Home Latin America 2006 IP – driving productivity in Latin America

IP – driving productivity in Latin America

by david.nunes
Ruben A. RótuloIssue:Latin America 2006
Article no.:5
Topic:IP – driving productivity in Latin America
Author:Ruben A. Rótulo
Title:Vice President, Latin American Region
Organisation:Agilent Technologies, Inc.
PDF size:284KB

About author

Ruben A. Rótulo, is the Vice President of Agilent Technologies for the Latin American region. Prior to being named vice president, Ruben Rótulo served Agilent as General Manager of its Latin America Test & Measurement organization. Mr Rótulo began his career in Hewlett-Packard Argentina as a service engineer and rose through the organisation in a variety of positions, in customer support and engineering support, to become the Customer Support Manager for Latin America, and President and General Manager for Hewlett-Packard Venezuela. Mr Rótulo is an active member of the Fulcrum Group – CEO Community Leaders of Latin America. He is also a member of the Consejo Empresario para el Desarrolo y la Intregacion, CEDI, and also serves on the Advisory Board of IDEAS, an institute for corporate development at the Universidad Anahuac del Sur in Mexico City. In the past he participated on the Investment Committee and the Board of Directors for Venezuela – US Chamber of Commerce as well as on their Board of Directors of Junior Achievements. Ruben A. Rótulo earned a Degree in Electronic Engineering from the Universidad Tecnológica Nacional in Buenos Aires, Argentina. His postgraduate studies include Tuck Business School, Dartmouth College in New Hampshire, and Darden Graduate School of Business Administration at the University of Virginia.

Article abstract

Internet access in Latin America has grown rapidly in the past few years. Ten years ago, a 2Mbps broadband connection cost almost US$2,000 per month; today, the same connection costs about US$20. Studies show a direct relationship between investment in telecommunications and increased productivity. The competition driven by Internet Protocol, IP, based services, especially IPTV and VoIP, is boosting Latin American investment substantially. A five per cent increase in productivity can double the region’s standard of living in just 14 years.

