Home Latin America 2005 Latin America – ready for the Mobile Internet?

Latin America – ready for the Mobile Internet?

by david.nunes
Adilson Antonio PrimoIssue:Latin America 2005
Article no.:3
Topic:Latin America – ready for the Mobile Internet?
Author:Adilson Antonio Primo
Title:President and CEO
Organisation:Siemens, Brazil
PDF size:176KB

About author

Adilson Antonio Primo is the President and CEO of Siemens in Brazil and of the Siemens Group for the Mercosur Region. He began his career as an intern in Siemen’s power generation and distribution sector in Germany and rose to his present post through a series of increasingly responsible executive positions. Mr Primo has served as an executive or board member for many organisations, including, most recently, as the Vice President of the Brazilian German Chamber of Commerce and Industry, as a Member of the Superior Council for Political and Social Orientation of the Federation of Industries of the State of São Paulo (FIESP) and as a Board Member of Epcos do Brasil. Adilson Antonio Primo earned a Bachelor’s Degree in Electrical Engineering from Escola Federal de Engenharia de Itajubá (EFEI), in Minas Gerais, Brazil.

Article abstract

Although the cost of mobile voice has dropped dramatically in past years and the market has grown apace, mobile data, the Mobile Internet, has grown slowly in developing countries. This is due both to the cost of the equipment and to the cost of mobile data transmission, which can be hundreds of times more expensive than with fixed data lines. Less expensive equipment and government support would speed mobile data growth and help reduce Latin America’s social and economic inequalities.

