Telecommunication Reforms, Access Regulation, and Internet Adoption in Latin America

Unresolved regulatory issues, particularly those relating to interconnection agreements, hamper progress in Internet adoption in Latin America.Estache, Manacorda, and Valletti review the stylized facts on regulatory reform in telecommunications and its effects on telecommunications development and Internet penetration in Latin America. Relying on data from the International Telecommunication Union, the Information for Development Program (InfoDev), and the World Bank for 1990-99, the authors then test econometrically the determinants of the differences in Internet penetration rates across Latin America.The results show that effective implementation of the reform agenda in telecommunications regulation could accelerate adoption of the Internet in Latin America - even though it is only part of the solution (income levels, income distribution, and access to primary infrastructure are the main determinants of growth in Internet connections and use).Regulation will work by cutting costs. Cost cutting will require that regulators in the region take a much closer look at the design of interconnection rules and at the tradeoffs that emerge from the complex issues involved. It will also require a commitment to developing analytical instruments, such as cost models, to sort out many of the problems. Appropriate cost models will generate benchmarks that are much more consistent with the local issues and with the local cost of capital than international benchmarks will ever be for countries in unstable macroeconomic situations. Cost cutting will require an equally strong commitment to imposing regulatory accounting systems that reduce the information asymmetries that incumbents use to reduce the risks of entry.All these changes will ultimately require a stronger commitment by competition agencies, since in many countries a failure to negotiate interconnection agreements will raise competition issues just as often as it will raise regulatory questions.This paper - a product of the Governance, Regulation, and Finance Division, World Bank Institute - is part of a larger effort in the institute to increase understanding of infrastructure regulation. The authors may be contacted at aestache@worldbank.org, m.manacorda@lse.ac.uk, or t.valletti@ic.ac.uk