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20 Investments to bridge 20 the digital divide Contents Executive Summary _____________________________________________________________________________________________ 3 1.
Introduction: Digital divide, a wide world ________________________________________________________________________ 8
2.
Objective. Connectivity Objectives 2020 and the investment needed __________________________________________________ 9
3.
“2020 Challenge”: The analysis model ________________________________________________________________________ 10
4.
“2020 Challenge”: Regional conclusions _______________________________________________________________________ 21
5.
About AHCIET ___________________________________________________________________________________________ 37
6.
About Convergencia Research ______________________________________________________________________________ 38
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20 Investments to bridge 20 the digital divide Executive Summary The study’s objective is to estimate the investments needed to bridge the digital divide in Latin America. In order to achieve this objective, different options were analyzed to narrow the definition of digital divide. We chose to analyze the accesses or adoption gap between the region and a control area. A set of 25 European countries was established as control area. We preferred to compare the accesses gap because the number of accesses is a robust indicator, compared to others such as coverage, typically used to analyze investments. Coverage is often an approximate measurement. Moreover, the coverage of an area is a necessary but not sufficient requirement for individuals/households to get connected. At least two additional aspects would be needed for an individual/household to get connected: the installation / last mile equipment and the capacity / willingness of people to hire the service. Adoption levels were defined in terms of fixed broadband penetration per 100 households and mobile broadband per 100 inhabitants. They were projected for the set of 25 European countries and compared to those predicted for Latin America in 2020. Depending on the context of each country, the “AHCIET 2020 Challenge” was defined for fixed broadband in households and mobile broadband for individuals setting a value that would drive the disparity between Europe-25 and each nation to “0” or failing that, to the minimum possible. The investment in telecommunications was then analyzed for each country from 2000 to 2011 for fixed and mobile services wherever information was available or through estimations in those countries where information on total investments only exists. Investments on maintenance and network “upgrade” and on coverage expansion in terms of the customer base and new clients were then calculated. All this information was the basis for calculating the investment needed to achieve the “AHCIET 2020 Challenge” for fixed broadband and mobile broadband access. Variations in average annual investment for service in absolute and percentage terms, per capita and as a percentage of the GDP were analyzed. Investments were calculated for three scenarios: a) projecting the trend growth in the subscriber market and the investment pattern arising from the model proposed in this report (trend investment), b) the capital that would be required to bridge the gap with Europe-25 (Gap 0) and; c) the investment needed to meet the “AHCIET 2020 Challenge” when the accesses target is lower than what would enable achieving “Gap 0” compared to Europe-25. They were compared to the targets set by the various national broadband plans and/or digital agendas. The evolution of these plans and their link to the AHCIET Challenge 2020 was contextualized.
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20 Investments to bridge 20 the digital divide The evolution of fixed and mobile broadband speeds for each country was studied, it was projected to 2020 and, although no speed targets were set, we analyzed whether they would be sufficient for the efficient use of the different types of applications (three categories: basic, advanced and total). Finally, the investment in fixed and mobile devices required to maintain a fleet of terminals in keeping with the technological evolution was calculated. This was done by setting a target or quality factor, defined as the time it takes to replace the fleet and at least one high-quality device per connection. In order to match Europe-25 in 2020, the countries should achieve a penetration of 75% in fixed broadband in households and a penetration of 95% in mobile broadband among the population. The following chart presents the targets of fixed broadband penetration (in households) and mobile broadband penetration (among the population) according to the “AHCIET 2020 Challenge”. While no targets for fixed and mobile phone services are set (voice services), attention should be drawn to the fact that investments in voice services are included in the calculation of investment, since it is assumed that networks are also used for these services.
Mobile Broadband Penetration among population
Fixed Broadband – Penetration in households
2020 Argentina Brazil Mexico Chile Colombia Venezuela Peru Ecuador Bolivia Paraguay Uruguay Average
Bridge AHCIET 2020 Divide with Trend Challenge Europe-25 62% 52% 55% 56% 48% 44% 33% 41% 9% 15% 73% 44%
75% 63% 64% 67% 52% 54% 39% 52% 30% 46% 75% 56%
75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75%
2020 Argentina Brazil Mexico Chile Colombia Venezuela Peru Ecuador Bolivia Paraguay Uruguay Average
Bridge AHCIET 2020 Divide with Trend Challenge Europe-25 74% 85% 68% 78% 60% 71% 45% 49% 57% 60% 84% 66%
95% 95% 71% 95% 66% 84% 57% 67% 70% 74% 95% 79%
95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95%
Based on the access targets set by the “AHCIET 2020 Challenge”, the study’s findings indicate that most of the analyzed countries would come very close to bridging the gap in access to mobile broadband compared to Europe by 2020 or at a near later date. This would replicate what took place in the case of mobile voice communications versus fixed communications where mobile technologies enabled universality. Regarding fixed broadband, the convergence towards “Gap 0” compared to Europe differs in degree of difficulty depending on the country. Under the penetration targets set by the “AHCIET 2020 Challenge”, Uruguay and Argentina would aspire to achieve access “Gap 0” in fixed and mobile broadband compared to Europe-25 in 2020. Chile and Brazil could reach “Gap 0” in mobile broadband access and would achieve substantial improvements in fixed broadband penetration.
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20 Investments to bridge 20 the digital divide Mexico, Colombia and Venezuela will almost bridge the divide in mobile broadband but will still have a deficit in fixed broadband. Peru and Ecuador could reduce the gap to 30% compared to Europe in mobile broadband penetration (from 100% in 2012). Peru could reduce its gap in fixed broadband penetration from over 100% today to 50% and Ecuador from 80% to 30% compared to Europe. For Bolivia and Paraguay reducing the gap of fixed broadband access will be more complex. However, they will greatly reduce the mobile broadband gap and it will probably be this technology platform that will also enable connecting households. The calculation model of the investment needed to meet the “AHCIET 2020 Challenge” implies that as accesses grow, coverage must also grow and the cost of this expansion is implicit in the investment amounts. Moreover, the investment has a strong impact on maintenance and upgrades for more customers and increased bandwidth consumption in all cases. In order to achieve the penetration targets for fixed and mobile broadband involved in the “AHCIET 2020 Challenge”, an average USD 44.378 million should be invested in telecommunications in the period 2013-2020 for all eleven countries. This would amount to USD 355.825 million of accumulated investment between 2013 and 2020. The investments to achieve the “AHCIET 2020 Challenge” represent 10% more than what the industry would normally invest following its historic rate of growth in number of accesses and the respective investment patterns. But we should keep in mind that this 10% is highly significant, since merely maintaining the growth trend in accesses means doubling the average annual investment of 2007-2011 (the fastest growing period for connectivity in Latin America). AHCIET 2020 Challenge Annual investment in telecommunications (fixed + mobile) Comparative: Challenge vs. Trend USD Million 2013-2020 (11 countries) Trend
USD 44.478
USD 52.508 USD 47.177
USD 50.225 USD 45.661
USD 48.031 USD 44.196
USD 45.710 USD 42.265
USD 40.380
USD 43.371
USD 40.895 USD 38.228
USD 10.000
USD 38.581
USD 20.000
USD 36.451
USD 30.000
USD 36.504
USD 40.000
USD 34.923
In million
USD 50.000
USD 41.160
Challenge
USD 60.000
USD 0 2013 Source: Convergencia Research Analysis
2014
2015
2016
2017
2018
2019
2020
Annual Average 2013-2020
This increased investment, both in the “business as usual” scenario and in the scenario to achieve the “AHCIET 2020 Challenge”, is due to the effect involved both in expanding coverage, and supporting an increased demand for bandwidth both from existing subscribers and those who are still to get connected.
