Presentation for Latin American Spectrum Conference (Policy Tracker)

Facilitating Socio-Economic Transformation Through Broadband, Especially Mobile Video Enablement

24 October, 2012 John Krzywicki, Partner , Analysys Mason

Confidentiality notice
Copyright 2011. The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not be reproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished

Introducing Analysys Mason

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Introducing Analysys Mason

We have unique telecoms expertise in Latin America

Analysys Mason has worked extensively in Central and Latin America, including Mxico, Brazil, Chile, Peru, Aruba, Barbados, Bermuda, Cayman Islands, Grenada, Jamaica, Santa Lucia, Dominican Republic, El Salvador, Trinidad and Tobago, and Venezuela Our clients include regulators, operators, investment banks and government bodies
EXAMPLES OF PROJECTS COMPLETED IN LatAm
Assessment of broadband environment in a LatAm country Development of a top-down LRIC model for MTR Pricing strategy and product positioning in the Caribbean Development of strategic business and operations plans for C@ribNET, a regional education network Review of the regulatory framework for a national regulator Assessment of the competitiveness of the mobile market in a Caribbean country Delivery of a communications infrastructure for the Jamaican Ministry of National Security Cost modelling of a NGN core in Latin America General competition plan, for an association of operators in Brazil Service pricing study for a regulator

Introduction

Introduction
The objective of the presentation is to: Explore the social impact of broadband, and especially the rise of video enabled devices emphasise the social benefits which video enabled devices and their usage for social networking may create

mention the challenges which obstruct the proliferation of video enabled devices
Suggest possible relevant actions which may enable the reaping of the benefits stemming from the use of video enabled devices for social networking

Executive summary

Executive summary
In the last decade, Latin America (including the Caribbean, hereafter LAC) has caught up to the developed world in the penetration of mobile services (mostly prepaid, with simple cheap devices) In the developed world, video enabled social networking has taken off Geographic distribution of mobile phone subscriptions
100%

90%
80%

60% 50% 40% 30%

Video enabled applications (real time, live) can greatly facilitate family interactions to improve health care, education, and other activities valued by societies, especially societies in developing countries This opportunity is particularly strong in LAC, because of the diaspora in the US, and the simple tendency to use US experience to bootstrap improvements back into the home countries There are many barriers in LAC countries, barriers well beyond the scope of the telecom regulators to fix a holistic approach across agencies is needed IDB can be a tremendous catalyst for this on a great many fronts

20%
10% 0%

Population split
Europe Asia Latin America Africa

the rise of the iPad and other tablets, plus YouTube, Skype and many other services

70%

US & Canada

2011 (pop.)

2006

2000

2001

2002

2003

2004

2005

2007

2008

2009

2010

2011

Why and how to stimulate the ICT sector

Broadband has economical and societal impact on multiple sectors

Broadband penetration leads to higher GDP growth increase than fixed and mobile penetration many sub-measures show improvement with higher penetration (productivity, innovation, jobs in sector, etc.) Demonstrating the impact of new broadband networks is more difficult as these have higher deployment costs Also, new broadband networks have an impact over multiple sectors: government services
Impact of 10% penetration increase on GDP

1.6% 1.4%

Increase in GDP growth

1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0%

financial services
education Healthcare IDB estimates for LAC only are much higher: 3.2% GDP increase after 10% broadband increase (March 2012: Bridging Gaps, Building Opportunity)

High-income economies Low- and middle-income economies

Source: World Bank study

Broadband

Mobile

Internet

Fixed

Broadband in LAC

Broadband penetration in LAC is currently significantly behind that of OECD countries

Currently, LAC countries have a much lower penetration of both fixed telephony and internet than OECD countries Mobile penetration of 100% exists, as is standard almost worldwide now, but almost all phones are narrowband and not smartphones There are different socio-demographic and economic conditions to consider Capital-intensive sector with sunk costs and significant O&M There is a gap between the mobile penetration rate and mobile broadband penetration (growth opportunity)
Fixed line and internet penetration

OECD Venezuela

Uruguay
Paraguay Ecuador Bolivia Suriname Peru

Guyana
Chile Colombia Brazil Argentina 0% 10% 20% 30% Penetration Fixed line 40% 50%

