Mobile Is Central To Latin America's Economic Fortunes

US : The cellular industry is punching far above its weight in the Latin American economy, fuelling capital investment, growth, employment and government revenues, according to a study by research firms Ovum and Indepen for the GSM Association (GSMA), GSM Latin America and AHCIET.

Each year, the mobile industry in the six countries* covered by the study generates 16.9 billion euros (almost $20 billion) of economic activity, the equivalent to about 1.3% of the region's gross domestic product, but accounts for as much as 2.5% of all capital investment. Last year alone, mobile operators across the region invested more than $7 billion in Latin America, improving communications across the continent, according to the study.

The research concluded that the industry generates a total of 8.6 billion euros ($10 billion) in tax income for the Brazilian, Colombian, Chilean, Mexican, Peruvian and Venezuelan governments and has created 2.3 million jobs in these countries.

"Although many mobile operators in Latin America are not yet profitable, the industry is making a huge contribution to the region's economy," said Tom Phillips, the GSMA's Chief Government and Regulatory Affairs Officer. "Mobile operators are investing heavily in network infrastructure, giving the Latin American economy a major boost by making telecommunications widely available to the region's people."

The study found Latin American mobile operators have invested about 23% of their revenues in capital expenditure over the past 3 years - a much higher proportion of revenue than most other industries. Foreign companies are contributing much of this investment, boosting the supply of capital available for investment in infrastructure and ultimately aiding economic growth in the region

“This well-researched study confirms that mobile services are one of the economic growth motors in Latin American countries and a powerful tool for development and social inclusion”, said Carlos Hirsch, President of AHCIET Mobile Commission.

The report notes the pressing need to reverse the decline in productivity observed in Latin America over the past few years and highlights that there is growing evidence that use of mobile services boosts labor productivity and, therefore gross domestic product. The study estimates that in middle-income countries, such as those of Latin America, an increase in mobile penetration of 10 percentage points can increase economic growth by 0.3 percentage points per year.

Mobile usage reduces unnecessary traveling time, improves logistics, empowers small businesses, provides increased flexibility and helps people find jobs, enabling the development of non-agricultural economic activities. While it is difficult to evaluate the precise impact of these productivity gains in Latin America, the study's authors estimate that mobile services generated the equivalent of $30 billion in value to the people living in Brazil, Chile, Colombia, Mexico, Peru and Venezuela in 2004.

Still, mobile usage in Latin America is relatively low compared with other emerging economies even accounting for differences in income levels. The average minutes of use per month across the whole population of Latin America is just 31 compared with 76 in Eastern Europe, according to the study.

"As Latin America looks to put the economic turmoil of the recent past behind it, governments need to look at how they can better tune one of the region's main growth engines - mobile communications." said Oliver Alexander Flögel, chairman of GSM Latin America. "This study shows the mobile industry has the potential to double its already-impressive contribution to Latin America's economy, but only if mobile usage rises much, much further."

The study suggests Latin American governments could help boost mobile usage by eliminating industry-specific taxes, which are widespread in the region, while supporting universal service requirements out of general taxation rather than taxation on the telecommunications industry. The study emphasizes the importance of bringing down the cost of mobile handsets and services for individuals and businesses.

Governments could also streamline authorisation procedures for the deployment of mobile base stations by setting up a national disputes settlement body, rather than allow local authorities to delay or prevent the deployment of new base stations, according to the study. Such a body could also deal with complaints about existing base stations.

The study's authors also recommend that Latin American governments should encourage further investment in the mobile industry by maintaining their current infrastructure-based competition policy, lifting restrictions on the repatriation of profits by foreign investors, providing clear and consistent regulation, while allowing competition between operators to determine price levels.

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