US$300 billion for Latin America’s GDP by expanding mobile connectivity into 5G

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In Latin America, the evolution of 4G into 5G could be a powerful economic growth engine, particularly as this advanced mobile technology is deployed looking into improving productivity in key vertical industrial sectors. If the six largest economies in Latin America were to pursue an expansive mobile strategy, they could ultimately add US$250 billion to their aggregate GDP, according to a new paper The Value of Digital Transformation Through Expansive Mobile in Latin America by Professor Raul Katz and Sebastian Cabello for Telecom Advisory Services.

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The in-depth paper explores how the rollout of extensive mobile coverage in Argentina, Brazil, Chile, Colombia, Mexico and Peru could fuel a digital transformation of their economies, supporting precision agriculture and food processing intelligent manufacturing, smart logistics, telehealth services and other valuable new capabilities.  Extrapolating the impact to the rest of Latin America, the fast throughput and minimal latency delivered by expansive 5G could add about US$293 billion to the continent’s GDP over a 10 year period. This means an annual incremental growth of 29.2 billion which represents uplift of 0.54% on average for the region due to the direct and indirect effects of this expanded and evolved connectivity  (see Graph 1).

Graph 1: Economic impact of Expansive Mobile by country

Graph 1: Economic impact of Expansive Mobile by country

Source: Telecom Advisory Services analysis

Telecom Advisory Services found that the public sector, professional services, manufacturing, and agriculture would see the biggest benefits from the new digital transformation provided by a technology evolution in mobile expanding its coverage beyond urban and suburban areas (see Chart 2). For example, in the agricultural and food processing sectors (representing 15% of Latin American GDP), the use cases facilitated by mobile expansion would generate a 2.5% increase in productivity. In the case of the automotive industry, the increase is even greater at 4% of the sector's gross product.

Chart 2: Economic Impact per Industrial Sector (in millions of US$)

Chart 2: Economic Impact per Industrial Sector (in millions of US$)

(*) Includes all manufacturing sub-sectors except for food processing.
Sources: Global Trade Analysis Project; Telecom Advisory Services analysis

A holistic approach to regulation and public policy

Latin America’s policymakers and regulators will have a major influence on which form of 5G is deployed. They could stimulate innovation by implementing policies that respond to the specific digital transformation needs of each industrial sector. But that would require a revamp of the current institutional framework for the regulation and formulation of new policy in the digital ecosystem. That framework needs to encompass stimulating investment and reducing existing infrastructure deployment barriers, data protection and coordination with sectorial authorities and local governments, conbined as well with the traditional telecoms regulation.

All these key policy levers should be all coordinated under a national digital development plan so as to allow to maximize its impact and reduce the problem of overlapping initiatives between the different layers of government and regulatory entities involved.

Chart 3: Five key policy levers that would affect the new economy value chain

Chart 3: Five key policy levers that would affect the new economy value chain

The new paper calls on Latin American governments to experiment in controlled environments (“regulatory sandboxes[1]”) and test new, more flexible regulatory frameworks that encourage risk investment on innovative sectors through public-private partnership for the development of new services (see Chart 3). In particular, policymakers need to get the right balance between the protection of privacy and cybersecurity while enabling the development of data-driven economies. At the same time, role of leading Latin American cities will be vital to set the standards on new Internet of Things implementations when regulating transport, security, education services. Richest cities across Latin America are becoming smarter, using sensors and improved connectivity to make better.

[1] The sandbox or “regulatory sandbox” is a method based on pilot studies where experimentation with different levels of regulation can be carried out in a controlled environment to test their impact.

Chart 4: Coordination between public policies and agencies is essential

Chart 4: Coordination between public policies and agencies is essential

Source: Telecom Advisory Services analysis

Making sufficient spectrum and site available

The roll out of 5G in Latin America will also be governed in large part by the availability of radio spectrum. The new paper says expansive 5G will need to employ the entire range of frequencies: low bands, such as 600 MHz, are very useful for reaching maximum coverage, mid bands are important for providing capacity, while millimeter wave frequencies will enable low latency and high reliability services. As demand for spectrum rises, Latin American countries will need to explore more flexible allocation methods, such as shared use and the secondary market. This would allow new entrants and niche players focused specifically on some of the industry verticals. To that end, governments should not simply seek to maximize revenue through auctions, but focus on dedicating resources to promoting investment, stimulating innovation and helping on the creation of startups to participate in the local value chains.

A paradigm shift for network densification is needed

The next mobile technologies will leverage high frequencies for low latency services and the use of small cells. Conservative estimates indicate that by 2030, a threefold increase in cell sites will be needed, along with four to five times more radio base stations, according to Telecom Advisory Services. Latin American governments also need to reduce local administrative barriers to infrastructure deployment. When applying to deploy new cell sites, network operators need to be able to deal with a single point of contact, using a process that is both transparent and predictable. While the experiences to stimulate local infrastructure deployment have been mixed due to the local constitutional autonomy over permits and rights of way, further efforts need to be made to reconcile this so as to allow for national digital development a reality and not just the matter of a few municipalities. Governments could also enable networks to make greater use of public buildings, while incentivizing the sharing of infrastructure assets.

Substantial investment required

However, deploying expansive mobile services to achieve this new densification model would require telecoms operators to step up their spending on CAPEX: the paper estimates the investment required to deploy high quality mobile infrastructure, across the six countries would amount from US$ 50.8 billion to US$120 billion for the different scenarios. Modernising existing networks into 4.5G or 5G in the upcoming 8 years, assuming 5G starts being deployed in 2021, operators will need to step up CAPEX between 15 to 20 per cent annually.

Blended finance could fuel investment

To encourage investment in expansive 5G, governments could explore combined or mixed financial structuring (known as blended finance) based on public-private cooperation. This can help mobilize private capital. For example, the “Internet for all” project in Peru has used public-private investment to create a new rural operator that will help expand coverage in that country. It is very likely that only through these new models of partnerships that coverage could really reach the rural and remote areas and to maximize the estimated impacts.

In summary, Latin American governments will play a major role in determining whether the region can attract the substantial investments needed to enable the region to enjoy the economic benefits of expansive 5G. Given the potential GDP boost of US$300 billion, facilitating the deployment of expansive 5G has to be a high priority.

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