Mobile telephony tariffs and service affordability in Latin America Hernan Galperin, Ph.D. Universidad de San Andrés (Argentina) Regional Dialogue on Information Society
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
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
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
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)
$10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 have a problem International benchmarking: Brazil, we $5.00 $- Brasil Honduras United States Uruguay Spain Czech Republic Slovak Republic Mexico Argentina Venezuela Korea Perú Monthly cost of OECD low volume prepaid mobile basket (USD, 2Q 2009) 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 Sources: DIRSI, Lirneasia, OECD Paraguay Malaysia Afghanistan Singapore Finland Indonesia Denmark Costa Rica Maldives Thailand Sri Lanka Nepal Bhutan Jamaica India Bangladesh Pakistan
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
has low affordability International benchmarking shows LAC 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% 0.00% 2.00% 4.00% 6.00% 8.00% Nicaragua Afganistán Honduras Nepal Brasil El Salvador Bolivia Perú Filipinas Bangladesh Guatemala Panamá Paraguay Dominicana (Rep.) OECD low volume, prepaid mobile basket as % of GNI (2Q 2009) 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 Sources: DIRSI, Lirneasia, OECD Japón Canadá Reino Unido Bélgica Australia Austria Irlanda Alemania Islandia Holanda Singapur Suiza Suecia Finlandia Luxemburgo Noruega Dinamarca
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 34.7 $40 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
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 volume $60,000 basket (Gs) 59,952 $40,000 42,615 32,749 Affordability gap $20,000 26,413 21,491 17,008 13,204 8,881 $0 3,881 10 9 8 7 6 5 4 3 2 1 Income decil
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
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
Hernan Galperin hgalperin@udesa.edu.ar More information: www.dirsi.net Diálogo Regional sobre Sociedad de la Información
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