This is the first paper from the DIRSI Mobile Opportunities research project. The project is investigating strategies employed by the poor in Latin America and the Caribbean to access and use mobile telephony services, and working to identify the major market and regulatory barriers to increased penetration and usage as well as business opportunities for the "bottom of the pyramid" users. Overall, the project also is working towards a clearer understanding of how mobile telephony access contributes to social and economic development.

This Mobile Opportunities background paper evaluates affordability of telephone services (and of mobile telephony in particular) among the poor in the region and identifies changes in the regulatory framework and business practices of the operators that could expand the current market frontier.

The results confirm that the poor have to pay higher prices to access telephone services in the main Latin American markets. This is reflected in the price differences that exist between the pre-paid system, used by the vast majority of low income users, and the post-paid systems. Although competition has stimulated the reduction of tariffs in the mobile sector, there is still a wide tariff differential with respect to fixed and public telephony. However, the paper shows that the fixed-mobile tariff differential is lower than expected when using the basket methodology as opposed to unit prices. This means that the preference of the poor for mobile telephony is not only due to convenience factors (expenditure control in the pre-paid system), but also to the tariff structure for each of these alternatives. Another interesting result refers to the impact of mobile marketing models on mobile expenses by the poor. Our research shows that change in operators’ business practices, such as per second billing or micro-prepay, would result in a significant cost reduction for low volume users of pre-paid mobile phones. Moreover, our analysis shows that the cost of mobile services has a significant inhibiting effect on the consumption of the poor. The cost of a low volume mobile service basket (that only includes 25 short outgoing calls and 30 SMS per month) represents a very significant percentage (well above 5%) of the income of the poor in six key Latin American markets. In sum, those at the bottom of the income pyramid still find it hard to afford a minimum level of mobile services. This in turn explains the various cost control strategies observed across Latin America, together with the shared use of mobile phones, the widespread use of payphones for outgoing calls and the resale of lower pre-paid credit offered by some operators. A strong inhibiting effect on mobile teledensity and the actual use of services can be expected from actual tariff levels. This raises multiple questions about the future growth trajectory of the mobile telephony market in the Latin American region.