Telecommunications and Development in Latin America: The Role of Multinationals

12th EADI General Conference

Geneva, Switzerland

25 June 2008Juan 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

3

Source: ITU, 2006, World Telecommunications Database

Latin America leads developing world in telecoms FDI

0

5 000

10 000

15 000

20 000

25 000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

FDI in telecommunications toward Latin AmericaMillions of US dollars

4

56%24%

7%

6%4% 3%

FDI in telecommunications, by region

Latin America and Caribbean

Central and Eastern Europe

South East Asia

South Asia

Middle East and Northern Africa

Sub-Saharan Africa

Source: OECD Development Centre, based on PPI Database, World Bank Source: Information and Communications for Development 2006, World Bank

In ten years, telephone density has become less sensitive to the country’s GDP…

5

Income per capita and telephone density

… but relative performance remains very different from one country to the

next

-20 -10 0 10 20 30Deviation from prediction (lowess)

VENURYSLVPRYPERPANNIC

MEXHTI

HNDGUYGTMECUDOMCRICOLCHLBRABOLBLZ

ARG

1995

-20 -10 0 10 20 30Deviation from prediction (lowess)

VENURYSLVPRYPERPANNIC

MEXHTI

HNDGUYGTMECUDOMCRICOLCHLBRABOLBLZ

ARG

2000

-20 -10 0 10 20 30Deviation from prediction (lowess)

VENURYSLVPRYPERPANNIC

MEXHTI

HNDGUYGTMECUDOMCRICOLCHLBRABOLBLZ

ARG

2005

6Source: OECD Development Centre, based on ITU(2007) and World Development Indicators data.

Investment in telecommunications has accompanied a marked increase

connectivity

7Source: OECD Development Centre, based on SEDLAC (2007) and IADB (2007) data.

The number of telephone lines has increased by a factor of 10 in Latin America, in part because of foreign investment

Across countries, foreign investment has gone hand in hand with increased

connectivity

8Source: OECD Development Centre, based on PPI Database, the World Bank

Part of the story is the relative success of privatisations

9Source: OECD Development Centre, based on PPI Database, the World Bank

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)

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)

10

n o

on

o

p

n

pn o

o

n

on

n o

op

p

p

o

onn

n o

n

o p

onoon

Mobile operations

Milicompo America Moviln Telefonica

p

Fixed line leader

Telefonica (4)Both operating, neither leader (1)Telmex/Am. Movil (5)Other (14)Outside region (2)

Source: OECD Development Centre, based on company data

An unequal distribution of benefits

11Source: OECD Development Centre, based on SEDLAC surveys.

Inequality is high: a quarter of poor households have a telephone at home,

3 times less than high-income households

Foreign actors are not associated with lower inequality

12Source: OECD Development Centre, based on PPI Database, the World Bank and SEDLAC.

Market contestability is limited

13Source: OECD Development Centre, based on companies’ data.

MonopolyPerfect competition

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

17Source: OECD Development Centre, based on ITU (2006) and World Bank (2006) data.

Access has improved significantly but large disparities remain

18Source: ITU, World Telecommunication Indicators Database, 2006

Quality has also improved substantially

19Source: Telefónica

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)

where q(i) is the proportion of people with access who have income below income index i (so q(1)=1)

))(1(2

1 1

0 iqG

21

Diffusion and inequality: the example of Brazil

0.2

.4.6

.81

me

an

1990 1995 2000 2005year

mean

0.2

.4.6

.81

1990 1995 2000 2005year

Q1 Q2 Q3 Q4 Q5

22