Telecoms & IT
It is a period of change in Colombia. The landmark peace deal passed in late 2016 has created conditions favorable to new infrastructure development, and falling oil revenues have impressed upon the nation the importance of a robust digital economy that offers alternatives to commodity exports. Amidst this all, the ICT sector stands ready to play a crucial role in creating the systems and networks needed for sustained long-term growth. Colombia has a fairly well-connected telecoms sector, but, as with many other Latin American countries, connectivity in rural areas lags behind urban centers. Increasing mobile and broadband internet penetration rates and developing new usages of knowledge-based economic thinking are just a few areas where ICT leaders are ready to fully utilize the strengths of one of Latin America’s largest and most well-connected countries.
Mobile connections have been the most crucial piece of increased internet connectivity rates in recent years, and Colombia is no different. The nation has seen mobile penetration rates skyrocket over the past decade, reaching rates nearly on par with the world’s most connected countries. Mobile research firm GSM estimated that Colombia had 31.9 million mobile subscribers in early 2016, a 66% penetration rate that puts it among the leaders in Latin America. While slightly behind nations like Chile (92% penetration rate), Argentina (92%), and Costa Rica (80%), the growth of the sector in recent years has analysts and industry participants excited and fully expecting to reach those figures within the next decade. Looking at the number of total connections paints an even rosier picture. 2015 data from the MinTIC, Colombia’s telecoms regulator, shows that the nation had 58.6 million mobile connections in 3Q2016, a number that is 120.5% of the total population. Growth estimates vary, but all are in agreement that the market should continue to grow through 2020 before slowing as the nation reaches full penetration.
Colombia’s mobile sector is dominated by two major providers well known throughout Latin America: Claro and Movistar. Claro has the largest market share, but its share has been falling in recent years due to increased competition. Several new providers have appeared in recent years via virtual operators, including Tigo, Virgin Mobile, Movil Exito, and Uff. Mobile regulator MinTIC reported that Claro lost more than 440,000 users from 3Q2015 to 3Q2016; in contrast, Movil Exito added 500,000 users, Movistar added 924,000, and Virgin added 143,000 over the same time frame. 80% of Colombia’s cell phone users use prepaid services, a number that reflects the high costs of mobile service for the country’s poor. Juan Guillermo Vélez, CEO of Virgin Mobile Colombia, believes the country’s size and stability made it an attractive draw for mobile providers. “[Entering] Colombia made perfect sense,” Vélez told TBY. “It was big enough economically to be relevant and stable enough both politically and economically to remain a safe bet.”
GSE estimates the cost of mobile phone ownership at 21% of income for Colombia’s bottom 40%, 10 times that of the cost for the richest 20% of the population. This is one of the highest burdens in Latin America, and with the increasing focus on connectivity and internet access, the need for affordable data plans is a key issue facing the sector. The issue will be particularly important considering the tax reform bill passed in late 2016 that lowered the corporate tax rate but raised the value-added tax rate from 16 to 19%. Consumers have expressed disappointment at the increase, and mobile providers are wary that the changes could reduce demand for affordable phones and data plans. Making matters worse, this comes on the back of a fall in the value of the peso due to the nation’s oil exports. As a result, the industry is facing an environment where growth could slow in the short term. “Customer[s] will be paying up to 24% on taxes between the VAT and the consumption tax,” Vélez told TBY. “The cost of handsets has been skyrocketing in the last two years due to the exchange rate and the cessation of subsidies, which will only worsen with the new tax reform. This is why we are focusing more on our loyal customer base because consumption of the service as a whole will fall because people who use it are not using it as freely as they used to so it is more out of pocket.”
Keenly aware of the need to enhance user experiences and develop its digital infrastructure, the Colombian government has been working with mobile phone providers to implement its Vive Digital (“Live Digital”) plan. Launched in 2010 by President Santos, the plan calls for every citizen in Colombia to gain access to the internet to forge a more developed citizenry, reduce poverty rates, and improve economic growth. The Colombian government sees increased access as a pillar of the country’s future, noting that increased access is linked to reduced poverty, improved employment options, and social and economic development. The first stage of the Vive Digital plan, which lasted from 2010-2014, focused on upgrading the country’s mobile infrastructure. Colombia installed fiber optic cables in more than 800 municipalities and expanded the 4G spectrum, opening it up to operators via a long-awaited auction in 2013. Despite some controversy among mobile networks who felt that they were artificially excluded from bidding for optimum bands, the 4G auction’s tender drew USD401 million in proceeds, well above the government’s expectations.
The first four years of the plan have been largely successful in accomplishing the country’s goals. Internet connections grew sevenfold from 2 million in 2010 to 14.4 million in 2016, taking the penetration rate from 11% to 27%. More than 95% of the country’s municipalities have access to high-speed broadband as a result of the fiber optic network installed, and internet affordability rose as a result of subsidies and increased competition in the market. After Colombia’s ICT Minister claimed that all initiatives of the first state of Vive Digital had been accomplished, the second phase of the project began in 2015. Another four-year plan, phase two seeks to offer new service programs built upon this increased connectivity; now that the infrastructure is in place, the goal is to use it to its full potential. Some of the goals of the new Vive Digital plan include increasing the number of internet users to 27 million by the end of 2018, constructing free Wi-Fi hotspots in every municipality, achieving a one-to-one child to computer ratio in schools, and equipping more than 350,000 public school teachers with computers. Colombia’s government has also pledged to double the number of people employed in the ICT sector to more than 80,000, solidifying the role of the knowledge-based IT economy as an economic driver in the country.
Across Latin America, innovators are developing new ways to use digital tools to provide public services. Finance, healthcare, education, and entrepreneurship have all been transformed by increased connectivity and access to new technologies, and Colombia is no different. This idea is at the core of the Vive Digital plan, and while work on the government’s behalf is still ongoing, several programs have already emerged from the improved infrastructure that has the potential to transform Colombia’s economy. Mobile banking is one such example. The sector has been growing exponentially in recent years as smartphone penetration has increased, and developers are working in tandem with Colombia’s largest banks to develop mobile banking services. Different services have been launched that focus on micro-loans, SMEs, and rural communities, all of which have the power to increase access to credit and increase stability and growth. In education, along with the aforementioned computer initiatives, the National Service of Learning has partnered with Samsung to develop mobile classrooms to teach vocational skills such as device repair in rural and underdeveloped communities. “The principal aim of [this program] is to utilize our facilities and technology for the betterment of Colombian society,” Samsung Colombia President Simon Lee told TBY. “[Mobile classrooms] are a great tool to approach the people who live in rural areas like the Amazon or in the mountains.”
Connectivity and the development of new skills will also give the ICT sector a crucial role in helping Colombia move on from its civil conflicts. Alberto Samuel Yohai, President of the Colombian Chamber of Information Technology and Telecommunications (CCIT), expects the ICT industry to help bridge the urban-rural divide in the country and give previously underserved populations a new voice. “CCIT recently struck an agreement with the Ministry of Defense to come in and retrain injured personnel and hopefully find them jobs,” Yohai told TBY. “For example, I do not necessarily need a software engineer to have both of their legs or a network engineer to have both of their arms; what I need are good brains and the chance to put people to good use.” Creative solutions like these give the ICT sector immense potential in the years to come, and Colombia’s commitment to reaching this potential bodes well for the future of country.
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