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20 Investments to bridge 20 the digital divide In the “business as usual” scenario the average annual investment in fixed and mobile networks is expected to grow at a compound rate (CAGR) of 3.83% and on the “AHCIET 2020 Challenge” scenario at 4.65%. These values are high compared to the industry’s revenue rate of growth projected for the period 2013-2020, which, depending on the source, approximate a compound annual rate of 3%. This means that both scenarios require public policies that make investments more efficient. Depending on the country, the average annual investment in dollars per capita may more than double compared to the last five years, in part due to the effort of maintaining a larger base of connected individuals and households. The average for the five years between 2007 and 2011 was $ 40. In order to achieve the “AHCIET 2020 Challenge”, the average ratio from 2013 to 2020 will be $ 66. Beyond the possible variation of the per capita investment in the future, it is important to note that in half of the countries analyzed, the historical series shows that telecommunications investment per capita has grown steadily. With some losses between 2008 and 2010 product of the effect of the global financial crisis. When analyzing the series of investments it is also important take into account that there may be onetime nonrecurring investments that make the investment per capita increase significantly in a given year, due to reasons such as technological updating, investments made by a new entrant, among others. In terms of investment in telecommunications infrastructure as a percentage of the Gross Domestic Product (GDP), the effort is being partly affected by the projected economic growth of each country. The average for the five years between 2007 and 2011 was 0.60%. When interpreting this ratio it is important to take two issues into account: the first is that the decade that began in 2000 was of significant economic growth for most countries, except during the period between 2009 and 2010 when the effect of the global financial crisis was felt in the region with a negative impact on investments and on the economy but in different magnitudes. In order to achieve the “AHCIET 2020 Challenge”, the average ratio from 2013 to 2020 will be 0.71% of the GDP. The ratio of investment as a share of the GDP towards the future shows the impact of network maintenance and upgrade, as well as a greater number of connected individuals. However, we should also keep in mind that in general growth projections of the GDP are typically proposed in moderate scenarios, which again raises the ratio. The investment in devices that users must make based on the assumption of quality implied on this paper, except for the case of Chile, is a higher proportion/ratio of the total investment (networks plus terminals) than the real investment destined historically to network infrastructure. According to the proposed model, which includes specific taxes on terminals, in order to achieve the goal of an updated device fleet, the investment in devices share of the total investment will be increased. The model predicts that for every dollar invested in telecommunications networks an investment of $ 1.6 in devices will be required to maintain an updated fleet. Lowering the purchase barrier for devices will be necessary so that the new networks and applications can be used and a virtuous circle in the use of ICT is generated. Future applications known today will demand more bandwidth and the investment in networks, according to the analysis of speed evolution, is geared to meet this need to a greater or lesser extent. Almost every analyzed country has a master plan for bridging the digital divide and, although they may differ in their scope and time-related objectives, in most cases they include actions on most of the aspects recommended by the industry’s international agencies and organizations. The large investments required to achieve the reductions in the access gap outlined by the “AHCIET 2020 Challenge” are both a challenge and a historic opportunity.
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20 Investments to bridge 20 the digital divide Making the most of this historic opportunity will only be possible if the efforts of companies and governments are coordinated, with each undertaking different roles. Companies (whether private or State-owned) are to invest and innovate while governments should define the regulatory framework, incentives to the digital ecosystem and the deployment of infrastructure. The challenge posed by the investments needed to bridge the divide, and even more so, to generate new social and economic welfare based on connectivity, is a process that needs to be accompanied by a number of conditions such as: 1. A stable and favorable regulatory framework, 2. Legal certainty and a climate of confidence that encourages public-private cooperation 3. Simple and moderate tax levels 4. Measures to facilitate the deployment of infrastructure such as those aimed at reducing costs, appropriate regulations for the use of antennae, simplifying the system of permits, facilities for the use of public media and infrastructure, rights of way, etc. 5. And first and foremost, a planned, predictable and reasonable horizon of spectrum allocations, costs and requirements, since bridging the digital divide in Latin America will be achieved mainly through mobile broadband.
We hope that the information presented in this study will be used to create a shared agenda for the public and private sectors, that enables debating how to meet the challenge of bridging the digital divide ensuring sustainability through regulatory frameworks that make possible market structures that promote economic and financially solid companies, able to provide more and better connectivity to a larger number of people, both in the short and long term.
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20 Investments to bridge 20 the digital divide 1. Introduction: Digital divide, a wide world Telecommunications infrastructure is one of the key elements for economic and social development in the 21 st Century. Over the last 20 years, Latin America has made great strides in voice communications, mainly as a consequence of the development of mobile networks. Now the region, like the rest of the world, aims to achieve universal access to data communications, which currently means mainly Internet access. The objective of connecting every individual to broadband entails the idea that in order to achieve this, a path must be followed with “gaps” that need to be bridged, commonly known as the “digital divide”. The concept of “digital divide” is broad and complex. Industry organizations, governments, academics, consultants and other actors have conducted in-depth research in order to organize its multiple aspects, causes and impacts and recommend actions to reduce it as much as possible. Governments, operators, equipment suppliers and the industry in general have already started working on this process. Convergencia Research considers that the analysis of the “digital divide” includes at least the following aspects: Infrastructure or coverage gap: Communications networks must achieve full coverage of the population, including cities but also rural areas. Adoption or access gap: This is the gap that exists between those who have access to a network’s services and those who contract them. This gap is a consequence of socio-economic differences. Reducing this gap could, in turn, contribute to generate more economic and social development and, eventually, less inequality1. Network coverage is a necessary condition to eliminate the adoption or access gap. Within this gap there are at least two additional key problems: affordability of service and devices (a gap in the ability to pay) and motivation, which is related to cultural and educational aspects, such as considering that being connected makes sense and is beneficial. Gap in use: Once connected, the gap in use is the difference between available applications and those that are used. It also includes cultural barriers. Applications (software) must be known, but they must also be useful in some sense and be available at reasonable prices. In the particular case of the Internet, disruptive uses often appear such as social networks, or others generated by the network users themselves. Some of the limitations in the use of available applications are related to network speed and robustness, for example, applications in the cloud, insofar as they continue to expand, will demand speedier solutions, with lower latency and higher security. These aspects of the “digital divide” are interdependent and categorizing them is just a way of simplifying them to be analyzed and to sort the starting point of this study. This investigation is focused on the “adoption gap” and within this on “the investment”. In the interest of simplification it does not go into issues related to affordability or price.
1
8
For a more in-depth analysis of the affordability gap we recommend reading studies by Raul Katz on the economic impact of broadband.
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20 Investments to bridge 20 the digital divide The analysis of investments made is of interest because, among the many approaches to the digital divide, there is little information regarding the investment needed to bridge it. This led AHCIET to decide to carry out this study, almost unique in its approach, to provide new data and approaches to the market.
2. Objective. Connectivity Objectives 2020 and the investment needed The study’s objective is to determine the investment in telecommunications networks needed to reduce the “adoption gap”. In order to do this, Convergencia Research developed a two-stage analysis model: a) The definition of a target number of households and individuals connected by 2020 for eleven Latin American countries. Brazil, Mexico, Argentina, Bolivia, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela. b) The calculation of the investment in networks needed to meet those connectivity targets. Although under “adoption gap” it should be necessary to include an analysis of service prices or demand elasticity, we have left this aspect out of the scope of our study to focus specifically on investment. However, throughout the study, some parameters related to the population’s ability to pay will be mentioned. The investment required to connect a greater number of households and individuals is a starting point to think about the “industry models” that may result in a profitable equation. From the user's perspective investment includes the acquisition of the devices. For this reason we also calculated how much should be invested in devices to achieve the “2020 Challenge” of connected households and individuals. This was done under the assumption of a “quality factor” that guarantees an updated terminal fleet. By adding the investment in both devices and networks, you get an idea of the effort it takes for society as a whole to aim to bridge the digital divide. Average speeds are projected as a complement, since in the future it will be necessary not just to be connected but to have access to speeds that will enable one to use existing applications. The aim of the study is that its results contribute data and analysis that enable a debate, but more importantly, that they generate public and private collaborative efforts to reduce the digital divide and facilitate a sustainable and fertile framework for telecommunications to continue providing social and economic value.
