind in terms of
local content share in the Internet (measured by local or regionally-produced sites
and platforms visited by the population).

11. 11
“Peru’s digital connectivity plan considers the development of 21
regional networks (7 of which have already been tendered), joined by
a backbone network which is under construction. We need to start
thinking about how we will use this infrastructure to truly contribute to
the development of the country, how to generate the necessary
content in education, health and other areas, and how will we overturn
the cultural wealth of the country to also become a development
factor”.
Gonzalo Martín Ruiz Diaz, chairman of the board of the Supervisory
Agency for Private Investment in Telecommunications, OSIPTEL of
Peru
At a corporate level, most Latin American companies believe the digital, the
information technology and communications issue is already a priority for senior
management. They spend on average one third of their annual investment budgets
in said matters. However, only half of the companies have a roadmap to drive
digital development in a multi-year horizon. This issue becomes critical, especially
considering that companies recognize the successful integration of different
technologies and the availability of skilled human resources as some of the main
obstacles. 7
As a summary, the rate of Latin America’s digitization America compared to the
OECD average remained behind by almost 20 percentage points between 2004
and 2013. However, the gap has narrowed in relative terms: in 2004 it represented
twice the level it had in Latin America, whereas now it represents less than 50%.
7
2015 Global Digital IQ Survey: Latin America; PwC, 2015

12. 12
Disaggregating the index in its components, it appears that in terms of affordability
(price level), the level of
digitization is acceptable (85
points out of 100), but the other
five sub-indexes still have
significant deficiencies.
Particularly, reliability of networks
and human capital are highlighted
due to its low level.
"The priority in Latin America is broadband. We need many years of
strong investment in infrastructure to lay the basis on which future
sustained growth can occur. Our countries must plan for the longer
term and with a regional vision. The Pacific Alliance provides a
transparent and credible framework for these purposes”.
Bruno Ramos, regional director for the Americas, International
Telecommunication Union
Of the Pacific Alliance four member states, three are in a transitional level of
digitization. Only Chile is at an advanced level.

13. 13
The level of complexity of an economic system is positively associated with the
level of productivity of the system. The higher the complexity (which measures the
system’s structure), the greater the productivity (which measures the performance
of the system). This relationship is enhanced when considering information and
communication technologies, since the effect of these crosses all other economic
activities.
Information and Communication Technologies goods trade in member states of the
Pacific Alliance and the share of this sector in GDP of each country was as follows:
Country Exports (% total
goods)
Import (% total
goods)
GDP (%)
Colombia 0.15% (2013) 9.94% (2013) 3.1% (2014)
Chile 0.39% (2013) 7.63% (2013) 3.4% (2004)
Peru 0.12% (2013) 7.84% (2013) 3.9% (2011)
Mexico 16.26% (2013) 17.10% (2013) 4.1% (2014)
"The Pacific Alliance is an ideal platform for governmental cooperation
in digital connectivity and for the generation of businesses with
regional vision. On one hand, governments could create general public
policy guidelines jointly to promote convergence in regulation and
facilitate universal access to digital services in industry, businesses,
institutions, governments themselves and the general public.

14. 14
Another issue of joint governmental cooperation refers to the
promotion of physical connectivity of national digital networks (regional
backbone), from Mexico to Chile. There are some missing key
segments: from Mexico to Guatemala, from Panama to Colombia and
between Colombia, Peru and Chile. Connectivity in Central America
has progressed a lot. In this way, a powerful synergy with the
electricity interconnection project can be created between the
countries of the Mesoamerican region and the Pacific Alliance.
And in the field of business, it is important to use the dimension that
the electronics and telecommunications industry has reached in
Mexico with global value chains, to seek opportunities for efficient
integration of suppliers located in Chile, Colombia and Peru. A
prominent example in this regard is in the segment of information
technology outsourcing (ITO), in the development of software (Mexico
ranks fourth in the world, with over six billion dollars a year in exports,
after India, China and the Philippines)”.
Santiago Gutiérrez Fernández, president 2012-2016 of the World
Information Technology and Services Alliance, WITSA
Cyber-Security is an
issue of great
importance in the
development of
Information and
Communication
Technologies. The most
affected sectors in Latin
America have been
manufacturing,
construction and
professional services.

