GSMA: Achieving universal connectivity in Latin America requires rethinking Universal Service Funds

GSMA press release

This is an automated translation of the press release issued in Spanish

March 30, 2023, Buenos Aires: With exponential growth in recent years, mobile connectivity in Latin America reached almost 400 million subscribers (62% of the population) in 2021. Among those who are not yet online, 40 million (7% of the population) do not have coverage, while 190 million (31%) have coverage but face demand barriers such as device affordability and lack of digital skills. The diagnosis is part of the report 'Connectivity gaps in Latin America. A roadmap for Argentina, Brazil, Colombia, Costa Rica and Ecuador', published today by the GSMA. According to the study, unlike the rapid evolution of recent years, reducing the last stretch of the gap will be increasingly complex and will require rethinking the mechanisms used up to now.

The analysis puts the magnifying glass on the absence of impact measurements and the low rate of disbursement of the main public policy tool to close the gap in the countries studied: the Universal Service Funds (FSU). In aggregate, more than 40% of the funds in these markets have not been executed. Furthermore, there are no robust assessments of how many additional people have been connected from the programs in any of the countries considered. On the other hand, the financing of the USF, exclusively covered by charges to the telecommunications operators, does not reflect the current internet value chain. While the operators' revenues have fallen in recent years, those of the digital service providers - who do not contribute to the USF - have skyrocketed, so that they capture most of the revenue generated by internet connectivity in the region.

The report examines the market frontier in each country, that is, to what extent it is possible to expand the coverage and adoption of 4G services under current market conditions. The economic model reveals that, in this scenario, no country will achieve universal connectivity in 2030, with a gap of between 21% and 46% persisting. However, certain improvements in conditions could help boost the demand for services and move this frontier; for example, an alternative financing of the USF. The elimination of excise taxes on the sector and VAT on devices and internet plans for lower income segments could also help to reduce the gap between 6 and 16 percentage points depending on the country, adding a total of 50 million additional people. . Under these conditions, the gap would narrow to just over 10% in some cases, but it would not close completely either.

According to the study, achieving universal connectivity also requires considering additional needs and forms of financing. The coverage gap is currently focused on remote areas or areas with very complex terrain, which make it difficult to deploy the networks economically. The economic model shows that to reach 99% population coverage with 4G networks, between USD 1,200 (Argentina, Brazil and Colombia) and USD 2,000-3,500 (Costa Rica and Ecuador) would be required in additional financing per person covered, depending on the country. analyzed. Covering the last 1% of the population would require even higher funding, and therefore potential alternative technological solutions. Finally, closing the usage gap would also require boosting demand through digital training programs and cross-transfers to cover the cost of devices and services for low-income citizens. It would imply an estimated cost of between USD 50-360 per additional person connected, depending on the country analyzed.

“Technological innovation advances at an increasingly dizzying pace; on the contrary, the pace of digital inclusion is slowing down. The challenges we have today, with 93% mobile broadband coverage in Latin America, are not the same as years ago, when everything had to be done in connectivity', says Lucas Gallitto, Director for Latin America, GSMA. “The roadmap to achieve universal connectivity varies by country, but this study shows that it will have to go through a redesign of the USF and measures to boost the demand for services. The policies that got us here are not the same ones we need going forward.”

The report 'Connectivity gaps in Latin America. A GSMA roadmap for Argentina, Brazil, Colombia, Costa Rica and Ecuador' is available for download in English and Spanish here.