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20 Investments to bridge 20 the digital divide 3. “2020 Challenge”: The analysis model a. Starting point At the end of 2012 Latin America had an average fixed broadband penetration of 34% of households, a fixed teledensity2 of nearly 20%, mobile penetration of 115% and 18 in every 100 inhabitants contracted Internet access via a mobile device (mobile broadband). The first stage of this report is to determine the target number of households and individuals connected to broadband by 2020, to then calculate the necessary investment in networks and devices. It was decided to set a target of households with access to fixed broadband and another of individuals who contract Internet access via a mobile device (smart phone, USB or data cards and tablets), rather than establishing a single target of number of individuals connected . This is because we consider that evolution towards the digital home, with multiple devices connected simultaneously, will require a type of home-centered connectivity offer while, in parallel, individuals will demand what may be thought of as a ubiquitous “personal connection”. The services are divided into fixed and mobile, under the assumption that in general households and businesses will be served by fixed networks3 and individuals by mobile networks. Only broadband services are analyzed. No targets are established for mobile lines or fixed lines. The option to analyze the impact of machine-to-machine communications (M2M or Internet of things) was discarded, since the objective of the analysis is focused on reducing the gap in current connectivity between people. In order to define the “2020 Challenge” we decided to establish a control group. We chose to analyze the connectivity indicators for the average of a basket of countries that includes the 25 European states 4 that constitute the OECD (Organization for Economic Cooperation and Development).
2
Fixed teledensity= landlines/population / Mobile teledensity: Mobile subscriptions / population.
3
Eventually LTE can be substituted by fixed networks but we preferred to set aside this discussion for reason of simplicity. Moreover, although access to personal Internet (mobile) can eliminate the need to hire household connectivity, we consider that from the perspective of the infrastructure the objective of high-speed networks to reach homes (fiber) must still be kept in mind. 4
Some of the countries analyzed are not part of the European Union
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20 Investments to bridge 20 the digital divide We decided to define as control the aggregated values for all 25 of these European countries because we considered the structural characteristics of their network development model and their regulatory system were compatible with those applied in Latin America. The comparison shows that: Mobile subscriptions: The levels of penetration are practically the same in both regions with average values that approach 120%. This does not mean, however, that 100% of individuals have contracted the service in either case, but rather that there are users with more than one phone, machine to machine lines and, in the case of Latin America, the prepaid segment, which may have very low traffic lines. In any event, what the data shows is that in both regions, the mobile voice service is almost universal, as well as text messaging. Fixed telephony: In Latin America, at the end of 2012, teledensity was nearly 20%, while in Europe-25 it was 40%. This is because in Latin America mobile telephony exploded before the fixed networks reached their potential and a substitution effect was generated. In contrast, while in Europe-25 fixed telephony is decreasing, in our region landlines either remain constant or grow at a similar rate as the population growth, included as part of packages with other services. While adoption targets for fixed lines have not been set, when thinking about the “2020 Challenge” the coverage of the telephony network is one of the thresholds of potential broadband coverage. Fixed broadband (FBB): The FBB penetration in the 25 European countries reached 67% in 2012. Since 2006, broadband accesses (taking all 25 countries together) have diminishing marginal growth. In Latin America household penetration has reached 34%, i.e. half that in Europe-25. The growth rates hover between 15% and 20% depending on the country the net highs have different behaviors depending on the penetration levels achieved in each Latin American country. Even with double-digit growth rates the fixed broadband adoption gap between Europe-25 and Latin America is increasing instead of falling. Broadband began to spread in both regions more or less simultaneously. Its evolution was different, however. Partly because of issues related to purchasing power and other Latin American social and geographical characteristics. It is expected, therefore, that the digital divide will be bridged mainly through mobile networks. For this reason, for the “AHCIET 2020 Challenge” for fixed broadband the aim is to achieve household penetration that is as close as possible to the 2020 average of the 25 European countries analyzed in this report (Europe-25).
Fixed broadband is also often used to connect small businesses. It generally represents 10-15% of all connections. However, in order to simplify the calculations, no targets regarding small and medium enterprises (SMEs) will be established in this report. Mobile Broadband (MBB): The mobile broadband penetration in all 25 European countries analyzed was estimated at 49% of the population by the end of 2012 while in Latin America by the same date it had reached 18%. 3G networks started to be deployed in Latin America only in 2007 and the cost of the service and the terminal are the main barrier.
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20 Investments to bridge 20 the digital divide Technological developments themselves will lead to contracting internet in mobile devices and to the lowering of their prices. It is for this reason that the “2020 mobile broadband challenge” also aims to match the European penetration projected for 2020. By matching the penetration of services to Europe-25, the gaps between different socioeconomic levels and between rural and urban areas will eventually be reduced. Although a detailed analysis of these gaps is beyond the scope of our study, since its focus is investment, we believe that achieving the set targets will imply, in most cases that in certain geographic areas and socioeconomic segments, operations will reach market limits.
b. Accesses projection assumptions Europe-25: FBB accesses are calculated using decreasing inter-annual capture rates in the 12.8% range (decreasing marginal returns of the net new-services historic curve). The Europe-25 projection for 2020 would reach 75% of households. MBB accesses are projected using data on net new-services and growth rates of the available series (3 years) and uses mobile lines as the maximum limit. Latin America: In order to set the fixed broadband penetration target in households in Latin America, the accesses until 2020 are first projected based on the trend of the last 9 years (we will call this calculation “trend based projection” or “trend”)5. Then we calculate what should be the current number of accesses and the projected number that correspond to the European penetration. Once compared, the differences are analyzed and the “AHCIET 2020 Challenge” is set, which is the closest value to Europe-25 deemed possible according to each country’s characteristics. The same criterion is applied to mobile broadband, but based on information gathered over 4 years.
b.1. Maximum hypothesis It is common practice in the industry to believe that the limit (maximum hypothesis) of possible broadband accesses depends on the coverage of the fixed telephony network. While the criterion is valid and represents the first limit that the expansion of connectivity must confront (as the telephone network is the largest communications network and xDSL the most widely used technology - 67% of connections in Latin America -), we preferred to use as a limit the number of households with access to the electricity network, since it is currently the minimum required factor. Broadband coverage can be achieved through other fixed networks, such as cable modem, fiber networks that complement the mobile operators’ networks (as is happening in some cases in Latin America, for example, Total Play in Mexico, Claro Argentina and Claro Chile, in all cases operators that had no household capillarity). Eventually, mobile technologies (LTE) or fixed wireless (in a licensed and unlicensed spectrum) may also be considered. In the case of mobile broadband, because the study focuses on individuals, the boundary is set by the population and, within this the first limit would be the population below the poverty line. “Mobile lines” are not considered as limits, since they exceed 100% of the population, due to phenomena already explained, and they will continue to grow in the future as a product of machine-to-machine communications (M2M or Internet of things). Moreover, mobile broadband will probably replicate the phenomenon of individuals with more than one
5
See methodological Appendix
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20 Investments to bridge 20 the digital divide data connection for multiple devices. It is clear that reaching 100% of the population will imply that some individuals have more than one device connected to data while others have none.
