Cellphones in Latin America

NYTimes writes about the growing use:

Subscribers jumped from fewer than 40 million in 1999 to 118 million today, turning one in five Latin Americans into a cellphone user and making this a $20.4 billion market, according to Pyramid Research in Cambridge, Mass. Economic powerhouses like Mexico and Brazil have the biggest number of subscribers, but competition is fierce here in Venezuela, where cellphones are both a status symbol and a necessity.

Even after its economy contracted 8.9 percent in 2002 and 9.4 percent in 2003, Venezuela still has Latin America’s second-highest rate of cellphone use, after Chile.

Driving the boom is an explosion in prepaid service that has made cellphones available to millions of low-income users, once excluded by monthly payments and credit checks. While in 1995 fewer than 2 percent of people in most Latin American countries had cellphones, the introduction of prepaid service has sent use skyrocketing, to 29 percent in Venezuela and 48 percent in Chile.

“Given Latin America’s demographics, the cellular business couldn’t take off until prepaid service made it possible” for everyone, said Patrick Grenham, a telecommunications analyst with Citigroup Smith Barney in New York.

Although the cost of prepaid service can be 10 times that of traditional service, it attracts clients whose incomes are frequently too erratic to make a monthly payment.

Also driving cellular growth is a system that charges users only for outgoing calls, allowing them to receive unlimited calls free – and thus keep their phone active even when the budget is tight.

With the right cost structures, providers can turn a profit within a year, even from users who make only a few calls. While Latin America’s cellular providers once depended on upper-class users, revenues come increasingly from millions of low-income clients.

Fixed-line phones are found in close to 11 percent of Latin American households, according to figures from IDC, the research group. Many people simply do without fixed-line service to avoid large upfront payments, enormous delays and onerous monthly charges. To bring in users interested in having a home phone, providers in several countries now offer a home telephone that operates within a cellular network but at lower prepaid rates than mobiles.

The business of prepaid services has considerable drawbacks, like declining use during hard times and the constant cycle of users whose service is cut off because of inactivity. Providers still rely largely on revenue from customers with credit cards, many of them now using a service that allows paying bills by phone and creating closed-circuit group conversations.

Status seems to play a big part in Venezuelans’ use of cellphones. “Venezuelans have always needed a public way to show their status,” said the Venezuelan sociologist Leoncio Barrios. “Thirty years ago, people would buy the fanciest car on the lot. But since times are tougher now, the best alternative is to have the newest mobile phone clipped to your belt.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.