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Mobile Affordability Gap in Latin America

Arturo Muente-Kunigami's picture

Mobile Affordability Gap in Peru

With the increase in geographic coverage and the adoption of prepaid phones, penetration in Latin America has increased dramatically. Wireless Intelligence estimates that mobile penetration in the Americas is approximately 88% as of March, 2010.

However, there has been little evidence until now on the affordability of the service in the region. DIRSI (Regional Dialogue on the Information Society) has recently published a study* on Mobile Affordability in Latin America, comparing the cost of the OECD low-usage mobile telephony services basket between countries in Latin America, OECD, and some Asian countries.

The results are quite surprising: Out of 62 countries compared, 8 of the 10 countries with the highest tariffs (using PPP US$) are Latin American countries (Brazil being the highest of all). Moreover, on average, the average cost of the basket in Latin America (US$24 PPP) is more than double that in OECD countries (US$13 PPP) and more than three times that in Asian countries (US$7 PPP). 

The report also calculates what it calls "the affordability gap", defined as the difference between the cost of the basket and 5% of the income of each decile of the population of each country. The graph above corresponds to the calculation in Peru**.

The x-axis show the different income deciles, the y-axis measures income in PER Nuevos Soles, the red line represents the amount that 5% of income would mean for each decile, and the black solid line is the actual cost of the basket in Peru. The shaded area, then, shows the difference between the cost of the basket and 5% of income, thus labeled the "affordability gap". The graph basically shows that the OECD low-usage mobile telephony basket adds up to more than 5% of annual income for 90% of the population.

The study is not only novel in introducing a measure of the affordability gap, but also raises a very important fact: prepaid schemes may have increased the amount of phones and users, but usage is still an issue. Subscribers mostly use their phones to receive phone calls, and mobile operators get most of their revenues from mobile termination charges.

Competition is definitely an issue. Recently, Russell Southwood, CEO of Balancing-Act mentioned that African countries that have witnessed the most innovative and aggressive penetration of mobile services are those that have 4 to 5 operators. Very few countries in Latin America have more than 3.

This report will bring some controversy (baskets are always subjective) and it is certainly worth reading. It is available in English and Spanish.

* Hernán Galpern, "Tariffs and the affordability gap in mobile telephone services in Latin America and the Caribbean", Lima: Regional Dialogue on the Information Society (DIRSI), 2010.

** The author also included graphs for Brazil, Mexico, Paraguay, and Uruguay.

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