SURVEY Sources of information IPublic information from State and multilateral organizations. Operators, industry experts Databases and studies Convergencia Research
Broadband in Europe Evolution Fixed Broadband accesses Evolution Mobile Broadband accesses Household and individual penetration Network infrastructure penetration
Trends per country Evolution Fixed Broadband accesses Evolution Mobile Broadband accesses Household and individual penetration
Broadband plans 11 countries Latin Am
Broadband plans Europe
Background information
ANALYSIS Stage 1 Analysis and systematization of gathered information Set range for Target per Country Preliminary range MAX Broadband Europe
Target Range Fixed and Mobile Broadband MIN Trend Broadband
Although not analyzed in this study, it is important to mention two other restricting factors to the development of broadband: Access to international connectivity and terrestrial fiber backbones. In the first case, the expansion of the capacity of existing submarine cable systems and the laying of new cables are sufficient, according to studies made by Convergencia Research, to meet the demand over the period of the analysis. Mediterranean countries such as Bolivia and Paraguay present additional complexities and they are both seeking solutions. Terrestrial backbones are an aspect that is being guided using different models based on national broadband plans or digital agendas.
b.2. Coverage Coverage targets are not established in the calculation of the projection; it is assumed they will continue growing at historical rates (for the trend) and that the series of data used includes the additional coverage efforts needed to continue advancing in complex or extensive geographies. For this reason, as shall be seen in the results, the amount of investment grows to the extent that attempts are made to accelerate the increase of accesses. In the case of mobile broadband, 2G networks reach more than 90% of the coverage in nearly all the countries and it is estimated that, although currently 3G networks (mobile broadband) cover nearly 70% of the population,
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20 Investments to bridge 20 the digital divide in the period of analysis they will eventually cover the same proportion as 2G, as a logical consequence of technological development. Technological migration will be faster in those countries that open the spectrum both for 3G and 4G (LTE). Meanwhile national broadband plans and even spectrum auctions consider coverage targets that include rural areas or even those that run at a loss for the private sector. In the case of the fixed networks, if we took as a limiting factor the coverage of the telephony network, this also covers today a great percentage of homes in urban and suburban areas that do not contract broadband. An important aspect for the purposes of this study is (to know) how much should be invested so that in those areas where there already is coverage new clients can be connected and the networks maintained. Meanwhile, in rural areas where coverage is lower, nearly all the countries are considering improvements and in this case, the model also implies that as accesses increase the coverage is extended.
c. Calculation of the investment The investment needed to achieve the “AHCIET 2020 Challenge” of connected homes and individuals is the focus of this study. In order to create the calculation model, information was gathered on the investments of the last 10 years and those of the last 5 years, in particular, were analyzed. This information was used to construct the indicator that assigns a value to the investment made to expand the network (new customers) and another for the investment in network maintenance based on the number of customers (fleet).6 Operators provide other services over the network, mainly voice, whether fixed or mobile 7. Therefore, values were also assigned for its maintenance and update, as can be observed in the diagram on the next page. The total investment projected for new connections/subscribers is a function of existing telephone lines, new connections/subscribers for fixed and mobile telephone lines, FBB and MBB accesses based on which speed is upgraded. This calculation is made for three scenarios: one that projects accesses according to the market “trend”, one that would enable achieving European levels of penetration and a third established as the “AHCIET 2020 Challenge”.
6
For more detailed information see methodological Appendix In the case of fixed networks since xDSL is the main fixed broadband access technology voice is considered. For CATV operators the main service is television. 7
An analysis of TV on cable modem networks has not been done in order to simplify the model of investment calculation.
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20 Investments to bridge 20 the digital divide Preliminary range MAX Broadband Europe
SURVEY PROCESSING AND ANALYSIS STAGE 2
Sources of information Historical series BAM and BAF accesses Historical investment fixed and mobile networks
TargetRange Fixed & Mobile Broadband MIN Trend Broadband Access
Estimation model of historical investment values Fixed services
Telephony
Investment in existent coverage Investment in coverage expansion Mobile services
Fixed Broadband Requested investment
Telephony
Mobile Broadband
Investment in existent coverage Investment in coverage expansion Estimation of investment with current technology. Analysis of necessary investment values vs. GDP
AHCIET TARGET 2020 Fixed & Mobile Broadband
The following assumptions are considered: a) One year’s investment determines the number of accesses the following year. b) The value of the investment for network expansion is independent of the degree of market penetration of FBB service. c) The efficiency in the use of infrastructure (vacancy) is maintained over time. d) The investment in the expansion of broadband services is absorbed by the demand 8 over the projection period. e) The projection of the annual value of the investment in existing coverage is accompanied by the increase in bandwidth required for new applications, maintaining historical patterns. f) The case of MBB accesses implies that spectrum allocations accompany an increase in customers and it is for them that the best possible combination of high and low bands for a given state of technological development is made viable. g) Investments are projected for three scenarios: a. Trend: This is what would be invested following historical patterns, depending on the increase of subscribers so as not to slow up the current pace.
8
The aspects that could limit this assumption are explained qualitatively in the analysis of each country.
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20 Investments to bridge 20 the digital divide b. Equivalent to Europe-25: It is the investment required to achieve the services penetration of Europe-25. c. “AHCIET 2020 Challenge”: The values of scenarios a. and b. are compared and, depending on the differences and characteristics of each country, the “AHCIET 2020 Challenge” is established. h) Both in fixed and mobile networks investments are extrapolated to a possible maximum. However, although the model does not consider its effects, it is important to bear in mind that the market forces themselves are driving the convergence between fixed and mobile networks that could eventually reduce costs, such as for example small cell solutions, combinations with Wi-Fi, among others. In the case of fixed networks there are also new technological solutions that enable getting more speed from the copper lines increasing their productive life to get more speed from the copper pair, for example. Infrastructure sharing alternatives could also reduce the necessary investments. Meanwhile, telecom operators have integrated their fixed and mobile operations to a greater degree than in previous periods, which can also result in investment optimization.
d. Speeds. Getting connected is only the beginning Thinking about targets conveys the idea of speeds, which is why this report is complemented by the projection of a possible scenario of connection distribution according to the speed of fixed and mobile broadband for 2020, although no speed targets are set. Moreover, as the model has been created using the European Union as control group, it is important to bear in mind that the targets of the European Digital Agenda in terms of speed are very demanding, such as achieving speeds greater than 30Mbps based on 100% coverage and getting 50% of subscribers to contract speeds of over 100Mb. Latin America is far from being able to bridge this proposed gap. The priority for now is connecting a higher number of individuals and households, although one should not lose sight of speed (interpreted as a quality estimator). Speed projection is done by replicating the increase pattern based on data from Ookla’s Net Index in the case of fixed broadband and Akamai for mobile broadband. As speed per se provides no substantive information about broadband, the applications that can be used with each type of speed are analyzed according to a ranking system established by ECLAC (see table on next page). Two scenarios for the different types of broadband are set: one for current applications (2011) and another in terms of future applications (2020). The applications included are those that are known so far. We cannot rule out the possibility that innovative applications that transform demands and require higher bandwidths may appear over the next seven years.
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20 Investments to bridge 20 the digital divide Fixed Broadband 2020 Speeds
Basic
Advanced
Total
download : > 2 Mbps
download : > 10 Mbps
> 50 Mbps
upload: > 768 kbps
upload: > 3 Mpbs
> 15 Mpbs
Activities and applications email, Messenger, social networks. Web browsing, basic videoconference (web), sharing large-size files. IP Telephony, e-commerce, e-banking, ERP and CRM. Basic Games. IP Audio conference. Teleworking. Video streaming and high Definition Music. e-Government, e-Health and e-Education including video and large size image transference
Interactivity Technologies
Medium ADSL, fixed wireless Cable modem
Video streaming and High Definition IP TV (HD). Advanced games. Telepres ence Video Sale, Video Service, Video Support, Video Advice and other activities using video. Voluminous files Exchange. HD Videoconference. Teleworking exchanging large volumes of information. e-Government, e-Health and e-Education, including high definition video.