Internet

Source: IDB, OECD

Broadband in LAC

LAC is connected at very low speeds and at high prices, which are not affordable to many
Average price per MB Average broadband plan price Average broadband speed offered

Source: Galperin and Ruzzier (2010, 2011)

Telecoms indicators in Latin America

10

Telecoms indicators suggest growth and improvement in Latin America, however, it is still behind the developed world
Latin America has experienced a surge in PC penetration
PC penetration

PC population penetration
120% 100% 80%

PC penetration in Latin America has grown from 5% in 2001 to 18% in 2011 and is expected to reach 34% by 2020

such statistics may not reflect the impact of tablets

60% 40%
20% 0% 2000 2005 2010 2015 2020

PC penetration in Latin America has grown at CAGR of 13% between 2001-2011, while in North America 5% Latin America has also experienced growth in Internet penetration Internet penetration in Latin America has grown from 6% in 2001 to 39% in 2011 and is expected to reach 53% by 2020

Asia Pacific Latin America North America

Eastern Europe Middle East and Africa Western Europe

Internet population penetration

100%

Internet penetration

Internet penetration in Latin America has grown at CAGR of 21% between 2001-2011, while in North America 5%
Mobile penetration in Latin America is relatively high, above 120%

80%

60%
40% 20% 0% 2000 2005 Asia Pacific Latin America North America 2010 2015 2020 Eastern Europe Middle East and Africa Western Europe

Source: Euromonitor International, ITU

Broadband in LAC

11

The deficiency of broadband is compounded by the lack of resources in many LAC countries
GDP per capita in OECD countries GDP per capita in IDB countries

100 90 80 70

100 90 80 70

GDP per capita (USD thousands)

60
50 40 30 20 10 0

GDP per capita (USD thousands)

AU AT CA CZ DK EE FI FR DE GR IS IE IL IT JP KR LU NL NZ NO PL PT SK SI ES SE CH TR GB US

60
50 40 30 20 10 0

Source: EIU

AR BZ BO BR CL CO CR DO EC SV GT GY HN HU JM MX NI PA PY PE SR TT UY VE

Social networking and video enabled devices: background

12

The rise of social networking has transformed both the developed and the developing world
The advent of social networking has contributed to a wide range of transformations, with direct effect on: human relationships communication and interaction access any time, any place ability to organise and incite social and political change promotion of education and news targeted marketing and advertisement Social networking has had an impact on both the developed and the developing world, despite the lack of robust landline broadband services in many parts of the latter US: Facebooks role in the elections Middle East: political shifts China: censure Brazil: 3rd top Twitter nation Social networking: connecting the world

Social networking and video enabled devices: background

13

Unlike simple mobile voice communication, video-enabled devices facilitate high quality real-time interactivity
Majority of long-distance communication is still insufficiently interactive: voice-based (usually via mobile or fixed networks) written (electronic or via a mobile network e.g. SMS) The demand for greater interactivity has been evidenced by the growth of applications such as Skype in Q4 2010, Skype had about 145 million connected users 42% of the calls made were video calls Unlike simple mobile voice communication, video-enabled devices can enable high quality real-time interactivity when executed over good quality uncongested network, video calls may act almost as a substitute of in person communication in the US, far over-represented among early adopters of tablets are grandparents Real-time interactivity via video call

Social networking and video enabled devices: background

14

Prices for video enabled devices are still prohibitively high for citizens of developing countries, however, future price decrease may stimulate uptake
Current prices for video enabled devices are prohibitively high for citizens of developing countries compared to their income an iPad 3 with 32GB costs USD1011 in Brazil, where the GDP per capita at PPP is estimated at USD11 900 in contrast, in the US which has a GDP per capita at PPP of about USD48 350, an iPad 3 with 32GB costs USD729 The high production costs of video enabled devices deter the mass adoption of these devices however, the anticipated decrease in prices is likely to lead to an increase in uptake Future affordability of smart phones and tablets is likely to be especially important in countries below the top 40 in GDP per capita This is the tip and maybe half of the icebergcountry by country there are also services taxes and other economic barriers; spectrum issues abound; international connectivity limitations will have to be solved; intellectual property issues are also likely to be encountered Comparative pricing for iPhone 4S
Device iPhone 4S 16GB Operator Apple online store, BR Apple online store, MX Apple online store, US Price (USD) 986 Price (local) BRL1999

