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Digital trade barriers

Imagine a small manufacturer of handpainted ceramic plates in the United States who has just clinched an important sale to a housewares retailer in England. The deal required five telephone calls to London, each four minutes long, that cost the manufacturer a total of $5.40.

In Mexico City, another ceramics maker may also be trying to break into the London retail market. But for the same long-distance calls, the Mexican competitor will pay $25.20. From Peru, the calls will cost $31.20; from Bolivia, $43.60; and from Venezuela, the total will come to $53.60 --nearly 10 times the U.S. rate.

Faced with such costs, many small Latin American businesses probably make fewer calls to prospective clients overseas, risking the loss of business to competitors in countries with cheaper telephone rates. These figures, compiled in a recent study by Philip Peters, a senior fellow at the Alexis de Tocqueville Institution (ADTI) in Arlington, Virginina, shed light on an aspect of competitiveness that is often eclipsed by discussions of wages, education and tariff regimes. High telephone rates have always raised business operating expenses and inhibited relationships with foreign clients. Now they are also limiting people's ability to access the Internet, a medium that has become an essential source of professional and trade-related information.

Nearly all the region's governments have taken steps to improve telephone service and lower rates. Many have done so by privatizing, or planning to privatize, state-owned telephone companies and setting time lines for introducing competition into the sector. Two years ago, 20 of the region's countries signed the 1997 World Trade Organization agreement on basic telecommunication services, which commits signatories to open their telecommunications markets.

From a consumer's point of view, these steps have had mixed results. On the one hand, the ADTI study shows that rates for local domestic calls, measured in dollar terms, are on average 34 percent cheaper in Latin America and the Caribbean than rates in the United States. That difference is relative, of course, because per capita income in the developing countries in ADTI's sample is a small fraction of the U.S. level. According to Peters, the lower domestic rates are partially explained by the widespread practice of subsidizing local service with revenues from more-lucrative long-distance service (both domestic and international). In Chile, Mexico and Argentina, countries that have undergone "rate rebalancing," or the process of eliminating such cross-subsidies, local calls are either as expensive or much more expensive than in the U.S.

But for people who make heavy use of the telephone, who place calls overseas and access the Internet from home, Latin America is not a good place to be. The graph on this page (see upper left) shows average charges for 1,500 minutes of local calls, 240 minutes of domestic long distance, five four-minute calls to London, and 30 hours of Internet access. In the U.S., consumers can have all that for an average cost of $78.97 --less than one-third of what customers in these 17 Latin and Caribbean countries must pay.

Internet access service, in particular, remains much more expensive in Latin America than in the U.S., where the average monthly fee for unlimited use is less than $20. While subscribers in the U.S. pay a low flat rate for the domestic calls they use to connect to the Internet, in most Latin American countries local calls are charged by the minute, a cost users must bear in addition to Internet fees.

According to a September report based on country surveys conducted by IDC Latin America, a U.S. market-research firm, "Basic telephone costs remain the single largest inhibitor to greater growth in Internet usage in Latin America."


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