Telecommunications and
Development in Latin America:
The Role of Multinationals
12th EADI General Conference
Geneva, Switzerland
25 June 2008
Juan R. de Laiglesia
OECD Development Centre
Telecommunications and FDI in Latin
America
• Good performance by usual indicators…
…associated with the large incoming FDI flows
• However inequality in access remains high and has not
been dented by foreign enterprise entry
• Telephony markets are not very competitive and
consolidation has not helped
• The challenge: creating regulatory frameworks and
access promotion strategies to increase coverage, service
and affordability.
2
Telecommunications performance in Latin America
Source: ITU, 2006, World Telecommunications Database
3
Latin America leads developing world in
telecoms FDI
FDI in telecommunications toward Latin America
Millions of US dollars
FDI in telecommunications, by region
25 000
4% 3%
6%
20 000
Latin America and
Caribbean
7%
15 000
Central and Eastern
Europe
South East Asia
10 000
24%
56%
South Asia
Middle East and
Northern Africa
5 000
Sub-Saharan Africa
Source: OECD Development Centre, based on PPI Database, World Bank
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
Source: Information and Communications for Development 2006,
World Bank
4
In ten years, telephone density has become less
sensitive to the country’s GDP…
Income per capita and telephone density
1995
Latin American countries
OECD countries
Finland
80
Telephone density
70
Japan
New Zealand
60
50
Italy Belgium
Portugal
40
Spain
30
Turkey
20
Poland
Chile
Mexico
Brazil
Ecuador
10
Uruguay Hungary
Argentina
0
0
5 000
10 000
15 000
20 000
25 000
GDP per capita (PPP, in 2000 international $)
2005
Latin American countries
OECD countries
Telephone density
240
200
Portugal
Hungary
160
120
80
Ecuador
40
Italy
Spain
Poland
New Zealand
Chile
Slovak Republic
Brazil Uruguay
Argentina
Mexico
Costa Rica
Peru
Belgium
Japan
0
0
5 000
10 000
15 000
20 000
GDP per capita (PPP, in 2000 international $)
25 000
30 000
35 000
5
… but relative performance remains very
different from one country to the next
1995
ARG
BLZ
BOL
BRA
CHL
COL
CRI
DOM
ECU
GTM
GUY
HND
HTI
MEX
NIC
PAN
PER
PRY
SLV
URY
VEN
-20 -10 0 10 20 30
Deviation from prediction (lowess)
2000
ARG
BLZ
BOL
BRA
CHL
COL
CRI
DOM
ECU
GTM
GUY
HND
HTI
MEX
NIC
PAN
PER
PRY
SLV
URY
VEN
-20 -10 0 10 20 30
Deviation from prediction (lowess)
2005
ARG
BLZ
BOL
BRA
CHL
COL
CRI
DOM
ECU
GTM
GUY
HND
HTI
MEX
NIC
PAN
PER
PRY
SLV
URY
VEN
-20 -10 0 10 20 30
Deviation from prediction (lowess)
Source: OECD Development Centre, based on ITU(2007) and World Development Indicators data.
6
Investment in telecommunications has
accompanied a marked increase connectivity
The number of telephone lines has increased by a factor of 10 in Latin America,
in part because of foreign investment
Foreign Investment in Telecommunications and connectivity
120
100
80
60
40
20
0
1990
1995
2000
2005
Cumulative Foreign Investment in Telecommunications (in USD billion)
Telephones per 100 inhabitants
Source: OECD Development Centre, based on SEDLAC (2007) and IADB (2007) data.
