Introduction to the Challenge Facing Latin America’s Telecom Investments
The Centro de Estudios de Telecomunicaciones de América Latina (cet.la) released the report “Contribución del conjunto del ecosistema digital al desarrollo sostenible de infraestructura de telecomunicaciones,” which examines the challenges Latin America faces in ensuring the sustainability of telecom investments.
The Need for Continuous Network Modernization Amidst Rapid Data Traffic Growth
The report highlights the necessity for continuous network modernization while dealing with the pressure of rapid and constant data traffic growth. Ericsson predicts that mobile internet traffic in Latin America will grow at an average annual compounded rate of 25% between 2022 and 2029, surpassing the global average.
Dominant OTT Platforms and Their Impact on Traffic
Data traffic is concentrated among a few large-scale global OTT providers. By 2024, eight platforms—Google, Meta (formerly Facebook), Netflix, Microsoft, TikTok, Apple, Amazon, and Disney—will generate 74% of mobile traffic in Latin America. These OTTs hold significant influence over the growth pace of data traffic.
Financial Implications of Increasing Data Traffic on Telecom Networks
Telecom networks have components and subsystems whose sizing depends on the data traffic flowing through them. Consequently, increased traffic across a network results in higher costs for that infrastructure, including investment, operation, and maintenance.
It is estimated that over $49 billion in investment will be required by 2030 to close digital gaps, modernize networks, and expand capacity for traffic.
Recommendations for Improving Investment Sustainability
To enhance the sustainability of Latin American operators’ investments, ASIET recommends eliminating asymmetries with other services through deregulation and reducing sector-specific taxes. Additionally, the treatment and responsibilities of large platforms should be reviewed.
The response to these challenges requires a fundamental rethinking of sectoral regulation and taxation, as the dynamics of final services markets and connectivity have changed significantly since the current regulatory framework was designed.
Beyond regular tax pressure, telecom operators in most Latin American countries bear a set of sector-specific taxes and fees.
The Double-Faced Nature of the Telecom Market
Both OTT providers and their clients use telecom networks to transmit information, making access telecom networks a two-sided market with distinct user types: end-users communicating among themselves and with their online service providers, and OTT providers connecting with their clients (end-users).
Declining Profitability of Latin American Operators
Since 2010, the profitability of Latin American operators has deteriorated due to lower revenues, high regulatory compliance costs, expensive spectrum prices, and elevated sector taxes. Meanwhile, OTT providers’ profitability has increased by capturing most of the value generated on the internet.
Regulatory asymmetries create significant distortions in the market, continuously deteriorating Latin American operators’ market position relative to OTT providers over the past fifteen years.
ASIET’s Stance on Regulatory Change
“Telecommunications networks are the foundation for digitalization, driving economic growth and social well-being. We collaborated with Nera to delve into the sustainability challenges of telecom investments for an inclusive digital future in Latin America, recognizing this as a public issue that compels us as a region to rethink the model with a profound regulatory change focus,” stated Maryleana Méndez, ASIET’s general secretary.
Key Recommendations from the Report
- Deregulation and reduction of sector-specific taxes
- Updating market definitions for connectivity as a two-sided market
- Adequate spectrum availability and conditions
- Support for expansion coverage and affordability programs