15. 15
b) Challenges
The digital or Information and Communication Technologies sector in the Pacific
Alliance member states would benefit from an orchestrated creation of a regional
digital ecosystem and market to:
• Ensure the free movement of digital goods and services
• Expand the market for enterprises and foster their growth in scale
• Provide better public services to regional users
• Encourage interaction of actors from the exchange of experiences and
learning based on local success stories
• Strengthen the elements that can give greater dynamism and depth to
sector activities (start-ups, content development, new business models -
shared services centers, telemedicine centers, etc., research and
development, financing, clusters of SMEs with anchor companies, regional
networks).
• Maintain a proactive regulation to ensure the competitiveness of services
and markets; and implement ways of measuring the quality of user services
that are neutral, transparent, technologically relevant and systematic.
In the publication prepared and presented at the last World Economic Forum in
Davos, Switzerland on January 2016, Klaus Schwab said that: 8
"All new developments and technologies have one key feature in common: they
leverage the persuasive power of digitization and information technology."
Given its remarkable effect on the productivity of economic activities in general, it is
necessary to close the gap between the region and the most advanced countries in
ICTs, including infrastructure and the content to expand and improve the quality of
Internet access. The priority is to have national networks, from a combination of
fiber optic and wireless networks. These national networks could then be
connected to each other (regional backbone), based on agreed schemes between
countries, from Mexico to Chile. This will require considerable investment amounts
for long periods and, therefore, greater private participation in constantly updated
regulatory schemes that are guarantee of change and competition. Government
collaboration schemes should also be applied for initiatives that require high levels
of investment, such as satellite capacity sharing among the four countries of Pacific
Alliance.
8
The Fourth Industrial Revolution; World Economic Forum, 2016

16. 16
Universal and affordable access to the network is an undeniable purpose of social
equity that must be supported with all kinds of neutral public and private initiatives,
inviting not only big global players, but also large domestic companies and multi-
Latin companies involved. It also has great political value to empower the common
citizen to express themselves in various ways. Several technological alternatives
may be used to connect the more remote areas to the network, such as balloons or
drones, whichever is more appropriate.
c) Strategic bets
In the short term, opportunities for public and/or private participation are identified
in terms of digital connectivity that may have a greater effect on the productivity of
activities for each country, and which can also positively influence the integration
process of the Pacific Alliance.
Development of high speed domestic broadband network linking wireless
networks, fiber optic and alternative technologies to connect remote areas, so as to
create the digital platform. Each PA country needs to integrate its urban nodes and
rural areas with interconnected backbones, articulating fiber optic and wireless
technology, so as to configure its domestic digital network. In turn, this is
complemented with micro-networks and unconventional solutions to incorporate
the most remote areas with difficult access.
These networks are the ground on which the national digital ecosystems are built,
and are a key element in achieving universal, affordable coverage and equal
opportunities for all population strata and regions of a country. The Pacific Alliance
can promote the exchange of experiences between member countries and serve
as a sounding board towards the international community to attract the required
investments.
NATIONAL WHOLESALE SHARED BROADBAND NETWORK IN MEXICO
The largest telecommunications project in the history of Mexico has already begun
the international public bidding process. The submission of proposals will be on
September 2016. It consists of the development of a national wholesale shared public
network to increase coverage and quality of mobile services and create more
competition in the market. Minimum coverage required is 85% of the total population.
90 MHz of the 700 MHz band spectrum will be used, using 4G technology. The
investment is estimated at more than 8 billion dollars over a 6 year period (2017-
2023), and the winning bidder will take over the design, installation, deployment,
financing, operation, renovation, maintenance and network marketing for 20 years,
based on a public-private partnership contract.

