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Who is building the data highways?

It took two centuries to build the roads, rail lines and seaports that form the backbone of Latin America's commercial infrastructure.

By comparison, the region's information infrastructure seems to have appeared overnight. Just 10 years ago, personal computers (PCS), modems, and--most significantly--the Internet, were practically unknown in Latin America.

Today, there are at least 10 million PCS in Latin America and the Caribbean, according to U.S.-based market researcher IDC Latin America. An estimated 3.3 million new units will be sold in 1997. The region spent $5.84 billion on PCS and software in 1995, $7.53 billion in 1996 and is on track to spend $9.37 billion in 1997. By the year 2001, IDC estimates that figure will double, to roughly $20 billion.

Meanwhile, the region's telecommunications companies are spending billions of additional dollars to install telephone lines, fiber optic cables and high-capacity switching centers. Although these are still mainly devoted to voice communications, pure data traffic represents an ever-increasing source of demand. At least two million Latin Americans are believed to have electronic mail addresses, and a growing proportion of them have full access to the Internet's World Wide Web. The region's media companies are racing to develop content for the Web: by January 1996, some 50,000 Latin American and Caribbean firms and organizations were running "host" computers, which store text and images that can be retrieved by users around the world. One year later that figure had tripled, according to a monthly tally of such sites conducted by specialists at Costa Rica's National Research Network.

Perhaps most remarkably, this information infrastructure boom has taken place with little government assistance. Unlike traditional infrastructure projects, which have always depended on public funding, the nascent information infrastructure in Latin America and the Caribbean is being built almost exclusively by the private sector. In fact, this infrastructure is growing the fastest in countries where the state has privatized the telecommunications industry, lowered tariffs on information technology products, and allowed free competition in data network services.

That is because telephone lines and network services--and not computers--are what primarily determine the cost and growth rate of a nation's information infrastructure. Though PCS still cost around 50 percent more in Latin America than in the U.S., their price has been dropping steadily, from an average of $5,000 in the mid-1980s to as little as $1,000 today. Many experts believe that by the end of the decade computer companies will offer "network PCS," for about the price of a medium-sized television, that will serve as a gateway to the Internet and have most of the features of today's full-priced PCS.

Inexpensive PCS will do little good, however, if the cost of long-distance telephone connections required to access the Internet remain as high as they are today. A single user's cost for 20 hours of Internet access ranges between $20 and $300 in Latin America's large cities, according to London-based Latin American Newsletters. In the U.S., $20 dollars buys one month of unlimited Internet access.

The high access fees in Latin America are largely due to the limitations of the existing telephone infrastructure, which in many countries is saddled with outdated equipment ill-suited to handle the technical demands of high-volume digital networks. As Chile, Mexico, Perú, Argentina and other countries have shown, privatization is the most efficient way to infuse new technology and services into the telecommunications infrastructure. In most of the countries that have privatized telecommunications, the waiting period for a new telephone line has dropped from several years to a few months; service has improved markedly and costs to consumers have begun to drop.

Still, for the next few years many of the newly privatized telephone companies will be protected by full or partial monopolies that were necessary to attract serious investment. This could slow the expansion of Internet and data networking services, unless governments make it a point to allow new entrants in these niches. Chile offers eloquent proof of the benefits of fully liberalizing the communications market. Chilean consumers and companies enjoy some of the world's lowest telephone rates. As a result, Chile has more than twice as many Internet host computers per 1,000 inhabitants as any other major Latin American country.

The growth of Latin America's information infrastructure faces constraints that transcend national boundaries, however. Since Latin America lacks a high-capacity telecommunications "backbone" to transmit data within the region, almost all Internet traffic originating there must first go to the U.S., via satellite or submarine cable, before it can reach other Latin countries. This detour slows transmission times and greatly increases the costs of the region's Internet access providers.

Three factors are expected to alleviate this problem over the next decade. First, the continuing trend toward privatizing national telephone companies will spur regional cross-border investments in high-capacity fiber optic lines and wireless data transmission. Privatizations will also boost existing plans by AT&T Corp. and several regional consortia to complete a fiber optic loop that will hug the South American shoreline and eliminate the need to route traffic through the U.S. Finally, national and international satellite companies are planning to double the number of high-capacity satellites dedicated to Latin America in coming years, from 11 to around 20.

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