The Inter-American Association of Telecommunications Companies advises that the telecommunications industry faces substantial challenges including high taxation, administrative difficulties for the development of infrastructure and high radio spectrum costs. Maryleana Méndez, ASIET’s General Secretary, shares the most significant aspects of an industry which is fundamental for regional economic development in this interview.
- How would you describe and assess Latin America’s digital ecosystem?
The development of digital services and telecommunications networks in Latin America is a success story. The industry contributes substantially to economic development and has substantial existing infrastructure, having been one of the fastest growing industries in recent decades. Market-funded investment has facilitated the process of arriving at mobile broadband coverage rates of 93% for the region’s residents, but it is also important to assess the scale of the challenge that lies ahead. Even with a very robust and constantly evolving infrastructure, this industry requires ongoing investment in order to keep pace with technological advances of the ICT (information and communications technology) industry, and to achieve the objectives of providing all citizens with the best possible services. A study performed by Analysys Mason for the Latin America Center for Telecommunications Studies estimated that the region requires investment approximately $161 billion U.S. dollars during the 2020-2025 in order to reach connectivity levels which are approximately the same as those of more developed countries. This, of course, requires the impetus to promote investment from a public policy perspective, resulting in favorable conditions and providing the industry certainty and legal security.
Digital transformation is a reality for Latin American countries and a condition which is essential for the post-pandemic economic recovery. Telecommunications infrastructure development is critically important for all industries, including financial services, agro-industrial, mining, manufacturing, logistics, energy, knowledge-based economy, media and entertainment-based, or creative, economy. It is important to emphasize that networks are the foundation of digitalization, a component which is essential for the accessing of ICT services. Telecommunications companies are responsible for providing this connectivity, therefore, they must continue investing and expanding their services to more remote areas, ensuring continuity of services, as it has been done throughout this period despite the substantial peak in demand during the pandemic (+40%).
- How has (social and industrial) demand for technology evolved?
Demand from individuals and industries has been increasing. In reference to the former, approximately 57% of the total population of the region has access to the Internet, this having increased consistently over time, not only in terms of number of users, but also in terms of traffic. In many cases the infrastructure to access and provide coverage exists, but there is a portion of the population which continues to lack connectivity, either as the result of a lack of resources required to contract the service or because they do not perceive it to be useful. In this sense, ASIET (Asociación Interamericana de Empresas de Telecomunicaciones [Inter-American Telecommunications Companies Association]) promotes the use of public subsidies to foster demand for these services with families having limited resources, and that the development of digital skills be promoted in order to encourage the use of tools among all citizens.
From the perspective of the industries, the health emergency has catapulted the selection of digital services. The need to maintain activity despite social distancing significantly accelerated technological transformation processes, which were already being carried out within the industries at various levels. The forced transitioning of everyday life toward an ever-changing scenario makes it essential to change the way that services are provisioned and delivered to end consumers. Remote work increased and many companies improved their digital capabilities, not only by using e-commerce, website and email services platforms, but also by putting the necessary ICT services into productive use.
- Will you please tell us about the primary characteristics of the region’s various markets?
The configuration of each of the telecommunications and audiovisual industry markets is different. From the perspective of the telecommunications industry, we can make reference to levels of institutional maturity and independence, closely related to regulatory standards, which in many cases are out of date in terms of the configuration of the ecosystem, as well as stability and legal certainty with which these rules are applied. Another thing which distinguishes markets is the availability of radio spectrum, an essential natural resource for the provisioning of wireless services, however, it can be said that in almost all the countries of the region this allocation is insufficient and very expensive, due to the prioritization of short-term tax collection over the medium and long-term socio-economic benefits of the development of communications services. At the same time, in some markets it is worrying that price regulations have been imposed on services which are being provided in a competitive marketplace, thereby directly impacting the industry sustainability and harming innovation, investment and competition. However, internationally, price freedom is the rule for mobile, Internet and pay-TV services.
On the other hand, in the countries within the region, when it comes to updating technology, things are quite uneven. As I noted, the deployment of infrastructure and technology adoption in Latin America is an industry success story. At the regulatory level, for example, Colombia has stood out as being willing to bet on innovation and further environments conducive to the needs of the 21st century. Recently, the Development Bank of Latin America (CAF [Corporacion Andina de Fomento]) recognized the country as being exemplary with respect to regulation in its report “Agile Latin American Nations.”
- What would you say are the priorities for the proper development of a Latin America’s digital ecosystem?
Although the region already has a robust telecommunications infrastructure and enormous progress in terms of coverage, quality and availability of services, completing connectivity objectives requires cross-cutting digital agendas discussed and executed from the highest level of government. With public and regulatory policies consistent with connectivity objectives, which ensure legal certainty and clarity to promote investments in the sector. The correct incentives must be placed so that these resources are available for the improvement of the networks, updating the taxation on the sector and making sufficient radio spectrum available to the operators. Connecting the unconnected is a priority, and it is a co-responsibility of all actors. Public-private partnerships have proven to be a fundamental tool to achieve inclusive digitalization within our region.