High xDSL, Cable modem, docsis 2.0
3D Video Streaming. 3D Games. Virtual Meetings. Virtual Teleworking. Remote control. e-Government, e-Health and e-Education including 3D video. Telerobotics Enhanced Reality
Real time xDSL, Cable modem, docsis 2.0
Typical devices
Mobile Broadband 2013 Speeds
PCs, Laptops, Netbooks Game consoles All in one printers
PCs, Laptops, Netbooks Game consoles, all in one printers Video Cameras Smart TV Systems, tablets
Basic
Advanced
Total
Download: >256 Kbps < 128 Kbps
Download: >2 Mbps < 10 Mbps Upload: 512 Kbps
Download: > 10 Mbps Upload: > 768 Mpbs
Upload: 128 Kbps Activities and Applications email, messenger, social networks, limited web browsing
all the basics + m-commerce, m-banking, IP telephony, file-sharing, corporate management applications, audio-ostreaming, video-streaming, basic games
PCs, Laptops, Netbooks Game consoles, all in one printers Video Cameras Smart TV Systems, tablets
all basics and advanced + HD TV, IP TV, telepresence, advanced games, low-latency applications
Interactivity
Low
Medium/High
High/Real time
Technologies
2G (GPRS/EDGE) and beyond
3G (HSPA) and beyond
4G and beyond
Advanced Feature Phones, Smartphones
Smartphones, tablets, Laptops, Netbooks
Tablets, new generation of laptop comput ers, Phoneblets, intelligent systems
Typical devices
17
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide e. Devices. The user’s CAPEX Throughout the history of the industry, the price of terminals has been one of the main obstacles for the mass use of services. In Latin America the tax burden is added to this. In this study we are interested in determining the annual amount that society should invest in devices for the “AHCIET Challenge”, and compare it to the investment in fixed and mobile infrastructure. Reducing the connectivity gap that separates the region from the rest of European countries involves replacing devices so that, along with speeds, they may enable the use of those applications that technology makes available at a given time in its evolution. For this we generated a model with the target of the complete replacement of the computer fleet every 3 years and the complete replacement of mobile phones every two years. Since the target’s objectives do not necessarily coincide with current replacement patterns, in order to assign a value to the fleet, instead of taking the current volume of sales by country and projecting it, we decided to incorporate a “quality factor”. We defined this quality factor based on the price of iPhone 5 for the high-end mobile phones and an average value for the low-end phones based on a selection of BlackBerry, Samsung and Motorola models. In the latter case, we assumed that 80% of the equipment is low-end terminals and 20% high-end phones. For computers we worked on the basis of the value of DELL Inspiron laptops with an Intel i5 processor, 4-16 GB RAM, 500 Gb disk, 4 to 16 GB memory and 15.6'' screen. As we want to include the impact of the tax burden in the investment, we used the retail value in the United States (in the case of mobile phones we used the price of unlocked terminals) and on that basis we calculated the tax burden for each country according to the values that appear in the study “Taxation and telecommunications in Latin America” prepared by Delloite for AHCIET in 2012. The values were projected based on accesses, assuming that each household has a computer and that for each mobile subscription there is a phone9. The result of the calculation is “the investment effort of society to acquire the terms that meet the AHCIET Targets regarding number of accesses, level of fleet replacement and compliance with the “quality factor” defined in the model.
9
Tablets or netbooks were not taken into account because they account for a small portion of the market and although tablets are expected to develop greatly, they are still a secondary device.
18
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide
SURVEY Sources of Information
Currently existing devices that comply requisites for using FBB or MBB
IBAF and BAM accesses information 11 Latin American countries Context referential information
Fixed Broadband Devices rates based on web data DELL Market price Tax burden by AHCIET country
Device Valuation Analysis and systematization of the information Valuation of devices, application of tax burdens Fixed & Mobile Broadband accesses to 2020 For AHCIET target
Mobile Broadband Devices rates based on web data e-Bay market prices Tax Burden by AHCIET country
Investment in devices according to Fixed & Mobile Broadband Target
Calculation Method A model is used considering a typical device depending on whether it is a household connection (FBB) or an individual one (MBB). For FBB a state of the art laptop is considered and for MBB a Smartphone. New devices such as tablets, connected TVs and video game consoles are not taken into account. Computers. The device fleet is equivalent to at least one for each FBB access defined in the “AHCIET 2020 Challenge� for each country. a) The value is based on the price of DELL Inspiron Notebooks and Netbooks with an Intel i5 processor, 4-16 GB RAM, 500 Gb disk, 4 to 16 GB memory and 15.6'' screen. b) Prices do not include VAT, but they do all other taxes c) Prices remain constant over the projection period and it is assumed that the model will vary according to technological evolution. d) The rate of equipment replacement is 3 years. Smartphones: The terminal fleet is equivalent to at least one for each MBB access defined in the 2020 target for each country.
19
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide a) The value is based on 2 types of terminals: high-end and mid-range. For the high-end the prices were those of iPhone 4 and 5 (unlocked). For mid-range the prices are those of Motorola, BlackBerry and Samsung (unlocked) phones. b) 20% of high-end and 80% of mid-range equipment is established as a mix for MBB. c) Prices are wholesale and were estimated based on the retail value of the U.S. market. They do not include VAT, but they do all other taxes d) Prices remain constant over the projection period and it is assumed that the model will vary according to technological evolution. e) The rate of equipment replacement is 2 years.
20
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide 4. “2020 Challenge”: Regional conclusions Fixed and mobile broadband: Current situation
The five-year period 2007-2011 recorded strong growth in the total number of individuals connected to telecommunications services in Latin America. The period began with the launch of 3G networks and ended when Latin America exceeded 100% mobile teledensity. The access gap with regard to European countries, chosen as control group in this report, tends to close. A debate is generated due to the requirement of additional spectrum. In fixed services, voice lines maintained their natural growth during the years of the analysis (with some exceptions), fixed broadband started to slow its growth rates compared to the previous five years and applications began to require more bandwidth. The gap of fixed broadband access between Latin America and Europe-25 tends to expand, which generates an in-depth discussion in the industry about the public policies needed to reduce the gap, which are mostly expresses in each country’s broadband plans or digital agendas. By the end of 2012, the eleven countries analyzed in this report could be classified into the following groups according to their levels of fixed and mobile broadband penetration. a) High connectivity: a. Uruguay, Chile, Argentina: With fixed broadband penetration per household of over 35% and mobile broadband reaching about 20% of the population or more. b) Medium connectivity: a. Venezuela and Colombia: Fixed broadband penetration reaching between 25% and 35% of households and mobile broadband penetration of between 15% and 20% and growing fast. Mexico can be added to these countries, although its levels of fixed broadband per household correspond to the high connectivity group. c) Incipient connectivity: a. Peru and Ecuador: Fixed broadband penetration reaching between 15% and 20% of households and mobile broadband penetration of between 5% and 10% b. Bolivia and Paraguay, with fixed broadband penetration per household below 10% and about 10% of mobile broadband penetration.
21
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide With some national plans/digital agendas in execution and several countries having planned their spectrum allocations, the situation of the communications infrastructure by the end of 2012 can be summarized as follows: a) International connectivity: Most countries have improved their access to international capacity. Capacity expansions and new lines (public and private) ensure that future demands for international bandwidth can be met. Mediterranean countries such as Bolivia and Paraguay are also executing improvement plans. b) National backbones: The national backbones are necessary infrastructure so that fixed and mobile broadband access networks can increase their speeds without bottlenecks. Most countries are deploying these backbones as part of their national plans or digital agendas. Private alternatives are added to these increasing the competition. c) Internet Regional Exchange Points (IPx) are seen as alternatives to decrease the cost of bandwidth and facilitate an increased adoption of services. d) Fixed access networks in large urban centers where there is competition are geared towards bringing fiber closer to the home. e) Mobile networks, in countries where definite plans on spectrum allocations exist, move towards the evolution to LTE, with a focus on speed but also on the IP world. f) Alternatives to make sharing infrastructure easier are being analyzed by the public and private sector to reduce coverage gaps in urban, suburban and rural areas. As part of the national plans or digital agendas, almost all the countries are analyzing measures to stimulate the demand to reduce the external (with the developed world) and internal (rural and urban areas, social classes within a same country) digital divide.
