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

1. Mobile telephony tariffs and service
affordability in Latin America
Hernan Galperin, Ph.D.
Universidad de San Andrés (Argentina)
Regional Dialogue on
Information Society

2. What is service affordability?
• “Affordable service” is required in every telecoms
law, but no definition provided
• Measuring affordability is necessary to estimate
the market efficiency frontier and design universal
service programs
• How much are individuals or HH willing to spend
on telephony services?
• Not only economic but public policy question

3. Without affordability estimates, the market
efficiency frontier is unknown
100% coverage
High cost areas
Access
gap
100% adoption
Supply
Market efficiency
frontier
Low-cost areas
Current access
High income HH Low-income HH
Demand

4. A quick literature overeview
• Strong correlation between
affordability and
penetration
• High-income countries: 2-
3% of GNI. Low-income
countries: up to 5%.
• Variation by income level
(inverted “u” shape typical)
Source: Milne (2006)
• Beyond 5% of expenditure,
adoption drops sharply

5. Methodology
• Gather tariff data for mobile operators in 20 countries in
LAC
• Metric: OECD mobile service baskets, with particular
interest on low volume, prepaid basket
• Basic profile: one call, one SMS per day on prepaid plan
• Gather income data by decil for same countries and build
affordability indicators
• International benchmarking

6. There is significant dispersion in mobile
tariffs in Latin America
Monthly cost of OECD low volume prepaid mobile basket (USD, 2Q 2009)

7. Somewhat less dispersion if measured in
USD PPP
Monthly cost of OECD low volume prepaid mobile basket (USD PPP, 2Q 2009)

8. $-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
Brasil
Honduras
United States
Uruguay
Spain
Czech Republic
Slovak Republic
Mexico
Argentina
Venezuela
Korea
Perú
Nicaragua
Turkey
Panama
Hungary
France
have a problem
El Salvador
Greece
Canada
Italy
Chile
Japan
OECD
United Kingdom
Portugal
Ireland
Austria
Poland
Belgium
Australia
New Zealand
Dominicana (Rep.)
Colombia
Iceland
Guatemala
Trinidad y Tobago
Ecuador
Switzerland
Luxembourg
Netherlands
Germany
Bolivia
Norway
Philippines
Sweden
Paraguay
Malaysia
Afghanistan
Singapore
International benchmarking: Brazil, we
Finland
Indonesia
Denmark
Costa Rica
Maldives
Thailand
Sri Lanka
Nepal
Bhutan
Jamaica
India
Bangladesh
Monthly cost of OECD low volume prepaid mobile basket (USD, 2Q 2009)
Pakistan
Sources: DIRSI, Lirneasia, OECD

9. Diverging business models: LAC vs.
Southeast Asia
Monthly cost of OECD low volume, prepaid mobile basket (USD PPP, 2Q 2009)
Sources: DIRSI, Lirneasia, OECD

10. Why I only use my mobile to receive
calls…
5% affordability
threshold

11. 10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
2.00%
4.00%
6.00%
8.00%
0.00%
Nicaragua
Afganistán
Honduras
Nepal
Brasil
El Salvador
Bolivia
Perú
Filipinas
Bangladesh
Guatemala
Panamá
Paraguay
Dominicana (Rep.)
Argentina
Indonesia
Ecuador
Uruguay
India
México
Colombia
Turquía
has low affordability
Venezuela
Pakistán
Sri Lanka
Chile
Hungría
Eslovaquia
Bután
Corea
República Checa
Maldivas
Polonia
Malasia
Tailandia
España
Portugal
Costa Rica
Grecia
Trinidad y Tobago
E.E.U.U.
Italia
Jamaica
Nueva Zelandia
Francia
Japón
Canadá
Reino Unido
Bélgica
Australia
Austria
International benchmarking shows LAC
Irlanda
Alemania
Islandia
Holanda
Singapur
Suiza
Suecia
Finlandia
Luxemburgo
OECD low volume, prepaid mobile basket as % of GNI (2Q 2009)
Noruega
Dinamarca
Sources: DIRSI, Lirneasia, OECD

12. Affordability gap tool: Brazil
$160
140.4
Telecom expenditure 5 (% income) in R$
$140
Cost of
prepaid low
$120 volume
basket (R$)
$100
$80
$60
51.5
Affordability gap
$40 34.7
26.1
20.9
16.2
$20 12.4
9.2
6.3
2.3
$0
10 9 8 7 6 5 4 3 2 1
Income decil

13. Afforddability gap tool: Paraguay
$180,000
$160,000
Telecom expenditure 5 (% income) in Gs
166,475
$140,000
$120,000
$100,000
$80,000
Cost of
prepaid low
$60,000 volume
59,952 basket (Gs)
$40,000
42,615
$20,000
32,749 Affordability gap
26,413
21,491
17,008
13,204
$0 8,881
3,881
10 9 8 7 6 5 4 3 2 1
Income decil

14. Conclusions
• Mobile tariffs in Latin America are among highest
in the world (2x OECD, 3x SEA)
• Variation within LAC is not explained by market
structure indicators but by presence of low-cost
operators
• High tariffs result in low affordability thus inhibiting
use
• Rate of price reductions has slowed down,
competition on other attributes and VAS

15. Policy recommendations
• Lower entry barriers for new competitors:
 New spectrum reservations
 Implementation of MNP
 Promote resellers (MVNO)
 Monitor interconnection rates
 Promote infrastructure sharing
• Rethink tax structure on mobile handsets and
services: current structure is regressive
• Mobilize universal service funds to cover mobile
access gaps

16. Hernan Galperin
hgalperin@udesa.edu.ar
More information:
www.dirsi.net
Diálogo Regional sobre
Sociedad de la Información