Latin America is the region where employment productivity lags the most. Digital transformation for the use of ICT is critical for the economic recovery. For this to happen, a scenario which promotes investment is required. Countries with greater broadband infrastructure had greater capacity to offset, at least partially, the negative effects of the pandemic.
- What difficulties or challenges stand in the way of this objective?
The need to review the regulations in place in order to eliminate those that are obsolete with respect to the new configuration and dynamics of the ecosystem, where new actors participate, must be emphasized. Regulatory burdens and fiscal frameworks merit this same type of review in order to avoid specific taxes on the industry, in such a way that resources are focused on investment to close the gap and on the future deployment of new generations of technology. Additionally, onerous spectrum tender offer conditions, which generate artificial scarcity conditions, must be avoided and revenue based models must be abandoned.
As already mentioned, the production of intersecting digital agendas requires the participation of all industries in the economy and its fostering by public institutions which are involved and committed to the development of a healthy and productive ecosystem. Leadership must come from the highest level of the Executive Branch and there must be a clear understanding that a coordinated and consensual effort in conjunction with the private sector is required, with it being the private sector which bears the weight of the investment.
The industry shares the public sector’s concern about closing digital gaps and the need to universalize access to services. Access for the unconnected, due to geographical, age, economic or gender gaps is a priority. The role of governments and regulators should be to promote investment, with institutionalism and certainty being central to this role. This industry requires large investments to keep pace with technological change and in order to reach all citizens. This is dependent upon the existence of legal certainty, a solid institutional framework and certainty with respect to the regulatory and tax scheme.
- Will you please tell us something about the main projects that you are currently investing in?
The telecommunications industry is committed to expanding its fixed networks, investing in fiber optics and expanding 4G networks. Similarly, efforts are focused on preparing platforms and business models for the inclusion of new generation technologies in the near future, such as the 5G deployments that are and will be underway. Additionally, on diversification of the content offered, fighting online piracy and increasing satellite connections.
This is an industry in constant change and innovation where the most efficient ways to deliver more and better services to both individual and business end users are constantly explored.
- In your judgment, what would be the roadmap be for the region to achieve optimal coverage, and where are things now?
The key is to make more spectrum available under conditions that are favorable for the development of services, and to foster environments which are suitable for investment promotion. Advancing digitalization means increasing productivity and improving economic growth opportunities. To achieve this, it is essential to start from Digital Agendas, to have a clear roadmap across all of a country’s industries and sectors, which supersede governments and their mandates. They are proposals that require long-term strategies that are executed consistently and with legal and institutional security necessary such that there is certainty and the ability to attract investors. These agendas should include the establishment of public-private alliances to close the gap and make effective use of universal services funds in programs that allow the supply to be extended to unprofitable geographic areas and that subsidies are sought for the demand for families located in the lowest income quintiles.
At ASIET, we believe that it is essential to have a policy framework which rationalizes the tax burden, payment for spectrum and is oriented towards closing digital gaps. As well as the regional fight against piracy of audiovisual content. In turn, the enhancement of digital skills is necessary, which requires a review of educational programs to include ICT training at all levels of formal education and the implementation of training plans for adults and companies.
It is also essential to promote the inclusion of girls and young people in the so-called STEAM (Science, Technology, Engineering, the Arts and Mathematics) careers, both to support their personal and professional development, as well as to improve the technological development and expand diversity within industry companies, which has demonstrated that it is very supportive of this growth. Accompanied by scholarship programs for training in digital skills. A deliberate gender based effort is needed in order for us to effectively have a more balanced and inclusive digital development.
- What technologies will be notable as the industry moves forward? What are the lines of research and innovation that you are following at this time?
At the infrastructure level, continuing with deployment of fiber optics is key, as well as the extension of 4G networks and soon to the expansion of 5G. There are several cutting-edge technologies today, some of the best known are the Internet of Things (IoT), Artificial Intelligence, Reality (VR), Big Data, Cloud and Machine Learning, among others. These technologies promise to improve the lives of people through connectivity and are strongly committed to sustainability. On the telecommunications side, we have 3G and 4G technologies, still in deployment, and 5G, soon, to expand in Latin America. Several countries are already completing the tender offer processes and establishing the deployment roadmaps.
According to ECLAC’s Digital Agenda for Latin America and the Caribbean, “it is going from a hyper-connected world to a digitized world in economic and social dimensions.” In this world, the traditional economy coexists and merges with the digital economy, giving rise to a new digitally intertwined system in which models from both worlds are integrated and interact. In this way, we see as a result complex ecosystems that are in the process of organizational, institutional and regulatory adaptation.