Full Article

At times of great technological change and disruption, it helps to base discussions of the future upon simple concepts and ideas. In this context, one of the best definitions for the Mobile Internet is the International Telecommunications Union’s (ITU) Portable Internet vision. The ITU forecasts a scenario where users will have advanced portable devices to communicate ‘everything over IP’ including local and international calls, emails, portable TV reception and videoconferencing. Such devices, with ‘multi-gigabyte’ memories, will connect to servers and one another through intelligent networks with multiple air interfaces, at speeds ranging from 250 kb/s to 50 Mb/s. The Mobile Internet, then, will consist of a bundle of systems. Communications in Latin America The last five decades in Latin America were spent building a basic infrastructure for fixed voice communications, but the projects were never completed. Today, the basic infrastructure projects continue in the form of universalisation projects that bring telephony to less developed localities in remote areas. There are relatively few users in these regions, and they are scattered among great numbers of small, distant, villages. Since the cost of reaching them can be high, unconventional low-cost solutions, such as the soft switch controlled DVB-S satellite access especially developed for the region, have been sought. In Brazil, basic fixed voice communications now serve almost 80 per cent of the households. Twenty-five years ago, analogue mobile communications were introduced in the region. Nevertheless, in 1990, users of this service still had to pay US$20,000 for a ‘brick-phone’ in the city of Rio de Janeiro. By the end of the decade, the replacement of the state monopoly by a duopoly and the introduction of second generation (2G) TDMA mobile digital systems brought great cost reductions and dynamic growth. The arrival of the cheaper GSM standard, and the growth of competition due to the licensing of new operators, promoted a huge wave of growth. Latin America’s largest economies now have a penetration rate of 30 per cent. According to an UMTS Forum study, market saturation will occur at about 50 per cent penetration. About half of Brazil’s 5,500 municipalities now have mobile service. By the middle of the 90s, fixed Internet service began to arrive. Today, penetration of dialled access is greater than 10 per cent in Brazil, but broadband is a luxury available in only 5 per cent of households. Inequality in Latin America Latin America is among the regions with the highest inequalities of income, power, influence, access to justice and the like on the entire planet. In Latin America, the richest 10 per cent of individuals earn 48 per cent of the income, while the poorest 10 per cent earn just 1.6 per cent. The extremely low average income of the region aggravates the situation. The roots of this inequality are complex and deep, and its continuance significantly affects sustained growth. Historical data shows that although cycles of economic growth reduce inequality, when the inevitable downturn occurs, inequality increases once again. Those at the base of the pyramid are too vulnerable to defend themselves from major losses during economic crises, and this further decelerates the economy as a whole. The growth of the global economy, driven in part by the Internet, has widened the divide between the small and medium sized enterprises that create most of the jobs and the larger companies. The larger companies use the Internet to grow in step with the global economy, the smaller companies make little or no use of the Internet and grow, if at all, at a much slower rate. The general level of education in Latin America is also disturbing. Studies show that functional illiteracy is as high as 75 per cent. This affects the quality of human capital, the raw material of the Information Society, and the use of the Internet applications that are its tools. Latin America’s structural problems delay its development. Although larger companies, and certain sectors of the Latin American economy, soon align themselves to Internet paradigms, the greater part tend to lag behind, only adopting its solutions when they become commodities and no longer provide competitive advantages, but are mere necessities. Given that mobile communications penetration in Latin America is now much greater than that of fixed, particularly among lower income groups and smaller businesses, it would seem that the spread of affordable Mobile Internet access would be an important way to reduce economic inequalities. Mobile Internet start-up At the beginning of 2004, when WiFi based Mobile Internet usage began, studies found less than 1 million laptops, mostly for corporate use, in Brazil. Accordingly, the disappointingly low revenue projections, less than 0.1 per cent of fixed and mobile operator incomes, reduced interest in hot-spot building and operation. The situation is still much the same. The barrier to aggressive Mobile Internet rollout is the high cost of laptops and mobile user terminals. WiFi is still a niche market in Brazil. It will remain so until prices drop for WiFi enabled equipment. There are almost a thousand hotspots in Brazil; about 70 per cent of them are concentrated in airports, bars, coffee shops, etc, in the state of São Paulo, the wealthiest part of the country. In addition to WiFi hotspots, Mobile Internet connectivity is also provided by 2.5G cellular systems using GPRS, EDGE and 1xRTT data technology. Again, the problem is not access technology, but the high cost of the user equipment and the high cost – hundreds of times higher than in the fixed access – per MByte transmitted. Consequently, income for data services remains low, only 1 per cent to 2 per cent of total operators income, excluding SMS, and investment in rollout is hard to justify. In Brazil third generation (3G) licensing in 2GHz band is under discussion by local authorities. The barrier to 3G adoption is not the cost of a laptop, but the cost of the intelligent terminals needed to use it. A 3G terminal costs, on average, U$450. A Nielsen study shows that at this price, only 0.1 per cent of mobile users would adopt the new service, discouraging the fast development of this newest Mobile Internet option. We could continue to analyse Mobile Internet options, but mass-market development will always face the challenge of reducing the cost of the related equipment. Accelerating the mobile Internet Despite the terminal equipment cost barrier, there are ways to accelerate regional adoption of the Mobile Internet:  Initiatives undertaken in developed countries According to Prahalad, the author of The fortune at the bottom of the pyramid, there are some unconventional projects emerging for the first time on the horizon: – Nicholas Negroponte and the MIT Media Lab are developing a U$100 laptop for people in emerging economies; Chinese and Brazilian authorities are interested; – EMH, the Emerging Market Handset, is a GSM Association project that encourages manufacturers to develop and sell simple, robust, handsets selling for U$30 by 2006. The incorporation of simple email and Internet access services is expected to follow. Local government support There is always hope that regional authorities will support Internet adoption by means of tariff and tax reduction and subsidised projects. The Mobile Internet is surely one of the most important, and exiting, Internet developments. Developed countries are rapidly adopting it. In Latin America, the most significant barrier to wider usage is the high cost of the terminal equipment. Initially, the equipment manufacturers need to focus on corporate and other high-income segments. Less expensive 2.5G equipment is slowly developing into a flourishing mass market. This, in time, will pave the way for the successful introduction of 3G and other more sophisticated technologies. If the short term is a bit disappointing for Mobile Internet, the long term is very bright.

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