Full Article

Pablito is eight years old and lives in the suburbs of a mega city in Latin America. His six older brothers and sisters never graduated from high school and his single mother works ten hours a day, cleaning houses for middle-class families in the mega city to put food on the table. Pablito spends his afternoons in a community after-care centre, where he met his best friend, Tomas. While most of the boys play soccer outside, Pablito prefers a ‘conversation’ with Tomas. Most of their dialogue is about common interests they share and mutual discovery. There is a lot to discover, because they live 2,000 miles apart and the chat is taking place via the only computer with Internet access in the neighbourhood. When asked about what he wants to be when he grows up, Pablito replies: “I want to be a rich man, so I can get out of here…”, and he ends his statement with a big smile adding, “…I hope!” Latin America, a vast territory with more than 500 million inhabitants, has high poverty levels and, like others in emerging economies, many ask the fundamental question: “How long will it take to emerge?” Certainly, we don’t know the answer, but as we look closer at the technological advances of the past two decades, I can say that, like Pablito, I am also hopeful. The impact of IP technologies in Latin America is as pervasive and catalytic as in any other place in the world. Further explanation of this phenomenon is unnecessary, as those who read this article have likely experienced this change in their own environment. I’ll be glad enough if, by the end of this article, more people share Pablito’s hope. Latin America is a territory of large, cosmopolitan clusters; 80 per cent of its population lives in cities, the remaining 20 per cent in rural areas. The demographics are strongly biased to the young, with a large percentage under the age of 30. In terms of where the people live, this is certainly different from China and India, and much different from the aging population of the US and Western Europe. So, here we have a large territory with a young population living in cities. This is a positive scenario when it comes to access to broadband and adopting the technology. The rapid growth of the Internet in the region confirms that. (See table 1). Over the past few years, the expanding presence of IP technology has brought many changes to three large market groups: 1. the general population; 2. medium and large corporations; and 3. telecommunications service providers. General population Ten years ago, only a small portion of the general population in Latin America had PCs in their homes; an even smaller number of people had access to the Internet available via a dial-up connection. Establishing service was often a long and frustrating process given the condition of the infrastructure. Additionally, once service was established, the connection capacity was low, speeds were slow and the connection often unreliable, making it next to impossible to share large data files. In fact, email attachments were limited to 1MB in size. Today, most Internet service providers offer broadband services at competitive prices, averaging US$20/month for speeds of 2mbps. Like their US counterparts, these broadband subscriptions offer unlimited dial-up services, multiple email accounts, and personal web space. Internet penetration grew at rate of more than 300 per cent per year between 2000 and 2005 (see table 1) and service providers such as Telefonica surpassed the mark of two million ADSL accesses just in Brazil, Chile, Argentina and Peru. Low household income is not an obstacle to attract more users. Public spaces such as schools, libraries, cyber cafés and Internet kiosks, mitigate the lack of computers or access at home. Teenagers and young adults are the most likely to be making use of these tools but young children, such as Pablito, are increasingly attracted as online games gain popularity. The Internet phenomenon in Latin America goes back many years, often for unusual applications. In the mid 1990s, the Zapatista movement in Chiapas, Mexico, gained rapid exposure due to the use of electronic messages transmitted over the web. The Washington Post published an article written by Tod Robertson with the headline: Mexican Rebels using High Tech Weapons. Another fundamental change caused by IP technology is due to several software options, such as Skype, that allow users to connect PC-to-PC and speak at no charge with one another regardless of location. Given the large and ever-growing population of Latinos living abroad, especially in the US, VoIP, voice over IP, traffic is growing rapidly. Undoubtedly, the emergence of VoIP technology is a formidable threat to telephone service providers and they are reacting to the challenge. Small, medium and large corporations According to the Momentum Research Group, there is a strong correlation between connectivity and productivity. The greater the IT investment, the greater the growth in productivity; and investments in IT promote growth of the gross domestic product (GDP). The increase in productivity that IP technology has contributed to the economy is undeniable. Ten years ago, the low Internet connection speeds and the prohibitive cost of higher bandwidth made faster connections feasible only for larger corporations. In 1995, for example, the cost of a 2 mbps was roughly US$2,000 per month. Today, an equivalent service costs US$20 per month. The price of the service has declined roughly 100 times compared to 1995, making broadband service easily accessible for businesses of any size. According to a study conducted by the US Bureau of Economic Studies and the US Bureau of Labor Statistics, a one per cent increase in productivity in small- or medium-sized corporations helps double the standard of living for the general population every 72 years. A three per cent increase in productivity will achieve the same result in 24 years, and a five per cent increase doubles the standard in 14 years. Latin America has a long way to go to improve productivity. IT investment in the region is only 1.4 per cent of GDP, compared to 5.1 per cent in the US, 3.7 per cent in Europe, and 2.6 per cent in Asia, according to 2004 data gathered from Pyramid Research, IDC, and the World Bank. In terms of access to bandwidth, while 62 per cent have access to ISDN, DSL or frame relay, only 15 per cent have access to real big pipes such as E3, SONET/SDH STM-1 or Gigabit Ethernet VPNs in Latin America. In the US and other developed markets, close to 40 per cent have such access, says the Momentum Research Group. The big jump in Latin American exports to worldwide markets and the increase in trade of the past decade have been the drivers for competitive gains and productivity improvements. In 2006, IT spending is on the rise. Business leaders certainly got the message and are in catch-up mode to reduce the gap with other regions. Telecommunications service providers Obviously, none of the aforementioned advances could have been achieved without the efforts and investments made by telecommunications services providers, most of them privatized during the 1990s. Detailing the massive transformation this industry has undergone would require more time and space than this article permits, but the dynamics of the market today indicate that the massive infrastructure transformation will continue. The telecommunications business model is changing so fast that there is no choice but to continue investing in new technologies. Communication service providers rely, or used to rely, on voice and data services for revenue. However, voice is fast becoming a commodity service that is bringing less and less revenue. Phone calls are cheaper every day and there are companies that use data infrastructure to provide voice services at a fraction of the normal cost, some of them even free, such as Skype. Data services are increasing and they provide new ways to increase revenue. However, communication service providers face a new dilemma – they will not survive if they do not provide value-added services and content over their data communication networks. Vonage might, for example, use a phone company’s data access network, but it sells its voice services at a premium, harvesting benefits and revenues from the services. Cable companies have long delivered data services in addition to video over their networks, but not voice. By using their data infrastructure to provide VoIP they can easily offer voice, data and video in a single package. Traditional service providers have no choice – they either adapt or go away. That is why most of the big players in Latin America, such as Telemex, Telemar, Telefonica and Brasil Telecom, have already announced their triple-play strategies to offer voice, data and video to their customers. Deployment of the new technology is under way. The telephone operating companies are investing heavily to roll out IPTV, Internet Protocol television, services to compete with the cable services. IPTV currently represents the largest portion of their capital expenditures. Every player is now assuming new roles, adopting new technologies and rapidly moving ahead, investing and building. Given the well-known impact of ICT, of IP, upon economic growth, we can expect that today’s young Latinos will soon see the emergence of real economic growth and hope… I hope!

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