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2015 11 11 WS 263 Digital economy in LATAM and its sustainable development Workshop Room 4 FINISHED

The following are the outputs of the real-time captioning taken during the Tenth Annual Meeting of the Internet Governance Forum (IGF) in João Pessoa, Brazil, from 10 to 13 November 2015. Although it is largely accurate, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors. It is posted as an aid to understanding the proceedings at the event, but should not be treated as an authoritative record. 



>> JUAN FERNANDEZ: Good afternoon to everyone.  I would ask all the audience to please come here.  We have empty ‑‑ plenty of empty spaces here at the table.  So, please, you can come closer to join this table of discussion.

We are about to start the panel of this workshop of Digital Economy in Latin America and sustainable development.  This is very interesting and exciting panel.  We think that Latin America has two main challenges ahead for the next few years.  One is to have more connectivity.  We need to close the digital divide.  53% of Latin American people still do not use Internet despite other recent advances in connectivity, in lowering the prices, in increasing quality of connections, we still have to close digital divide that will require, according to some estimations, 400,000 million dollars towards 2020.  That is a pretty high effort.

The second challenge that has the region is to have more Digital Economy.  We should be able in Latin America to build an economy on innovation and on productive efficiency.  Latin America is currently at the bottom of ranking of production local content.  On average, only 26 of the Tom 100 Internet sites are from the region.

Nearly 63% of the Internet traffic is International, outside of the region, mainly towards the United States.  Latin America is as a result transferring wealth towards the more Developed Countries.  So, about these two big challenges that we have more connect activity and more Digital Economy, is what we are going to talk about and we have an excellent panel with excellent panelists that I'm going to present right now. 

We have Raul at my left, Director of Business and Corporate Strategy in the Columbia Institute of Teleinformation and is Professor in Economics and Finance Division of the Columbia Business School.  He is President of Telecom Advisory Services, a company specializing in Strategy, Regulation and Development of Business in Digital Industry and Telecommunications.  He has a Master and a Ph.D. from MIT and Degree Studies from the University of Paris. 

We also have Miriam Wimmer joined the Brazilian Ministry as the Director of the Communications and Universal Services.  Previously she worked as a Legal Specialist at Intel.  She concluded Law School in 2004 and went on to earn a Master's degree in Public Law and Ph.D. in Communications and Cultural Policy.  She has several accounting publications and is a Researcher in the Communications Law Study Group of the University of Brazil. 

We also have Philip Mora, Philip works for GSMA as a Regulatory Policy Manager for Latin America.  Before joining GSMA, he worked in consulting on think tanks in several countries.  Philip has a Master's Degree in International Relations and Public Policy from the University of California and has conducted extensive research on policymaking for Strategy Technologies. 

We also have Alejandro, Economist from Monterey Institute of Technology and Higher Education.  He has a Master's in Economics and Regulation of Public Services from the University of Barcelona currently working at the Economic Commission for Latin America and the Caribbean at Innovation and New Technologies Unit. 

We also have Michael Kende, Michael is the Chief Economist of the Internet Society before he was a Partner at Mason as Head of the Policy Regulatory Sector, Head of the U.S. Office and in charge of Developing Internet Practice.  He worked with the operators and regulators in regions of the world including Latin America.  He has a Ph.D. in Economics from MIT and degree in Mathematics and Economics.  He also worked as a System Analyst in the IT Department for Procter & Gamble and spent five years as Professor of Economics at INSEAD before joining the FCC before he was Director of Internet Policy Analyst. 

Then we have Elaine Chow working across the emerging Asia‑Pacific on Policy Regulation.  She does research.  She does consulting work and engaged in public disclosure on issues related to Net Neutrality, Policy and Regulatory Barriers on Internet Access, e‑Government, Equality and others.  Has been working in Myanmar since 2013 and is currently carrying out impact analysis on the mobile phone rollout that is taking place.  Prior to her current job, she worked in Sri Lanka, implemented e‑Government projects and has a Master's in Technology and Policy from MIT, and a degree in Computer Science.                          

So, we will start with some questions to each of the panelists that will have between 8‑10 minutes.  Please be strict with the time to answer some questions that we are going to tell them.  So, we are going to start in the same order.  First with Raul.  Raul, you have recently published study book called "The Consistent and Digital Economy in Latin America."  In that study, you characterized the value chain of the digital ecosystem from Telecommunications Network IT services and other actors.  I would like to ask you first to explain that value chain and to describe the recent transformations and relationships within the digital ecosystem.  And a second question is, in the same study, there are clearly describe some imbalances that exist in Latin America Digital Economy among the different actors in incomes, in investments, in jobs created, in tax revenues generated by them in the local market. 

So, the question here is, what measures do you think should be divisive to try to balance this situation?  So, Raul, we are listening to you.

>> RAUL KATZ:  Thank you very much.  Can you hear me?  Okay.  In the United States, this type of questions in a court of law would be, he is leading the witness.


The issue is that it was a longer study.  It took eight months and the scope was clearly larger than the questions that were addressed.  And although, it had to start somewhere, which was defining what the value chain was all about.  What the ecosystem.  When we started the study, we have the title which was ecosystem on the Digital Economy.  And while clearly, the European Commission has been doing work on the Digital Economy, so did they in the past, the notion of ecosystem is a word that has been thrown around quite a bit but, there wasn't a clear definition as to what we meant.

