Broadband: at what cost? (Tech Talk).

If I had a nickel for every time that U.S.-based technology vendors and I have had the following conversation, I'd have a lot of pocket change:

Client: ... So, since our product is a natural fit for any market with economical broadband Internet access, I was thinking of Mexico.

Me: Well ...

Client: I understand that both DSL and cable modem Internet access have been available for some time now.

Me: That's right.

Client: So, I figure that our target market can be defined as 30% of all Mexican businesses.

Me: You may have one too many zeros in that percentage.

While businesses of all sizes can sign up for cable and Digital Subscriber Line (DSL) throughout Mexico, they are not flocking to the service, as has been the case in other countries. Today, broadband Internet penetration--accounts per 100 citizens--has yet to reach 0.05% in Mexico.

Until access costs drop and the perceived value of broadband rises, fast Internet access will not expand significantly beyond the elite corporate market. Our firm projects that broadband penetration will grow by a paltry 30% per year, barely reaching 0.1% by 2005.

FEW BITS PER BUCK

Cable modems and DSL technologies are associated with economical Internet access around the world. But the transmission speeds that one receives for each subscription dollar in Mexico are much lower, by as much as an order of magnitude, than what is available in other markets.

The correlation between broadband value and adoption rates is clear. In countries where service providers offer the most "bits per buck," broadband Internet subscriptions have skyrocketed.

Why is broadband in Mexico so expensive? The answer to this question can be summed up in one word, "competition." Dominant telephone and cable companies don't have to contend with competing wireline networks.

TIME IS MONEY. OR IS IT?

Broadband Internet access leads to increased productivity: doing more in less time. While this may sound like a strong selling point for broadband Internet access anywhere, it carries little clout in most of the Mexican market. Business owners and directors in the country seldom consider personal productivity as an overriding factor when considering technology investments.

Traditionally, most production and administrative bottlenecks have been solved by throwing more staff at the problem. Even the smallest Mexican businesses often have a fulltime gopher, whose only responsibility is to deliver paperwork.

Not placing value on staff time reaches even the highest levels in many companies, as managers and directors often think nothing of spending hours yendo al banco (going to the bank), standing in line and fighting traffic to execute transactions in person.

Old habits die hard, and as long as base wages for low level staff in Mexico continue to be depressed, productivity will not be a major concern at work, and broadband's allure will lag.

So if costs are high and productivity is not an issue, what might be an incentive for Mexican business to migrate to broadband? Content.

I often have the opportunity to study what owners and directors of such companies think about the value of broadband. In a nutshell, common responses are:

* "Speed is not an issue for e-mail."

* "Faster web access and Internet chat just mean that employees can waste time more quickly."

* "I am unaware of any business applications we can use over the Net."

The last of these statements drives to the heart of the matter of why broadband won't take off soon in Mexico. Business buyers see little value in the broadband proposition. As long as this is the case, Internet access in Mexico's vast small and medium business market will crawl along at modem speeds of 56 kbs--a snail's pace on the information superhighway.

Bits per buck

Country    B-Band Penetration  Value *

Korea            13.91%          42
Canada            6.22%          33
Sweden            4.52%          31
USA               3.25%          18
Chile             0.23%           7
Argentina         0.09%           4
Brazil            0.04%           6
Mexico            0.03%           5

* Index calculated by dividing upstream and downstream velocities
by monthly service fee.

Source: OECD 2001 and InfoAmericas

Bruce Sinclair ([e-mail]) is the Technology Industries Director for Infoamericas, a multinational research and consulting firm specializing in Latin American markets.