Comparative pricing for iPad 3

Device iPad 3 32GB Wi-Fi + 3G iPad 3 32GB Wi-Fi + 3G iPad 3 32GB Wi-Fi + 3G Operator Apple online store, BR Apple online store, MX Apple online store, US Price (USD) 1011 863 729 Price (local) BRL2049 MXN11 099 USD729

iPhone 4S - 16GB

754

MXN9699

iPhone 4S - 16GB

549

USD549

Source: Apple website, operators website, EIU

Benefits of using video enabled devices for social networking

15

and stimulate positive externalities such as improved healthcare and education

Promoting healthcare via video enabled devices Intensified interactions which put parents more squarely in the middle of the learning processes E.g. iMeet application is used for remote parent/teacher conferences

Education

Greater interaction between family members when it comes to healthcare

Healthcare
E.g. Patients Know Best, an online consultation record based on Skype, allows patient-doctor communication

Other uses

Ambulance and mobile medical personnel, police, social workers, first responders and front line inthe-field people

Benefits of using video enabled devices for social networking

16

Video enabled social networking may be capable of stimulating positive change with a success rate greater than other projects like distance learning
Video enabled social networking may be capable of stimulating positive change in habits in the LAC region social networking is driven by users, not imposed LAC residents are enthusiastic adopters of social networking applications Emerging market citizens are willing to spend on telecoms middle class Brazilians are willing to spend 3% of income on telecoms Previous projects have had limited success due to lack of real-life interactivity MIT Media Lab USD100 Netbook distance learning Social networking may stimulate domino effect in human behaviour

Social Networking is the spoonful of sugar that helps the medicine go down

Benefits of using video enabled devices for social networking

17

The experience of OATS (Older Adults Technology Services) in the US offers a compelling analogy as to why our thesis will work [1]
As nothing like what we have been suggesting has had the time to penetrate LAC, we looked for an analogy in the US a technology challenged group that would, upon being enabled, use technology as the means to many other ends. That led us to OATS OATS, founded in 2004, has taught over 5,000 elder Americans in Brooklyn how to use laptops, PCs, tablets and other tech devices for a wide variety of purposes 20-25% of their constituency is Latino We interviewed their founding Director, Thomas Kamber, a recognized authority in technology issues for older adults. Key findings of their experience include Tablets are potentially the best medium yet, because the live video is more impactful Tablets are especially useful for their Latino constituencykeyboards and mouses are a hindrance for the barely literate, and for the English challenged. The widely recognized intuitiveness of the iPad greatly eases the process of learning to use, and greatly encourages use and participation

For all constituencies, in the US the laptop/PC interfaces for health care interactions are catastrophically badauthentication gets in the way, and video can solve that

Benefits of using video enabled devices for social networking

18

The experience of OATS (Older Adults Technology Services) in the US offers a compelling analogy as to why our thesis will work [2]
Kamber embraces the theory of the spoonful of sugar than helps the medicine go down A course on health care applications drew a modest response. Courses on how to use tablets/pcs for a range of fun and useful applications draws far betterHe said it was best to do travel, entertainment, social networking, and health care and educational topics all together For a specific five week course, OATS did a study of 66 seniors, before, during and after the course. The results are stunning:

When tracked, 71% of the seniors used their new found skills to do health care research
His opinion is that the LAC diaspora is especially ripe for video enabled social networking because the interfaces are so much easier to use, and the desire for social networking, especially within the extended family units, is so strong The video format is an equalizer Id be an optimist about use by Latinos