- How has the health crisis impacted the industry? What has been learned from these months of substantially increased use of telecommunications?
Telecommunications networks have demonstrated their essential role in the continuity and performance of economic, work, educational and social activity. The infrastructure was very resilient to the sudden change in traffic, about a 40% increase, and services were maintained. And despite recognition of the foundational nature of the industry and its importance for economic growth, telecommunications companies in several countries must address the approval of changes to the industry regulatory frameworks which, in some cases, negatively affect industry development.
The scenario for achieving increased levels of investment was already complex prior to the pandemic and the effects derived from it have endangered the very sustainability of the industry. The industry’s economic and regulatory environment hinders its development, putting the maximization of the socioeconomic benefits of the digital transformation at risk by making it difficult to maintain the pace of investment. Some of the industry’s lessons and requirements for improving connectivity are: taxation (which today is inconsistent with the objective of extending services), the difficulties for deploying infrastructure (such as municipal obstacles), changes in the market that have not been reflected in the regulations (with the decline of ARPU [average revenue per user]), onerous spectrum tender offer conditions or artificial scarcity situations, and the significant impact of signal and audiovisual content piracy.
- What coverage, access and quality of service objectives have industry professionals established for themselves, and what will be necessary to achieve them successfully?
The objectives will always be that the entire population can have access to the Internet with quality bandwidth at any point and at appropriate prices for their access. To achieve this, public-private agreements to encourage the investments required to achieve these objectives will be necessary, as we have already mentioned, as well as roadmaps through Digital Agendas to promote development in Latin American countries in furtherance of the digitalization necessary for the economic recovery. In addition to this, there are more advanced countries that should be taken as a reference in order to not repeat their mistakes and to learn about best practices for connectivity.
Although Internet connectivity continues to expand, there are several issues to consider in addressing the advancement of this and all the technologies associated with ICT. The first is that although, according to the ITU (International Telecommunication Union), the Americas has 95.5% 3G network coverage, many people do not use the Internet because they do not see it as being useful. Not only is the affordability barrier central to closing the gap, but also training and knowledge about the benefits of its use. In turn, in Latin America, according to ECLAC (Economic Commission for Latin America and the Caribbean, 2020), citing the Development Bank of Latin America (CAF) report ‘The impact of digitalization upon the reduction of gaps and the improvement of infrastructure services’, more than 90% of rural households in Bolivia, Paraguay and Peru do not have an Internet connection, while in countries with better digital development, such as Chile or Uruguay, the rural access deficit improves, but is nonetheless approximately 50%.
- What about the industry’s prospects for the future? What are the challenges to be addressed and the opportunities to be seized upon?
We need to bet on public-private dialog which facilitates consensus building and the achievement of common medium and long term objectives in order to facilitate access to funding and investment. Public-private partnerships are a fundamental tool for achieving inclusive digitalization in the region.
Some countries have implemented best practices promoting investment, such as regulatory or tax flexibility; simplification or homologation of regulations, or making the radio spectrum available. Continuing and improving these best practices is required.
There are areas of opportunity for improving access, quality and affordability of services, such as the updating of industry tax policy. Many countries in the region need to review taxation of the industry, which pays 51% more in taxes than other industries which are critical to the economy. The tax burden on the various services has not been adjusting in keeping with changes in the markets. In turn, the adjustment of policies associated with the spectrum is suggested, such that access to this resource is facilitated, avoiding artificial scarcity, establishing the advancement of digitalization as a fundamental element of policy, and avoiding the perspective of viewing spectrum as a component of revenue. Facilitating deployment of networks (the simplification and standardization of municipal regulations) is recommended. Without discounting the possibility of the efficient use of Universal Services Funds to close the digital divide (and also exploring the subsidizing of demand for services and for access to devices).
In this sense, international cooperation is a space where you can share examples of good practices about what works with respect to the updating of the industry regulations necessary to promote investment and improve the deployment of network infrastructure and, therefore, affordability and efficiency of access.
Maryleana Méndez is a Telecommunications and Information Technology professional with an extraordinary career trajectory She holds a Systems Engineer degree from the University of Costa Rica and a master’s degree in Information Technology Administration from the Monterrey’s Institute of Technological and Advanced Studies (Instituto Tecnológico y de Estudios Superiores). In 2009 she became a member of the Telecommunications Superintendency’s (SUTEL’s) first board of directors, a role which she served in for 8 years, throughout two consecutive terms. In 2017 she joined ASIET as an Expert Regulatory Advisor, an organization which she has led since August 2019.
Under her management, SUTEL led and organized the process of opening the market and the establishing of the institutional framework for the regulatory body. Prior to holding her current position, she served for 6 years directly within the telecommunications industry, as a project manager in Latin America. She has previously held various positions in the Republic of Costa Rica’s Office of the Comptroller General. She is currently a member of BCR’s (Banco de Costa Rica’s) board of directors.