17. 17
NATIONAL BROADBAND NETWORK IN PERU
Peru’s national plan considers the development of 21 regional networks (7 already
tendered) joined by a backbone network that is already under construction.
Regional interconnection of domestic networks through a backbone that runs
through the four countries and includes underwater and land fiber optic and
wireless sections. The creation of a digital region between the Pacific Alliance
countries requires the construction of a backbone to physically link domestic digital
networks. This infrastructure will enable a more flexible regional communication
and will significantly enhance the capacity to develop and operate local and
regional content. In fact, many regional, public and private links are required, as
many as possible, to support the volume of services growing exponentially. A clear
public connection initiative is linked to the electrical interconnection project linking
the Mesoamerican region (Mexico and Central America) with the South American
region of the Pacific Alliance (Colombia, Peru and Chile, including Ecuador). These
initiatives must also be linked with the one coming from UNASUR and is supported
by the CAF. 9
In addition to initiatives to develop regional backbones of large private
telecommunications companies (such as the recently concluded AMX-1 project by
America Movil, which installed 17,500 kilometers of submarine fiber optic cable to
interconnect 7 countries, including Mexico and Colombia), it is advisable to add at
least one public project promoted by the governments of the Pacific Alliance and
Central America to harness and generate synergy with the proposed network
interconnection power project, from Mexico to Chile.
Regulatory environment that promotes competition and keeps it constantly
updated, in line with technology and market changes. Based on worldwide
experience in the field, the region must strengthen the institutional and regulatory
design enabling it for timely action in favor of competition and innovation, avoiding
constant legal disputes. This includes monitoring the use of traffic management
techniques to ensure that no discriminatory practices are present. Digital
ecosystems characterized by modularity, scale economies and focus, and their
constant dynamic, require regulations that are based on functionality, rather than
structure or technology, in performance rather than ex ante rules, and new
approaches from the bottom-up. 10
9
Banco de Desarrollo de América Latina, before Corporación Andina de Fomento.
10
GSMA-NERA Economic Consulting; A new regulatory framework for the digital ecosystem; 2016.

18. 18
The exchange of experiences between regulatory bodies of the Pacific Alliance
member countries can be of great benefit in this topic, and to issue guidelines or
common general guidelines to better guide long-term development of regional
digital ecosystem.
WITSA – UNCTAD CONVENTION
The most important private ICT organization worldwide, WITSA11
, has signed a
Memorandum of Understanding with the United Nations Trade and Development
Organization (UNCTAD), in order to help promote joint initiatives to increase digital
connectivity in Latin America. A Pacific Alliance initiative aimed to develop common
guidelines on telecommunications in the region could be the subject of support in that
context.
Innovative services and business models to advance universal digital access.
Global players like Facebook have developed programs to promote no-cost access
to Internet services and social networks for lower-income strata in each country.
Thus, agreements with local operators and government authorities are promoted. A
program of this type is already in progress in Colombia and Mexico. Google and
Microsoft also are active with their own initiatives. Any effort in the direction of
advancing universal coverage of affordable internet services is welcome, as long
as network neutrality is respected.
Development of digital technology and associated services for companies. The true
potential of the digital platform is to adapt it to the specific needs –intelligent
specialization- of different industries and value chains (automotive, electronics,
banking and finance, mining, oil, etc.), from ad hoc goods and services packages
that combine information and communication technologies, including software
development.
CUSTOM CLOUD SERVICES
Telefónica Digital is providing custom cloud services in the Pacific Alliance region
tailored to the needs of companies. The user pays only for the services and time
used. Telefonica has also formed an alliance with Dell to complement a diverse
portfolio of customer services.
Measure user satisfaction with various services in specific markets. It is essential
to obtain transparent and fair measurements on the functioning of markets and the
level of user satisfaction to induce the correct behavior of the various players.
11
World Information Technology and Services Alliance.

19. 19
MEASUREMENT OF QUALITY IN BRAZIL AND CHILE
The regulatory initiative launched in 2012 in Brazil, "EAQ", can serve as a regional
reference, responsible for measuring the quality of fixed broadband and mobile
services in that country. The initiative is funded by all relevant operators in the
country, and is responsible for measuring various service quality fixed broadband
parameters (instant speed, average speed, two-way latency, package losses, jitter,
availability) and mobility ones (instant and average speed); all based on a statistical
plan towards a consistent representation of the indicators calculated each month.
ANATEL, the Brazilian regulatory agency, regularly publishes the results of the
indicators as a ranking of operators for each of the 27 states (federal units) in the
country.12
A bill ("The minimum Internet speed Act") is under review and approval in Chile,
taking the Brazilian case as a reference for one of the elements of its new
telecommunications model.
12
Véase http://www.brasilbandalarga.com.br.