7
Across countries, foreign investment has gone
hand in hand with increased connectivity
Change in teledensity (1990-2005)
100
CHL
80
ARG
60
MEX
CRI
COL
ECU
URY
DOM
40
HND
NIC
20
HTI
R² = 0.3361
BRA
SLV
GTM
VEN
GUY
PAN
PRY
BOL
PER
CUB
0
0
100
200
300
400
500
600
Cumulative foreign investment in telecoms per capita
($, 1988-2005)
Source: OECD Development Centre, based on PPI Database, the World Bank
8
Part of the story is the relative success of
privatisations
Note: Includes only countries with available data for Latin America (Argentina, Belize, Bolivia, Brazil, Chile, El Salvador, Guatemala,
Guyana, Mexico, Panama, Peru, Trinidad and Tobago, Venezuela)
Source: OECD Development Centre, based on PPI Database, the World Bank
9
Multinational presence is linked to different
models and market structures across the region
• Public monopolies
Costa Rica (all),
Uruguay, Paraguay (fixed)
• Privatised fixed line
monopolies with substantial
market power:
Mexico, Peru, Nicaragua
• Decentralised ‘competition’
Bolivia, Colombia
• Oligopolistic competition
(fixed)
Fixed line leader
Telef onica
(4)
Both operating, neither leader (1)
Telmex/Am. Mov il
(5)
Other
(14)
Outside region
(2)
Mobile operations
Telef onica
America Mov il
Milicom
Source: OECD Development Centre, based on company data
10
An unequal distribution of benefits
Inequality is high: a quarter of poor households have a telephone at home,
3 times less than high-income households
Proportion of the population with a telephone at home
Richest quintile
Poorest quintile
1
0.8
0.6
0.4
0.2
Source: OECD Development Centre, based on SEDLAC surveys.
11
Haití
Nicaragua
Perú
Bolivia
Paraguay
México
Costa Rica
Brasil
Argentina
Chile
0
Foreign actors are not associated with lower
inequality
Relative access gap
1
0.8
NIC
BOL
HTI
HND
DOM
PRY
COL
ECU
PER
GTM
PAN
R² = 0.0416
SLV
VEN
0.6
ARG
BRA
URY
MEX
CHL
CRI
0.4
0.2
0
0
100
200
300
400
500
600
Cumulated FDI in Telecommunications per capita
(1988 - 2005)
Source: OECD Development Centre, based on PPI Database, the World Bank and SEDLAC.
12
Market contestability is limited
Perfect competition
Monopoly
Source: OECD Development Centre, based on companies’ data.
13
Challenges and opportunities
• Fair and stable regulatory frameworks …
… complemented by access promotion
• Digital gap and connectivity
• Expand other services through telephony:
– Mobile Banking
– Remittances
– E-government
14
Thank you for your attention!
www.oecd.org/dev/
Appendix
16
Latin America’s performance has improved
vis-à-vis other regions
Eastern Europe &
Central Asia
200
Telephone density index
180
Latin America &
Caribbean
160
140
East Asia & Pacific
120
Middle East & North
Africa
100
80
Sub-Saharan Africa
60
40
South Asia
20
World average
0
1990
1995
2000
2005
Source: OECD Development Centre, based on ITU (2006) and World Bank (2006) data.
17
Access has improved significantly but large
disparities remain
18
Source: ITU, World Telecommunication Indicators Database, 2006
Quality has also improved substantially
Source: Telefónica
19
Two major players:
Telefónica and Telmex/America Móvil
• Similarities:
– ‘Safe’ home markets: the result of national
champion policies
– Seeking markets: expansion or survival?
– Corporate alliances and buyouts
• Differences
– Different corporate cultures
– Different paces
20
Other outcome measures: inequality
• Data: household survey aggregates
– Differentiated according to income
– Measure access as “ownership” (phone at home)
• Measuring the access gap:
– Absolute Gap = (Q5-Q1)
– Relative Gap = (Q5-Q1)/Q5
– Quasi-Gini
(measures the concentration of phone access)
1
1
G  (1   q(i ))
0
2
where q(i) is the proportion of people with access who have
income below income index i (so q(1)=1)
21
1
0
0
.2
.2
.4
.4
mean
.6
.6
.8
.8
1
Diffusion and inequality: the example of Brazil
1990
1995
2000
2005
1990
1995
year
mean
2000
2005
year
Q1
Q2
Q3
22
Q4
Q5