Opportunities in Latin America

19

Latin America can tap on strong connections to the US to develop ICT usage benefits locally
There are one million or more foreign born in the US from Brazil and the Dominican Republic, while for Mexico, this figure is 10M The US communities can be surprising large compared to the home population: for every 7 Dominicans in the Dominican Republic, there is 1 Dominican in the US (for El Salvadorans the ratio is 4 back home to 1 in the US) Today the strength of the bonds between migrants and their home country can be measured in the level of remittances The World Bank estimates that USD325 billion will flow back to developing countries in 2010, of which USD58 billion will go to Latin America and the Caribbean alone In some countries, these remittances can add up to a significant impact in 2009, remittances contributed 19% of the GDP of Honduras, 17% for Guyana, and 16% for El Salvador Family calling patterns between the US and these countries of weekly and often nearly daily are common, especially in LAC countries Migrants can contribute far more to their home countries, both in their traditional family role as parent, spouse, or child, but also in many cases leveraging their professional roles as doctors, teachers, or lawyers

Source: WorldBank, US Census Bureau

Broadband benefits

20

For the EU, Analysys Mason reviewed 100+ studies of the benefits of broadbandthe analysis goes far beyond what is presented today

Many studies have attempted to quantify benefits

Economy and employment

Some quantification of benefits from particular applications

Education and skills

Healthcare

Finance and income

eGovernment

Evidence of benefits largely anecdotal

Community

Wellbeing

Crime and public safety

Equality and inclusion

Environment

Challenges deterring the proliferation of video enabled devices

21

The proliferation of video enabled social networking is constrained by the infrastructural challenges in Latin America
Broadband uptake is deterred by: poor or non-existent landline infrastructure high digging up/ replacement costs New mobile technologies such as LTE offer an alternative: higher throughput than 3G lower operating costs 2G mobile services (no broadband) are widely available, however, 3G (reasonable broadband, but not excellent) is rather limited. 4G (excellent broadband) is in distant future Overall, mobile broadband penetration in developing countries is much lower than in the developed world Comparison between developed and developing countries

Penetration per 100 Inhabitants

140 120

100
80 60 40 20 0

2008

2005

2006

2007

2009

This chart says, without intervention, the pattern of mobile broadband growth will repeat the one of mobile subscribers growth, with a loss of benefits to LAC
Source: ITU

Mobile Cellular Subscriptions Developed Countries

Mobile Cellular Subscriptions Developing Countries Mobile Broadband Subscriptions Developed Countries Mobile Broadband Subscriptions Developing Countries

2010

Why and how to stimulate the ICT sector

22

Most countries have so far mostly concentrated on coverage and penetration Broadband stimulation targets

Coverage

Penetration

Usage

Intensity of usage

As regards to broadband take-up stimulation plans, developed countries have so far mostly concentrated their efforts on increasing penetration of ICT services and broadband network coverage, through a set of regulatory and policy implementation tools targeting access and market efficiency issues

Broadband benefits

23

Developing LAC countries should stimulate usage intensity to exploit broadband benefits
Broadband stimulation targets

Coverage

Penetration

Usage

Intensity of usage

While supporting coverage and penetration increases, developing countries should shift their efforts from the supply side to the demand side, by stimulating broadband usage, and highintensity usage in particular. These are the new conditions for access regulation to stimulate ICT growth and growth in the economy (consumer and enterprise)

Challenges facing LAC

24

The challenges facing LAC are easy to list but hard to solve. #1 is a lack of resources. Here are the next big six (which of course are related to #1):
Lack of backbone (or very high costs) Lack of final mile access (fixed and mobile) While not the focus of this presentation, Analysys Mason did a nine country study elsewhere in the developing world (all but one country had similar GDP/capita to most of LAC). Even with the comparatively benign geographies involved, mobile was consistently the only viable answer to reach 60% or more of the population High cost (and often limited) international connectivity High cost devices Lack of spectrum (see item two) Lack of IT literacy/capability in the general population

Actions: national governments

25

In LAC a holistic, multi-agency approach will be needed, with in country executive branch participation, if not leadership
The telecom regulator, while mostly sympathetic to the overall thesis, has no control over many of the barriers (e.g., tariffs, taxes, even international telecom capacity) let alone the ability to develop and promote heath care or educational programs e.g., the telecom regulator in Panama understands this In a situation where the benefits cut across many sectors, national executive leadership will be an important catalyst This is an opportunity for a catalyst, like the work of this conference, and the work of multinational bodies, and simple concerted effort in each country

26

Contact details
John Krzywicki
Partner
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