22
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide Historical investment in telecommunications Between 2004 and 2011 the accumulated investment for the 11 countries studied was USD 152,004 and the average annual investment in fixed and mobile services grew at compound annual rates of 13%, except in 2009 when the global financial crisis hit. The historical series shows that the industry invested increasingly every year, which was a result both of coverage expansion and new services, and maintenance and upgrades for a greater number of those connected. As an illustration, the sums invested between 2004 and 2011 were similar to the value of Argentina’s GDP in 2004. Argentina was then the third largest economy in the region. This information viewed in hindsight gives a clear idea of the magnitude of the investments made. It would have been difficult to predict in 2004 that the region could invest in the next 7 years values that would approximate the GDP of the third largest economy in the region. The annual average gross investment between 2007 and 2011 (historical period of greatest growth in connectivity) was USD 22,437,000 and the accumulated investment (fixed and mobile services) was USD 112,186,000.
Annual historical investment in telecommunications (fixed + mobile) 2004-2011 (11 countries) USD Million USD 30.000
USD 25.000
Accumulated 2004 – 2011: USD 152,004 Million CAGR 13
USD 20.000
USD 23,212
USD 19,158
USD 23,815
USD 28,475
2005
2006
2007
2008
2009
2010
2011
Source:: Convergencia Research
23
USD 22.,438
USD 17,529
2004
USD 0
USD 19,000
USD 15,621
USD 5.000
USD 13,479
USD 10.000
USD 10,715
USD 15.000
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide a. Investment as a percentage of the GDP To achieve the current levels of penetration of fixed and mobile services, the eleven countries analyzed have invested in fixed and mobile telecommunications infrastructure average annual values of 0.60% of the GDP at current prices.
Investment in Telecommunications 2007-2011 (% GDP) 1,40%
investment as % of GDP
1,20%
1,00% 0,80% 0,60% 0,40% 0,20% 0,00%
2007
2008
2009
2010
2011
Chile, Bolivia and Paraguay are the countries with the highest proportion of investment as a percentage of the GDP, around 1% for the five years analyzed. There are different reasons for this. If longer series (last decade) are analyzed, Chile has always invested a higher proportion of its GDP on telecommunications infrastructure than the other countries. In the case of Bolivia also, its effort to get connected amounted to about 1% of the GDP throughout the decade. Once Entel was nationalized, it began a new cycle of expansion of its mobile networks. In the case of Paraguay, in the five years analyzed, the State operator - Copaco - has focused on improving its networks and the State mobile operator Vox has focused on 3G and 4G (from early 2013), while private mobile operators have invested in the expansion of 3G (and 4G from early 2013) and some providers have laid fiber networks to compete in broadband, such as Cablevision (now Tigo) and Claro. The GDP ratio is indicative of the investment effort in relation to the economy. Ratio variations, however, can be affected by circumstantial aspects of either of the two variables that constitute it.
24
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide b. Per capita investment The values of average annual per capita investment figures range between figures close to USD 100 for Chile to USD 20 for the economies of Bolivia, Paraguay and Ecuador. The average investment per capita for the region in the period 2007-2011 was around USD 40. Brazil, Chile, Argentina, Bolivia, Ecuador and Uruguay show a trend towards the increase of per capita investment over the whole historical period analyzed. Colombia, Mexico and Paraguay show a more random behavior. Venezuela is a special case, since the investment is measured in dollars to enable comparisons and this country has suffered major devaluations in recent years. In local currency investments in Venezuela are increasing. The variations seen in the chart below show some growth “peaks� that can be generally explained by the fact that some investments in the industry are not recurrent but specific, for example the acquisition of spectrum and the subsequent deployment of mobile networks of a newer generation, the laying of fiber optic national backbone, the admission of new entrants, among others. Some decreases can also be seen, primarily between 2008 and 2009, due to the international financial crisis, which then return to their upward trend.
Investment in Telecommunications 2007-2011 (USD per capita) 160 140
USD per capita
120 100 80 60 40 20 0
2007
2008
2009
2010
2011
An important fact is that from 2000 onwards in half of the countries analyzed, per capita investment in telecommunications has always followed an upward trend and decreases are only responses to circumstantial events. In the other half of the analyzed countries no specific pattern for the decade can be observed. Although from 2007 onwards the investment per capita has been increasing in all cases.
25
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide Broadband access: “AHCIET 2020 Challenge: MBB and FBB” The study’s objective is to estimate the investments needed to bridge the digital divide in eleven countries of Latin America. As the digital divide can be looked at from different angles, to calculate the investment we decided to work with the adoption gap (access) for fixed and mobile broadband, comparing it with a selection of 25 European countries. To do this we used the model explained in the previous chapter, which sets a maximum possible reduction target in terms of subscribers and calculates the necessary investment extrapolated to a maximum. In both cases the historical series is used as a standard for modeling period 2013-2020. The targets are defined in terms of fixed broadband to connect homes and mobile broadband to connect individuals. This restriction is made on the assumption that the number of connected devices in the home will require bandwidth provided by fiber networks (as close to home as possible) and that individuals will require mobile broadband for ubiquitous connectivity. It also responds to the need for simplifying the calculation model. There are exceptions in some countries where the coverage gap, geographical difficulties and gaps in purchasing power make the connection of households through wired networks quite unlikely so that they will depend on 4G and its evolutions to provide fixed solutions over mobile networks. Meanwhile, the natural evolution of the mobile networks’ technological “upgrades” will drive the replication in data communications of what occurred with mobile voice networks and bridging the digital divide in Latin America will occur through mobile broadband. In order to match Europe-25 in 2020, the countries should achieve a 75% penetration of fixed broadband in households and a 95% penetration of mobile broadband among the population. The following values for the AHCIET 2020 Challenge emerge as a result of the applied model: a) “Gap 0” compared to Europe-25: fixed and mobile broadband a. Uruguay: 1 million connected households and 3.2 million mobile broadband subscriptions. b. Argentina: 11 million connected households and 42 million mobile broadband subscriptions. b) “Gap 0” compared to Europe-25: mobile broadband a. Chile: 4 million connected households with fixed broadband and 18 million mobile broadband subscriptions. b. Brazil: 45 million connected households with fixed broadband and 202 million mobile broadband subscriptions. c) Half-way point a. Mexico: 22 million connected households with fixed broadband and 90 million mobile broadband subscriptions. b. Colombia: 8 million connected households with fixed broadband and 35 million mobile broadband subscriptions. c. Venezuela: 4.5 million connected households with fixed broadband and 30 million mobile broadband subscriptions.
26
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide d) Substantial improvement in fixed and mobile broadband a. Peru: 3.5 million connected households with fixed broadband and 30 million mobile broadband subscriptions. b. Ecuador: 1 million connected households with fixed broadband and 12 million mobile broadband subscriptions. e) Inclusion via mobile broadband a. Bolivia: 1 million connected households with fixed broadband and 9 million mobile broadband subscriptions. b. Paraguay: 1 million connected households with fixed broadband and 6 million mobile broadband subscriptions.
