Pyramid Research Analysis

Argentina’s Burgeoning Broadband Market

After a three-year slump in Latin America’s broadband market the sector is now growing healthily. This is most evident in Argentina, which ended 2004 with 431,548 broadband users, an increase of over 102% compared to December 2003. Projections for this year have the market increasing by at least another 50 percent, and figures for 1Q05 have already indicated that broadband subscribers were up 93 percent year-on-year from 1Q04. Though this growth rate will not last, government initiatives and cheaper PCs will undoubtedly help sustain the expansion of broadband to many parts of the country that have not yet seen it.

The broadband internet market’s picking up is only partly due to Argentina’s recent economic recovery. A number of other factors are undoubtedly contributing, with declining PCs prices conceivably at the forefront. This has partly been the result of the Economy Minister’s initiative to ensure 10m more PCs throughout the country over the next five years. Roberto Lavagna’s “Programa MiPC” will spend US$4.5b over that time to subsidize the cost of PCs and ensure that Argentines can purchase home computers on a system of credit for as little as US$16.38 per month, in an effort to bring computers to the low and middle-income sectors of the population.
 
The key to the MiPC program is that the package includes free broadband Internet access for a period of six months. Though there is already a proliferation of free ISPs in the country, none of them offer broadband and certainly none of them come with a subsidized computer. Also of note is that retailers are increasingly selling new PCs bundled with broadband Internet access, a practice successfully pioneered by Mexico’s Telmex. Together these two factors are increasing broadband usage in Argentina at great expense to dial-up access.

Barring another economic downturn, the upward trend in the adoption of broadband throughout Argentina will continue in the near term. There is still considerable room for broadband growth countrywide, especially in areas outside Buenos Aires. It should be noted that narrowband is more evenly dispersed throughout the nation, whereas broadband is more heavily concentrated in the largest urban areas. As of YE2004, 81 percent of all residential and 79 percent of all corporate broadband users were located in either the city or province of Buenos Aires. In contrast, only 56 percent of residential dial-up users and 66 percent of dial-up corporate users were located in these regions, suggesting that throughout the country there is significant room for residential and corporate subscribers to migrate from narrowband to broadband.