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Why is Connecting to the Internet so Expensive in Latin America?

Why is Connecting to the Internet so Expensive in Latin America?

Posted by Clarisa Herrera on August 05, 2015

At the end of 2012, some 250 million Latin American users were estimated to be connected to the Internet, which represented nearly 45 per cent of the region’s population. Nowadays, such studies as the one carried out by eMarketer consulting company show that that figure has gone up to over 300 million (half of the population is presently connected).

As for the growing number of users, Latin America is the second region in the world –with 9.8 per cent, right behind Africa and the Middle East – and it is described as the fourth market in terms of the penetration of global Internet, following North America, Western Europe and Central and Eastern Europe.

Despite the significance of these numbers, the fact is the most of the traffic generated in Latin America must go through international connections with the United States.

“The region has particular characteristics. Since the birth of the Internet, we have depended on the US connections for national and international traffic. There are many countries where the local Internet traffic is managed beyond their borders, one byte or email between two users in the same country goes to Miami before they can share it” Sebastián Bellagamba, Internet Society’s Regional Director for Latin America and the Caribbean, explains.

The study entitled Expansion of Regional Infrastructure for Internet Traffic Interconnection in Latin America, developed by CAF (Development Bank of Latin America) points out that nearly 14 per cent of the Internet traffic to the United States is linked to communication nodes among Latin American countries, which increases the cost of the services and affects the connection speed.

According to data provided by San Andrés University-based Technology and Society Center (Cetys), the fares (expressed in dollars) of Bandwidth in Latin America and the Caribbean are different. In Panama and Venezuela the basic connectivity price is not higher than $10 a month; in Argentina, Jamaica and Mexico, it goes over $25, so $20 is the regional average.

The gap between countries of the region and members of the Organization for Economic Cooperation and Development (OECD) is still wide although fixed Internet fares in Latin America went 50 per cent down 2010-2013. The average 2.5 Mbps connection is nearly 3 times more expensive in Latin America ($73.6 PPP –purchasing power parity-) while it’s ($27.2 PPP) for the OECD. 1 Mbps of download speed in Montevideo or San Pablo can cost less than $1 PPP (high speed plan), $36 PPP in Guatemala and even $82 PPP in La Paz (Bolivia), standing in $39 in Paraguay. Member countries of the OECD could pay up to $0.51 PPP.

“Internet’s natural way of solving this is by implementing solutions that allow users to establish that flow at local levels, closer to the user. The closer you get, you the more efficient the traffic is”, Bellagamba says.

The CAF study highlights that some 2 thousand million dollars are paid in terms of international flow costs due to the lack of an infrastructure for regional IXP interconnection. The development of an interconnection infrastructure in Latin America would reduce costs for final users and increase the data flow speed.

“There are countries in the region that have a very good IXP situation, especially Argentina and Brazil, whose IXP networks are up to date: Argentina totals 13 and Brazil has just gone over 30 in the national territory. In the case of Argentina there is one in Buenos Aires and there are 12 localities in the country that feature their own IXP, which makes them be more efficient as the traffic doesn’t flow to Buenos Aires. Other countries of the region are not that lucky, since they have rudimentary infrastructures in both South America and Central America” he details.

Sebastián Bellagamba, Internet Society’s Regional Director for Latin America and the Caribbean.

The studies shed light on the fact that countries without a coastline have higher prices. On the other hand, more consolidated markets –like Brazil, Uruguay and Chile- with wider offer range and market segmentation offer more choices for home connections. The offer range in younger markets such as Central America, with lack of investment in high speed networks, is lower and that reduces the margin. Besides, download prices favor countries that provide plans with higher speed, since they entail lower cost per download unit.

In this sense, Internet Society has just announced that it has received funds from Comcast to widen Internet exchange points in Latin America. The funds will be used to launch an IXP in Paraguay, provide support for the recently-established IXP in Bolivia and technically train local professionals in charge of operating the IXPs.

“We are committed to the IXP establishment process in different levels, in some cases we directly help them build or advise local groups. Paraguay and Bolivia are the two countries with the highest Internet access fares in South America. Bolivia put on the map an IXP last year, Paraguay has an IXP but it doesn’t work, so we’re trying to help them make their models more successful and less expensive” the executive underscores.

Bellagamba explains that there are not specific studies on the economic impact in Latin America, but doing it without international links not only makes the connection be more efficient and cheaper, it also offers other benefits.

In terms of costs and service quality there are no correlates in all cases.

“The fares to access the Web have gone down in Uruguay and speeds have been increased without having an IXP. There are other market circumstances that make access there stand as one of the fastest in the region, with affordable prices” he emphasizes.

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