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Internet access

While the world's developed economies embrace the Internet and electronic commerce, Latin American countries must overcome the lack of basic infrastructure and certain regulatory hurdles.
Latin America is currently awakening to the global Internet revolution, although the region currently has one of the lowest Internet penetration levels in the world. Internet access, content portals and electronic commerce intermediaries are blossoming throughout the region as venture capital spills South from the US and more established financial institutions warm to the idea of Latin American Internet equity and fixed-income assets.The evolution of Internet access, content and ecommerce in Latin America will be markedly different from the US model.
The concept of free Internet access will prove more challenging to make profitable in the region; the nascent broadband Internet access market will be molded by local network, competitive and regulatory quirks; and the road towards a thriving ecommerce economy will be strewn with failed ventures as Latin American markets will take longer to develop.
There are several common demandside and supply side structural constraints to the further development of Internet services in Latin America.On the demand side, Latin America's low average purchasing power (the region's average nominal GDP/capita in 1998 was roughly US$ 4,000), skewed income distribution and relatively low computer literacy have made it difficult to spread common Internet use. On the supply side, infrastructure bottlenecks, caused in part by ineffective competition lower the overall quality of service, limit broadband access possibilities and inflate the backbone transport costs that ISPs must pay for connectivity As such, the future success of local regulatory authorities in promoting effective competition in all segments of the communications industry will be key to allowing increased proliferation of Internet connectivity This is applicable for both the residential and business markets, as both tend to be less Internet-savvy than their counterparts in the US, Europe and Asia.
Within Latin America, there is a wide range of growth rates and penetration levels for both total communications connectivity and Internet subscribers specifically.As in other regions, the large gap in overall connectivity (fixed telephony, mobile telephony and broadband access) is creating clusters of Internet `haves' and 'have-nots.'
Argentina, Chile and Uruguay have relatively well-developed communications industries and, not surprisingly, some of the highest Internet penetration rates in the region.These countries are most likely to benefit from the global 'digital revolution' that is propelling growth in the networked economy Brazil, Colombia, Costa Rica, Mexico and Venezuela are likely candidates for a take-off in Internet growth and all of the positive externalities that come with it.At the same time, these countries are definitely at risk of being left behind by a series of regulatory blunders, external economic shocks, or other structural phenomenon that could stunt growth in this emerging industry. Finally, Nicaragua, Honduras and other less-developed economies are the most at risk of being left behind in the global information revolution.These countries must resolve basic infrastructure issues on the supply side and face greater demand-side hurdles from lack of computer literacy and disposable income among businesses and households.
Free Internet Access
The turn of the millenium marked the beginning of widespread free Internet access services in Latin America. Millicom's cellular subsidiaries in Guatemala (COMCEL) and EI Salvador (Telemovil) quietly launched free Internet access in September 1999,
while Banco Bradesco initiated the concept in Brazil with a controversial December 1999 launch for its on-line banking customers. On 3 January, the first major pan-regional ISP - IFX Corporation - announced plans to begin providing free Internet access through all of its local subsidiaries.Argentina's ICERO, meanwhile, launched a free Internet access service on 10 January.
But will the free Internet access business model work? On the cost side, the logistics of billing contract customers and providing top-knotch customer support is particularly cumbersome in Latin America, both of which free Internet access largely eliminates. On the revenue side, the advertising model for revenue generation is still largely unproven.There is limited ad-spend to go around in Latin America currently, and a very small portion of that is going to Internet marketing channels given that Internet subscriber penetration is so low compared with more traditional media such as television and print publications.Additionally, local telcos do not yet have any arrangements to share revenues generated by local PSTN traf fic from ISP customers, as is the case in Europe.The UK's FreeServe, for example, derives much of its revenues from sharing local telephony usage rev enues with the Internet BT It is unlikely that most telcos will voluntarily enter into such arrangements with free ISPs in the future, and it is unlikely that local regulatory authorities will mandate them to do so.
Free Internet access providers will have to leverage their growing customer base for data mining purposes, a still underdeveloped field in Latin America, and targeted marketing ef forts in addition to scrambling for a limited pool of ad-spend.There will be tremendous consolidation this year among fee-based and advertisingbased ISPs, and only providers with unique and necessary services or content will dominate the future market. As they choose among the plethora of free ISPs, advertisers will look most keenly at providers that draw explosive page-view statistics among favourable consumer segments. Banks hold a particular advantage in this regard as their account-holding customers already represent the 'monied' class and their online services guarantee consistent viewing.Additionally, dial-up market leaders will continue to control the most crucial element for securing advertising revenue: attractive content.As a result of their established content, deeper pockets, the free access spin-offs from established players such as Brazil's UOL and Telefonica's Terra Networks are better positioned to weather early storms of the free Internet market.
Broadband Beginnings
Broadband Internet access in Latin America is currently very limited.This is due in part to the lack of of fordable broadband access alternatives as well as astronomical international gateway costs that must be passed on to broadband access customers.The most common forms of broadband access to the Internet in Latin America currently are leased lines followed by ISDN lines. Cable modem Internet access is gaining momentum and popularity among larger CATV operators in major metropolitan centres, particularly now that Brazilian media giants Globo and TVA are rolling out large-scale projects. Prior to this, many cable modem projects have rendered disappointing results resulting from high prices and poor marketing.After several years of multiple ADSL trials and little actual ADSL deployment, the momentum of ADSL service in Europe and the US due to lower-cost splitterless ADSL technologies is leading to a flurry of operator activity in Latin America at present.
As competition from broadband access providers increases, the business case for non-dialup access for small and medium-sized companies will become more compelling. In Brazil, for instance,Telefonica's Speedy DSL service and Globo's Virtua cable modem service stack up pretty well against even free dialup service for a heavy user, as would be typical of a business.
DSL and cable modem service will grow rapidly over the next five years. Leased line Internet service is still out of the reach of most medium and small-sized companies' IT budgets.This too shall pass, however, as local leased line providers such as Diginet and AT&T Latin America expand network coverage and international backbone costs drop with the arrival of several undersea fibre optic projects.
Local regulatory regimes will have a profound impact on broadband Internet access, however. Costeffective, fair and transparent central office co-location provisions are few and far between, making life difficult for would-be third-party DSL providers. Open access to CATV networks remains an open-ended regulatory question in most countries with the notable exception of Brazil, where subscribers can select from a wide variety of ISPs when signing up for cable modem service. Similarly, ef fective and efficient allocation of frequency spectrum will be essential if terrestrial wireless broadband access providers are to bring effective competition for dedicated broadband Internet access in Latin America.