Cellular Telephony in Chile

In the 1999 book, Telecommunications in Latin America, by Smela, Soong and Becker, we read:

While the technology exists in only 7 percent of Latin American telephone households, cellular phone usage is growing by leaps and bounds.  Since 1993, according to our Study, the number of Latin American households with cellular phones has increased by over 1300 percent, faster than any other single telecommunications technology in Latin America.

There are a number of reasons why cellular phone use has become so popular in Latin America and why the pattern of growth shows no signs of diminishing.  First, unlike wired service, cellular phones do not require the laying down of costly ground infrastructure, and cellular phone systems are therefore less expensive and quicker to install than wired line phone service.  This is especially relevant in more rural or remote areas where ground infrastructure for wired telephone service is now yet in place.  In such areas, the waiting time for a household telephone can be months and the installation costs prohibitively expensive.  Even in locations where infrastructure is laid, wired-line installation costs are usually high, in many countries US$50 to US$200 or more.  On the other hand, waiting time for cellular service in most countries is typically brief, and cellular operators generally charge low, and sometimes no, start-up costs providing a strong incentive to many customers.

In recent years, the costs of subscribing to a cellular phone, including the monthly charges and per minute rates charged by cellular operators, have been declining as well.  In most Latin American countries, the cellular market was privatized and opened to competition prior to the market for basic telephony.  Such competition has generally had a positive effect on cellular rates.  In addition, the deregulation of the basic telephony market has given the cellular companies further incentive to keep their rates reasonably low to compete with basic telephony as those rates decline.

Here is a summary of the types of costs a cellular subscriber could expect to pay.  Start-up costs are frequently free or may  include a deposit.  The cost of the telephone varies, but generally a user will receive a lower-end phone free or at very little cost.  Higher-end phones may cost somewhat more.  The phone may be purchased or rented.  There is also usually a monthly charge for service.  This typically costs more than that for basic wired telephony (from US$14 to US$40), but will often include free minutes per month.  Cellular phones, too, charge for per minute use, and the costs can be more than double that for basic telephony charges.  In many cases, cellular subscribers pay for incoming calls as well as calls which they initiate.  In countries where "calling-party-pays" has been introduced, this is no longer the case.

Because the monthly and per minute rates for cell phones are usually somewhat higher than those for basic telephone services, cell phone providers have marketed creatively.  Special incentives include payment plans, offers of free or inexpensive equipment, free minutes per month, prepaid plans, and tiered rate structures, all designed to meet the needs of the different types of cellular customers.  

Probably nothing has had a greater effect on cellular phone usage than the calling-party-pays (CPP) billing system instituted in many Latin American countries in recent years.  First launched in Venezuela, CPP requires that the party initiating a phone call to a cellular phone customer carry the cost of the call.  With the old system, the individual receiving a call on his or her cellular phone was required to pay per minute, generally the same rate as if he or she initiated the phone call.  With CPP, on the other hand, a cell phone subscriber can cut down significantly on his or her cellular phone costs by limiting the number of calls made.  CPP has proven extremely successful, as witnessed by the increased subscriber rate and increased cellular phone traffic.

By lowering costs for many subscribers, CPP has had an especially significant impact on lower-income customers.  Household users, who could not previously afford the costs of a telephone, can now maintain a cellular home telephone and not be concerned about the costs when receiving calls from friends or family.  In addition, small-business owners or other entrepreneurs can use a cellular phone to respond to incoming calls from customers, and the cost for service is negligible if the phone is not used for outgoing calls.

Aside from cost considerations, cellular phones offer conveniences attractive to many Latin Americans.  First, of course, is mobility.  Cellular phones can be used essentially anywhere at any time.  Smaller, lighter hones are being made more available and affordable, and the range and quality for the phones has been improving as digital cellular and PCS systems become more common.  As an added incentive, cellular phones help avoid the traffic problems frequently encountered on congested wired phone systems.

Finally, there is the "fun" factor.  For upwardly mobile Latin Americans, the cellular phone is often seen as a status symbol.  This, in conjunction with the other factors described above, has contributed to the explosion of cellular phone use.

In this article, we will show some data from Gran Santiago in Chile.  This is a fiercely competitive market in which the major operators (Startel, BellSouth, Entel and Telefónica CTC Móvil) are backed by well-financed technology firms.   We will refer to some new data from the 2003 TGI Chile study.  This is a survey of 2,001 persons between the ages of 12 to 65 years old conducted by Time IBOPE in early 2003 in the Gran Santiago area.  According to this survey, 58.4% of the respondents said they are cellular phone users.  This projects to 1,302,000 persons in a universe of 2,144,000 persons.  The reader should be mindful that this does not imply that there are 1.3 million active cellular telephone sets going around because a single cellular phone may be shared by multiple users.  For example, we have seen that a company may have a cellular telephone which is used by various employees when they need to go out of the office but still be reachable.

In the next chart, we show the incidence of cellular phone usage by age-sex groups.  The highest incidences occur among persons 20 to 24 years old, which is the group that came into adulthood just as this recent technology came into prominence.  Telephony is a technology with network externality in the sense that its utility increases as more people use it, and it would appear that it will take a firm hold in the lifestyles of the new generation.

(source: 2003 TGI Chile)

In the next chart, we show the incidences by socio-economic level, education and occupation.  The incidences fall monotonically down the socio-economic scale, but the drop-off is not as severe as those for high-ticket items such as personal computers or automobiles.  The evidence elsewhere in the world is that means of communication such as cellular phones have democratizing effects (as in the case of People Power II in the Philippines), and its broad dissemination is therefore essential to the democracy project.

(source: 2003 TGI Chile)

How do these people use their cellular phones?  Here are some facts from the TGI Chile study:

(posted by Roland Soong, 4/20/2003)

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