June 12, 2018

Mobile Broadband Development in Central America Is Lagging Behind the Rest of Latin America, Finds GMSA Study

"Delivering mobile broadband to the whole population is now central to the digital strategy of Central American governments," a study by GSMA explains. "Digital government agendas have recently been launched in Costa Rica, Honduras, Panama and Guatemala. However, the region is lagging behind the rest of Latin America as the delay in 3G deployment and adoption spills over to 4G, where it is even more pronounced."

The study, Assessing the impact of market structure on innovation and quality: Driving mobile broadband in Central America, available in both English and EspaƱol, presents the following key points:

Central America is lagging behind in mobile broadband adoption and deployment. Closing this gap requires the promotion of market structures that boost competition in investment and innovation, and public policies that take the entire digital ecosystem into account

"The study examines the role of market structures in the development of the mobile sector in Central America. The market structures of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama are analyzed, exploring their impact on operator performance in investment and 4G networks. A comparative study of public policy in the region shows how policy can foster an environment in which operators acquire greater ability and incentives to compete in investment and innovation, to the benefit of consumers in the region."

Investment in mobile communications in Central America follows an inverted U relationship with the number of operators

"The analysis confirms that operator investment in Central and South America is not necessarily higher in markets with a higher number of players. It reveals the existence of an inverted U, where operator investment is maximized when operators have an EBITDA margin of 32-38%. Operators whose profitability is below these levels invest less."

Operators' 4G speeds in two-player markets are 40% faster than the Central American average and 10% faster in three-player markets

"Analysis of speeds experienced by users of 4G networks in Central and South America consistently show similar results. The study finds (in its most conservative estimates):
  • Operators in two- or three-player markets experience 4G download speeds that are up to 8 Mbps faster due to market structure. This means that users in these markets experience download speeds that can be around 40% faster than the Central American average.
  • Operators in markets with four or more players record 4G speeds that are 2 Mbps slower due to the market structure. This means their users have download speeds that are 10% slower than the Central American average.
These findings were obtained from models of 4G download speeds estimated using Speedtest Intelligence™ data from 52 operators in Central and South America from 2013 to 2016 (based on consumer-initiated tests).

Public authorities in Central America have the opportunity to remedy the delay in 4G by promoting public policy that encourages innovation and investment

"In light of the evidence provided in this study, public policy should promote the ability and incentives to invest, encouraging an environment with greater competition in innovation to deliver better products and services to users. This requires operators to have scale, margins, sufficient expected return and efficiency in the use of spectrum."

The report also identifies three main public policy recommendations:
  1. Merger review should consider how efficiencies can stimulate players' ability and incentive to compete, using appropriate analysis criteria. Additionally, authorities should consider all the competitive pressures operators face in the digital ecosystem, particularly in the context of convergence. These recommendations apply to all the markets, although specific barriers have been identified in Panama, where specific legislation de facto has prohibited mergers for many years; and El Salvador, where efficiency arguments have not been accepted in merger review;
  2. Retail and wholesale regulations limit operators' ability to compete. Three of the six markets have price caps (Honduras, El Salvador and Nicaragua), direct regulations on network quality (Costa Rica, Panama and Honduras) and constraints on price discrimination (Costa Rica, Panama and Nicaragua). Authorities should review the market and competition assessments that form the basis of these regulations; and
  3. Spectrum regulation should promote efficient use by assigning sufficient amounts of spectrum in large blocks and high and low frequency bands. The study finds that Central America has assigned only 21% of the required spectrum recommended by the International Telecommunication Union for efficient and effective provision of mobile services. In this regard, Guatemala, Panama and El Salvador are significantly lagging behind.
Mobile technology can serve as tool for positive change for those living in Central America. Governments of Central American nations, however, must make a concerted effort to reform regulations to attract investment from the private sector.

What recommendations would you add to stimulate the growth of Central America's mobile technology sector?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

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