Internet in The Andes
An interview with Internet security expert Katherine Myronek
by: Veronica Endo
What kind of reaction does electronic commerce (EC) in Latin America elicit? What alternative strategies do entrepreneurs adopt when they target this emerging market? These are questions only now being asked by Latin American internet entrepreneurs.
Microsoft's general management in Chile expects a 25% growth rate for this year. The company will invest around $6 million in this market. Along with improving financial conditions and a slight increase in the country's venture capital, Microsoft hopes to overcome the difficulties it faced in 1999.
How did e-commerce begin in Chile?
In 1992, Chilean universities went online. Only recently in 1994 did public and private institutions gain access with Netup, the first non-university related ISP. Eight other providers joined the boom in 1995 including telephone carriers CTC Mundo, Entel and Chilesat. Since 1997, the competition has increased, resulting in industry mergers.
By 1998, the first international companies arrived to the Chilean ISP market. A U.S. provider, Firstcom, acquired Chilean RCD, naming it Firstcom Internet; it has since grown 150%. CTC Reuna became CTC Internet after being purchased by the Spanish group Telefonica. Another U.S. firm, IFX Corporation, bought Interaccess, Interactiva and Intermedia to become part of Unete.com, a multiregional ISP operator in 12 Latin American countries. PSINet, another American provider, arrived to Chile in the middle of last year. It acquired Chilean Netline, becoming the third largest local ISP.
Firstcom, with headquarters in Miami and operations in Peru and Colombia, is now expected to enter into the Argentinean and Brazilian markets. It aims to create a net in Latin America, fostering fluent communication between e-communities.
Development in a different environment
Not surprisingly to many industry experts, EC in Latin America took off slowly. Neither entrepreneurs nor users easily trusted in investing or purchasing items through the Internet due in part to the small market's instability and the users' low purchasing power. In many South American countries the ease of attaining credit cards has emerged only recently. Due to the arrival of new local and multinational investors, ISPs have begun to lower connection and installation costs as well as offer alternative packages to seize the internet services market.
Argentina and Brazil, offering higher populations and technological advances, have caught the interest of investors from developed regions. Demographic studies have given them a more complete picture of typical Latin American users: 65.4% are men and 34% women, 35.5% are between the ages of 15 and 24, and 25% are between 25 to 34. Users also tended to be wealthier and better educated.
Development without purchasing power
Considering that Peru has fewer resources than Brazil, Mexico, Argentina, Colombia, Chile and Venezuela, its EC prospects may not seem very encouraging. While Peru lags economically, some inventive initiatives have helped promote interest in the country. UNCTAD representative for EC, Bruno Lavín, declares that a major obstacle in Peru is the cost. Infrastructure access is limited because only two national ISPs exist. Lavín looks to other countries' experiences for answers. For example, Chile's creation of competition aided in lowering costs to end-users.
Insecurity that Peruvian 'surfers' experience also hinders progress. For many local entrepreneurs, language boundaries in general have impeded EC growth. It is also necessary to educate Peruvian users about electric commerce. The key for EC growth is to use the technology in a way that addresses social dynamics as well. The Peruvian example of 'Public Cabins' gives a positive sign the Internet's future for the country.
Peruvian Example
From the crowded streets of Lima to remote corners of the country, more and more advertisements promote Internet Public Cabins (IPCs). The cabins offer services, including computer rental with Internet connection, international phone calls, courses, advice, web design, etc, at a surprisingly low cost of 2 soles per hour or $.70. The word chat is very common between teenagers regardless of their social standing. One can even find 'Cabins' in Cuzco's main square, en route to the Incan landmark of Macchu Picchu. They are always busy, and not only with tourists.
In fact, there was a 39.3% increase in the total number of Peruvian net users between 1998 and 1999. The half million registered users in Peru and the increase of traffic in minutes of connection show the increase in telephone lines, home-computers, enterprises and IPC. During 1999 there were 198.400 new users registered (36.00 with commuted lines and 162.000 with dedicated lines). In only this, one year period, the number of IPC doubled, from 250 to 580. Besides the 500.000 Peruvian cyber users, only 120 thousand come from fixed residential lines, 380 thousand (more than the double) are considered dedicated lines users, coming from companies, universities, schools, academic institutions and specially IPCs.
In the last 6 months there has been a boom in the Public Cabins, which are becoming, more and more, smaller and simpler (sometimes as little as 4 square meters space without a bathroom). An increase in users has created in a way, a competition for supply and demand not seen in the neighbor countries. This may result from the overall high costs of technology and connection and the low purchasing power of people in the area. A commercial strategy to mass-produce access and usage of Internet by OSIPTEL (Organismo Superior de la Inversion Privada en Telecomunicaciones) recommends that all government related institutions unite their efforts for the public good to develop local Internet use. Their plan includes the installation of Public Cabins in 5000 settlements and a proposal to establish differential fares for access.