27
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide Investments needed to achieve the “AHCIET 2020 Challenge” To achieve the “AHCIET 2020 Challenge”, in the period 2013-2020, the eleven analyzed countries would have to average annual investments of USD 44,478,000 each. The accumulated investment projected for 2013-2020 in investments on fixed and mobile infrastructure for all 11 countries will be USD 355,825,000. The average compound annual rate of growth of the investment in infrastructure (fixed+mobile) for the 11 countries in the period 2013-2020 will be 4.65%. For investments of this magnitude to be made it will be necessary to work within a framework of predictability in regard to business rules and to have open dialogue at governmental and corporate levels. Initiatives that enable reducing the costs of investment in infrastructure are recommendable as they would have a direct impact on the reduction of prices of services, generating a virtuous circle that would lead to a further acceleration of the time needed to bridge the digital divide. As well as alternatives that speed up the deployment of this infrastructure, such as reducing the number of permits, simplifying processes for the installation of antennae, measures to avoid discretionary decisions by local governments regarding rates and taxes in the case of mobile networks and facilities for the use public media and infrastructure.
AHCIET 2020 Challenge Annual investment in telecommunications (fixed + mobile) Comparative: Challenge vs. Trend USD Million 2013-2020 (11 countries) Trend
USD 44.478
USD 52.508 USD 47.177
USD 50.225 USD 45.661
USD 48.031 USD 44.196
USD 42.265
USD 45.710
USD 43.371 USD 40.380
USD 40.895 USD 38.228
USD 10.000
USD 38.581
USD 20.000
USD 36.451
USD 30.000
USD 36.504
USD 40.000
USD 34.923
In million
USD 50.000
USD 41.160
Challenge
USD 60.000
USD 0 2013 Source: Convergencia Research Analysis
2014
2015
2016
2017
2018
2019
2020
Annual Average 2013-2020
As an indication, the projected investment amounts needed to achieve the “AHCIET 2020 Challenge” are similar to the value in USD of the GDP of Colombia in 2012 in current prices. Colombia is today the fourth largest economy in the region. If 7 years ago, the equivalent to the third largest economy was invested (See section on Historic investment in telecommunications), one can expect that history will repeat itself if the necessary conditions are generated.
28
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide The countries that will need to make the greater effort to achieve the “AHCIET 2020 Challenge” are Bolivia and Paraguay. The former would have to invest for the cycle 2013-2020, on average, 1.4% of its annual GDP and the latter 0.86%. Third is Chile, which as explained above, in all the analyzed series is always the country with the highest percentage of the GDP allocated to telecommunications and also with more dollars per capita destined to be invested in the sector. The country that would allocate the most dollars per capita to achieve the “AHCIET 2020 Challenge” is Chile with USD 171. Brazil would be in second place (USD 93) and Argentina in third (USD 85). On average, the 11 countries would have to invest 71% more in dollars per capita in the 5-year period 20072011, product of expanded coverage, the increasing demand for bandwidth per user and network maintenance for a larger number of connected individuals.
AHCIET 2020 Challenge Annual Investment Average USD per capita 2013-2020 Chile
USD 171
Brazil
Mexico Average (11 Countries) Uruguay Colombia Venezuela Ecuador Peru Bolivia Paraguay USD 0
29
0,86% 0,86%
Ecuador
USD 70
0,80%
Proemedio 11 países Colombia
USD 66
USD 67
0,71% 0,70%
Brasil
USD 58
0,65%
Argentina
USD 54
México
USD 42
Peru
USD 37
Venezuela
USD 36
Uruguay
USD 32
Source: Convergencia Research
1,40%
Chile
USD 85
USD 100
Bolivia Paraguay
USD 93
Argentina
AHCIET 2020 Challenge Annual Investment Average %GDP per capita 2013-2020
USD 200
0,00%
0,64% 0,55% 0,51% 0,49%
0,38% 0,50%
Source: Convergencia Research
1,00%
1,50%
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide In 2020, if the values proposed by the “AHCIET Challenge” of connected households and individuals were reached, the industry would have to invest USD 52.508 million in fixed and mobile networks for all the 11 countries, compared to USD 28.466 million invested in 2011. This means that not only is it necessary to debate the actions needed to achieve the investment figures to bridge the divide, but once this is achieved large volumes of capital will still be needed to maintain and upgrade these networks. In order to realize investments of this magnitude, a public and private shared agenda to debate public policies that facilitate investment and promote innovation in business models that enable economic sustainability in the long term will be necessary. Ahciet 2020 Challenge Annual Investment in Telecommunications (fixed + mobile) Annual investment / 2011 vs. 2020
USD 302
USD 396
USD 164
USD 730
USD 247
USD 990
USD 327
USD 1.677
USD 774
USD 2.175
USD 1.069
USD 4.065
USD 2.096
USD 4.315
USD 2.300
USD 3.494
USD 5.000
USD 2.487
USD 4.985
USD 24.456
USD 10.000
USD 9.853
USD 15.000
USD 13.890
USD million
USD 20.000
USD 128
2011 2020
USD 25.000
USD 0
Bolivia
Brazil
Chile
Argentina
Colombia
Ecuador
Mexico
Paraguay
Peru
Uruguay
Venezuela
If the penetration levels of the “AHCIET 2020 Challenge” are achieved, the necessary capital for fixed and mobile networks would increase its share of the Gross Domestic Product from the average 0.59% in 2011 to 0.67% in 2020.
30
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide
Future investments would increase as a result of the larger subscriber base and the need for maintenance that would enable maintaining “upgrade” levels in accordance with the technological model and the network expansion required for incorporating new subscribers to the network. Measured in dollars per capita, the investment for the average of the 11 countries will increase from USD 48 in 2011 to USD 79 annually in 2020.
Ahciet 2020 Challenge
USD 184
Annual Investment in Telecommunications (fixed + mobile) USD per capita / 2011 vs. 2020
USD 81
USD 85 USD 38
USD 49 USD 25
USD 57
USD 23
USD 55 USD 22
USD 48
USD 26
USD 61
USD 116
USD 40
USD 36
USD 46
USD 60
USD 77
USD 80
USD 44
USD 100
USD 56
USD 120
USD 71
USD 94
USD 140
2020
USD 64
USD 180 USD 160
2011
USD 143
USD 200
USD 48
USD per capita
USD 20 USD 0 Argentina
31
Brazil
Mexico
Chile
Colombia Venezuela
Peru
Ecuador
Bolivia
Paraguay Uruguay
Average 11 Countries
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide The application of the model developed in the case of Chile, Mexico, Argentina, Uruguay and Brazil, while involving substantial increases in investment could be achievable given current levels of development, coverage, and historical patterns of attracting demand and investment, provided public policies that facilitate investment are generated. In these countries the greatest effort required by investment will be to upgrade existing customers to higher bandwidth. Since they have a large user base, migrating to new technologies will require a significant financial effort for existing customers. In the case of Argentina, it will be essential to see the country make decisions regarding spectrum allocations. The model, which assumes that the spectrum is made viable according to needs, shows there is a high potential demand. Without spectrum the gap in mobile broadband will not be bridged unless it is at a very high cost to the industry and society. Both in Argentina, as in the other countries, spectrum availability is a necessary condition to achieve broadband penetration targets. The exponential growth in demand for mobile data requires looking ahead at and planning new allocations taking into consideration costs and reasonable terms. In Colombia, Venezuela and Peru, the gap will probably be bridged using mobile broadband. In the case of Colombia, the country has higher broadband speeds than Venezuela and Peru.
