Latin America Looks to Wireless

RIO DE JANEIRO (05/10/2000) - The crowd of international business consultants spun its usual rosy scenarios. But few Latin specialists meeting here at the Mercosur summit of the World Economic Forum seemed interested in adding to the hype that already surrounds the region's new economy. Instead, most were in the mood for a reality check.

Although no one doubted that the Internet would take on huge importance among Latin America's wealthiest citizens, those present voiced concerns that the middle and especially the lower-middle classes on this vast continent might never see the benefits of wired life. The statistics are already compelling.

Thirty-two percent of the richest Brazilians are online, but only 2.1 percent of the middle-income groups surf the Net. Brazil is far and away Latin America's largest Internet market, but it is also the country with the steepest income inequalities.

This is evident all over this proud city, where luxury high-rises overlooking the magnificent Rio bay jut out from a backdrop of hills lined with endless slums. "As a businessman, I want to be able to invest in a place where I will be able to sell the Internet to most people, not just the few that are rich," says Argentine-born Martin Varsavsky, who is one of Europe's most successful telecommunications and Internet entrepreneurs. "What I love about investing in Europe is that it has the richest poor people of the world." He illustrated his point with Portugal. That country's per-capita income resembles that of Argentina, but cell phones have reached 45 percent of Portugal's population and only 10 percent of Argentina's.

Should the poor really care that they can't access the Net? Not really, say many of the experts. It so happens that there is not enough domestic content for them. By and large, wired Latin Americans buy from Amazon.com; local vendors on the Web still have relatively little to offer. Less than 3 percent of the content on the Web is in Spanish or Portuguese.

"At the end of the day, the most valuable thing to reach and retain eyeballs is the unique content you have," says Luis Frias, CEO of UOL, the most popular Web site in Latin America and the region's largest service provider. The value that the Internet can add to people with fewer resources is highly dubious.

Television is in the homes of 90 percent of Latin households, and cable penetration approaches 50 percent in some countries. So even with the price barrier, a valuable good can make its way into the humblest of households. "The experience they can get today from TV and cable is a lot more than anything they could get from the Net," says one industry expert who asked not to be named. (Most sessions at the World Economic Forum are conducted off the record.) Another concern near the top of everyone's list seemed to be the slow pace at which competition is entering the telecommunications sector. Although most Latin American countries have privatized their phone companies, few have introduced real competition - the key element if there is to be a significant shift in performance and prices. "For much of the decade, the continent has been marked by privatization without competition, and an unclear separation between regulatory and operational functions," says an executive with the International Telecommunications Union.

Over the past few years, 65 percent of Latin American countries have brought in new regulatory agencies. Unfortunately, most regulators are either corrupt or politically influenced, perpetuating a situation that leaves little room for the hard-nosed, independent work needed to foster competition among the leading private telcos in the region. Proposals at this summit included the creation of a supranational agency to track the performance of regulators, much as the nonprofit group Transparency International tracks corruption levels in countries around the globe.

On a brighter note, industry analysts described the growth of wireless telephony in the region as impressive, in part because there's more competition in wireless than in fixed telephony. Venezuela and Paraguay already have as many wireless lines as fixed-phone lines, and other nations are catching up fast. While the yearly growth in fixed lines limps along at 3 percent to 5 percent, wireless is soaring at 30 percent. "A large chunk of the Internet market is going to be using cell-phone capabilities to surf the Net," predicted Mauricio Wior, who runs BellSouth's operations in South America. The Atlanta-based company has already launched Web-enabled cell phones in some of the region's markets. "Up until now, cell phones were prepared to transmit voice.

That is changing," Wior said. "Soon it will be a much better device for many of the usual Internet applications, such as e-mail, than the computer." This trend also would eliminate one of the main barriers to the spread of the Internet here - the need to spend $1,000 or more on a personal computer. And despite all the obstacles, Latin America is the region with the fastest growth in Internet hosts worldwide. "Latin America will benefit from this revolution," said Ana Botin, president of the VC company Coverlink.com and one of Spain's leading bankers. "But you cannot forget one thing: You have to sell the people what they need and want to buy."

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