Latin America: Smartphone Outlook

Will smartphones remain on hold in Latin America? Three experts share their views.

BlackBerrys are appearing in businesspeoples' hands throughout the region because they are generally free with an email or data plan, experts say. That contrasts with lack of subsidized offers for other smartphones. (Photo: BlackBerry)

Latin America's smartphone market is still in its infancy, representing only 3 percent of total handset unit sales in 2008, while globally smartphones accounted for 12 percent of sales, Pyramid Research said last month. The firm predicts, however, that the smartphone segment in Latin America will grow from 7 million units sold in 2009 to 48 million in 2014, swelling from 5.4 percent to 30 percent of total handsets sales. Why has Latin America been so slow to adopt smartphones compared to other parts of the world, especially emerging markets with similar demographics and income characteristics? Will it continue to lag behind the rest of the world in 2014, even if smartphones make up 30 percent of the region's handsets? What public policies can spur faster adoption of new communications technologies in Latin America? Should that goal even be on the radar of governments in the region during an economic downturn?

Wally Swain, senior vice president for emerging markets at the Yankee Group in Boston: Latin America may be below average on smartphone penetration, but netbooks and laptops with broadband mobile modems are flying off the shelves. For all the attractions and convenience of a smartphone, they have been expensive, so expensive that laptops and notebooks are available for about the same price. Unless you really need handheld mobile data (for mobile email for example) other devices are better positioned on the price-value curve. A laptop plus a mobile broadband modem can be cheaper than a good smartphone. That being said, smartphone prices are coming down as volumes in the developed world drive the costs of basic components down. The latest iPhone retails for $100. That compares with a mid-scale phone in Latin America. Blackberrys are appearing in businesspeoples' hands throughout the region because they are generally free with an email or data plan. The primary challenge to greater penetration has to do with distribution and the common use of subsidies. Nokia, Samsung, LG, HTC—the list goes on of manufacturers with excellent smartphone offers. But in Latin America these are often only available through retail channels (not through the operators) and without subsidy. Without subsidy and side-by-side with, on the one hand, phones below $100, and on the other hand, notebooks and laptops, they suffer by comparison. Mobile operators have to educate consumers about the benefits of smartphones and wean them off the concept that all mobile phones are under $50.

Calvin Monson, principal of Alhambra Consulting in Chicago: Latin American mobile operators, especially America Movil, have focused on a business model aimed at putting as many telephones in the hands of as many members of society as possible. This has meant that the handsets they have been selling have not so much been high-end smartphones but rather simple inexpensive telephones capable of just voice calls and text messaging. So far, the strategy has proved to be profitable and has resulted in tremendous growth in the number of subscribers and in volumes of calls and messages. How does this work? The business model uses prepaid service (avoiding billing and credit issues) and Calling Party Pays (allowing service to even the lowest income members of society). In other words, if the low income customers don't have the disposable income to pay for the cost of a phone and can't pay to initiate many calls, how can they be profitable to serve? They are profitable because they receive calls that others pay for. Society is better off because they have phones. If they didn't have phones, they couldn't receive calls. Government policies on pricing calls therefore should explicitly recognize those benefits when setting the level of charges. Charges should reflect the direct network costs involved but also the costs of acquiring new customers, since these customers are almost all going to be low income and wouldn't connect otherwise.

Andres Maz, executive director of advanced technology policy at Cisco Systems in Washington: Mobile data services are now growing at triple digits across the region and all indicators suggest that the trend will continue. The deployment of new applications such as mobile banking, which by the way, has a significant impact in helping poverty reduction, also raises the value of connectivity and motivates new consumers to upgrade their subscription packages. However, this trend will only be feasible if more spectrums become available to deploy new networks. Countries that implement the right policies to attract investments in new networks will not only catch up, but will take the lead in the information economy. Putting spectrum to work is the best mechanism governments have to drive the expansion of wireless networks. In the current economic environment, it is even more important that governments move faster to make spectrum bands available, as the deployment of new networks will also generate jobs and investments in the economy. Opening spectrum does not require government investment, just the political will to navigate and sort out the political process. Another policy that does not require government funds and could push service providers to invest in rural areas is to authorize them to establish commercial agreements to share passive infrastructure, such as antennas and buildings. Sharing infrastructure via commercial agreement allows service providers to reduce capital expenditure and operating expenditure, thus making more attractive the deployment in new regions. The World Bank just published a report that takes an in-depth look at how information and communications technology (ICT) impacts economic growth in developing countries. The report is conclusive on its message to governments on the need to foster the adoption of new communications technologies. The report finds that for every 10 percentage-point increase in high-speed Internet connections there is an increase in economic growth of 1.3 percentage points. The report also identifies the mobile platform as the single most powerful way to reach and deliver public and private services to hundreds of millions of people in remote and rural areas across the developing world. Broadband networks and ICT are a critical foundational element for the information economy and countries' ability to compete.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.