Venezuela would have (to make) an additional effort to increase the bandwidth of its subscriber base and in Peru the need to increase coverage and to address rural areas in a complicated geography has more impact. In Peru, Ecuador and Venezuela achieving the “AHCIET 2020 Challenge� will probably imply exceeding the involved companies’ efficiency limits and, as a result, greater efforts will have to be made to produce public policies that stimulate demand. Paraguay and Bolivia have a level of delay in basic infrastructure such as electricity, drinking water and transport that adds additional complexity to the low coverage of fixed networks and the restrictions on access to international bandwidth, which are the typical barriers of telecommunications. For example, since 2006 Bolivia has been working on developing basic electrical infrastructure through a plan whose objective is to reach the whole population only in 2025. Moreover, the poverty levels and large percentage of rural population will require additional efforts on actions to stimulate demand. Consequently, the mobile platform will fulfill the double function of connecting homes and individuals. In terms of affordability, innovative solutions will be needed to bridge the price barrier. In every country analyzed there is intense activity on the public policy agenda to bridge the digital divide. On the basis of national plans or digital agendas, at least one of the strategic lines of action recommended by different international organizations is being worked on. Qualitative objectives are generally shared by all national plans, although from different political-economic perspectives: Digital inclusion, planning of spectrum allocations, execution of universal service funds that include Internet access, promotion of domestic production and employment in the industry, training and research in information technologies, connectivity and infrastructure, analysis of the role played by the competition, lowering barriers to access devices, improving affordability. Less common is setting targets for connection speeds. The implementation of the plans or agendas, however, shows differences in the priorities and steps to be taken to achieve penetration and network coverage that respond to the realities of each country. The way of measuring the level of progress of the master plans for bridging the divide is heterogeneous. Some countries set indicators of total access penetration without distinguishing whether these apply to households or individuals, gap reduction targets in terms of the coverage of municipalities or simply broadband access targets in the short or medium term.
32
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide The “AHCIET 2020 Challenge” adds a homogeneous look that enables comparing the 11 countries and focuses on applying a model to obtain a general framework for the necessary investments, an aspect that has been less studied so far. For all 11 countries, achieving the “AHCIET 2020 Challenge” will result in the incorporation of segments or areas where the efficiency barrier for private companies or the affordability barrier for users is reached. For this reason, now the investment has been estimated, its profitability must be assessed. We hope that the information provided in this study will be used by the industry to debate models of public and private actions that ensure sustainability through market structures that promote economically and financially sound companies in the short and long term.
33
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide 2020 Speeds: MBB vs. FBB
This study does not intend to set speed targets (which, in a simplified way, can be understood as quality). However, it is important to keep in mind the objectives of the European Digital Agenda for future comparisons or objectives that may arise in the region. The European Digital Agenda establishes, for example, that coverage of at least 30 Mbps must be provided by all networks and that 50% of households will have to hire speeds higher than 100 Mbps. These values are proving to be difficult in the complex European macroeconomic scenario and compared to Latin America, are too high for the divide to be bridged by 2020. Average speeds in 2011 are in the range of 0.56 Mbps and 7.07 Mbps for fixed broadband. Most connections cluster at speeds that enable the use of basic applications, except in some countries where the number of those connected at speeds that allow advanced uses increases. “Total Broadband� is almost nonexistent.
Fixed Broadband Average speeds
Mbps
60,00
55,22
2011
49,81
50,00
2020 42,31
40,00
38,77 34,44 30,75
30,00
25,43
10,00
21,97
19,06
20,00
6,10
4,11 0,56
7,07 3,33
2,67
4,75
2,63
34,69
33,30
30,54
1,71
3,13
1,09
3,38
0,00
If the trend of the past three years continues, the average speed projections for 2020 would lie between 19.06 Mbps and 55.22 Mbps and will show an improvement that would enable, in most cases, expected uses identified as advanced. This improvement will be the result of migration to fiber platforms closer to home (FTTx). Chile and Brazil stand out.
34
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide Mobile Broadband Average speeds
Mbps 30,00
25,08
2011 2020
25,00
20,96 20,00 16,34
15,06
16,50
15,00
11,28
9,91
10,00
16,25
15,82
14,14
12,58
5,00 0,83
0,38
0,75
1,35
0,95
0,96
0,90
0,50
15,81
0,62
1,71
0,94
0,90
0,00
Average speeds for mobile broadband in 2011 are in the range of 0.5 Mbps and 1.71 Mbps. Average speed projections for 2020 would lie between 9.91 Mbps and 25.08 Mbps. Uruguay and Chile stand out.
Devices
Throughout the history of the industry, the price of terminals has been one of the main obstacles for the mass use of services. In Latin America the tax burden is added to this. The affordability of the devices is strongly conditioned by the tax levels on them, especially customs duties, special taxes that consider a mobile phone a luxury product, among others. The tax burden should be reviewed in order to align it to the achievement of targets, because as the results explained in the following paragraphs will show, under the current structure in most countries society as a whole must invest more on devices than in network infrastructure. In this study we are interested in determining the annual amount that society should invest in devices for the “AHCIET Challenge�, and compare it to the investment in networks. To do this we generated a model (explained in the previous chapter) whose objective is the complete replacement of the computer fleet every 3 years and the complete replacement of the mobile phone fleet every two years. In the latter case, we assumed that 80% of the equipment is low-end terminals and 20% high-end
35
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide ones. The replacement targets do not necessarily match the pattern of sales by country, as they would include a “quality factor” forced by the model that also includes the effect of specific taxes.10
The result of the calculation is the investment effort made by society to acquire the devices that meet the AHCIET Targets regarding number of accesses, level of fleet replacement and compliance with the “quality factor” defined in the model. As a result, the model predicts that to keep the terminal fleet updated, society should invest, except in the case of Chile, a greater amount than what is invested (real and projected) in fixed and mobile network infrastructure. In 2011, an updated device fleet would have cost society an amount equal to 58% of the total investment (fixed and mobile infrastructure + fixed and mobile terminals). In 2020, the relevance of devices will increase to represent 68% of the total. Therefore, to achieve the penetration target it is important that measures to lower the barriers that prevent access to terminals, especially the tax burden, should be debated.
10
Specific taxes that are different from the value added tax
36
LATIN AMERICA
challenge
20 Investments to bridge 20 the digital divide 5. About AHCIET AHCIET is the Ibero-American Association of Research Centers and Telecommunication Enterprises, a private non-profit organization created in 1982 and constituted by over 50 telecommunications operators in Latin America, which include public, private, multinational and local and companies, diversity that provides a significant representation of the entire industry. Our Mission is to significantly contribute to the development of telecommunications in Latin America through public-private dialogue, promoting the industry’s common interest and the exchange of knowledge and good practice between companies, to further the development of digital connectivity and telecommunications services.
AHCIET Team Pablo Bello Arellano
Secretary General
Fernando González Muñoz
Manager
Gastón Soublette
Operations Coordinator
Eduardo Chomali
Strategy and Institutional Affairs Coordinator
Víctor Rodríguez
Accounting
Pablo Cereceda Pinto
Communications Advisor
Lorenzo Sastre
Technical Regulation Advisor
Juan Jung
Studies and Regulation Coordinator
Andrés Sastre Portela
Studies Advisor
Experts who contributed their views to this study IADB: Antonio García Zaballos ECLAC: Edwin Fernando Rojas Cisco: Andres Maz Intel: Luis Marín
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LATIN AMERICA
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20 Investments to bridge 20 the digital divide 6. About Convergencia Research Convergencia Research is the area of research and market intelligence of the Convergencia Group, an independent company specializing in providing business information about telecommunications and information technologies in Latin America and the Caribbean. Since 1998, Convergencia Research has been conducting multi-client studies and ad-hoc reports for companies and organizations in the telecommunications sector in Latin America and the Caribbean. Its work team is constituted by specialists in telecommunications, professionals from different fields such as analysts, journalists, regulatory experts, experts in marketing and market research, economists, sociologists and experts in finance. Convergencia Group has two other business units. The publishing business unit that produces the content of the site www.convergencialatina.com, Convergencia Maps, Convergencia Telematics, Convergencia Documents, Telehealth, among other publications. Convergencia Events organizes business conferences and training in the ICT sector. Contact information: Grupo Convergencia – Convergencialatina – Convergencia Research: Ave. Belgrano 680 Piso 9 - C1092AAT Buenos Aires – Argentina - Telefax: +54 11 4345 3036
Work team Director Mariana Rodríguez Zani Research Germán Alonso Jorge Cougnet Gabriela Ressi Garay Pablo Castro
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