We opted to take a productive chain view out of Stigler's original article from 1972 that says that essentially in order to deliver value, in this case digital value, there had to be a combination of players, players or companies or firms, each of them contributed with a certain set of inputs and the combination of all those inputs led to the actual generation of economic value in the form of digital products and services.

So, that value chain or productive chain following Stigler, went through the development of local content, or role content, led by the Televisas and the Globals of the world, to players that developed applications, both in terms of general use like electronic commerce or communications like WhatsApp and Skype, to a particular role we considered to be very important, which was the aggregator role.  So these would be the points of entry to the world of content and applications in sort of like exemplified by a Google and a FACEBOOK and the like, and then at a latter stage of the value chain, the infrastructural players.  From the equipment to the connectivity, being the TeleCos that provided transport and the manufacturers of equipment.  So we started with that framework and we started saying, where is value being generated in this chain?

The first question to be tackled is that value is not necessarily the owners of a particular stage.  It is the integrated chain that is delivering economic value in terms of this creation of digital economic value, so to speak.  And it is a combination of all those players.  So that is the first thing.

Now having said that, we started teasing out.  And we took an approach that says, what are the direct and indirect affects, classical approach in looking at input and output analysis.  Saying, what are the kinds of jobs or revenues generated by each of these players in the chain?  What are the margins existing by players recognizing that it is very difficult to find a pure player, meaning just a firm that occupies a particular stage of the value chain.  But, to some degree, we had somewhat of a pure play.  And then, whether there was a physical contribution, tax contribution.  And we tried to understand that even without we recognized that value was generated by a combination of players, whether there were imbalances that is occurred within the chain.

That created a point of contention.  Let's be frank and upfront.  And the point of contention was that from a direct standpoint ‑‑ our focus is Latin America.  From a direct affect standpoint, The Centre of Gravity of a Economic Affects was located in either the transport players or equipment players from an indirect standpoint issues the primary affects were located in what we call the aggregators and the digital platform players.

There is nothing bad about it.  That is the nature of the beast.  And the issue is whether this could, over the long term, affect the development of the industry.  In particular, whether this could affect the development of the Digital Economy within Latin America?  That was our concern.  Our driver was less so understanding, the imbalances and more so, how do we manage to create a vibrant digital sector within the region?

And so, we sort of concluded that while those imbalances occur, we had to be very prudent with regards to the regulatory and/or fiscal initiatives; prudent because we were dealing with an initial stage of development of the industry.  And clearly if I take that middle layer, those aggregators, the FACEBOOKs and the Googles, while maybe they weren't creating a lot of direct economic value for the region, they were the point of entry for the Internet.  For like all the users.  Essentially, when you look at Latin America, for instance, 78% of Internet users are FACEBOOK users.  It's the gateway with which the users access the Internet.  And that was confirmed by the presentation in the main room sometime ago where it said after some of the initiatives that FACEBOOK had deployed in terms of Zero-Rating, the users of the Internet started climbing.

So, net‑net, we came up with a notion that we wanted to be prudent because we didn't want to affect this in such a way where we were going to shift the contribution that each of the players was generating, maybe reestablish some balances but ultimately our objective, our primary objective was, can we go to the front end of the value chain so that when it goes from content generation to aggregation, and say can we create a Latin‑American sector?  How do we do to develop that Latin‑American sector?  And that was the point where we started developing the prescriptive side of the study.  First, the analytical one as to where are we today in Latin America relative to that?  And what do we have to do about it?

>> JUAN FERNANDEZ: Thank you, Raul.  Now, we go with Miriam.  Increasingly some over the top services are becoming substitutes for traditional Telecom services.  Despite that, regulatory and physical symmetries still persist within the digital ecosystem.  As an example, some Telecom operators face in the region an effective taxational rate that is around 33% while in the case of over the top is between 11‑12%.  These distortions can have impact on the development of the digital ecosystem.

What is your opinion about the debate regarding level playing field that has been around for some time?  Right now it is the regulatory balance that you think should be desirable?  That is the first question.  And the second question is, as we said before, 63% of the regional traffic is International, mainly to the U.S.

This means world transfer from Latin America towards the Developed Countries.  So, from a public policy perspective, what we can do to promote local digital development?  What should be the role of the government?  Do you think regional harmonization can help to promote this digital development?  And which can be the role of Brazil as a big market in the region?

>> MIRIAM WIMMER:  Thank you very much, Juan.  Good afternoon to all of you and to the audience.  I ask you to please take care of my 10 minutes because this is a very long question and I can speak about this for a very long time.  I'll try to be short.  You mentioned at the beginning that there is ongoing debate in many parties of the world concerning perceived uneven playing field between over the top players and traditional Telecom operators.  In fact, I think nobody disputes there are different rules for these players.  So in Brazil, for instance, if you are Telecom operator, you need to have a license from the regulator.  You pay fees for this.  Then you usually have quality of service regulations.  In Brazil these are quite high.  You have, if you are public service concession, you have universal service calls true for most players in Brazil.  If you're mobile, you have to buy spectrum and then usually coverage targets and obligations and there is a taxation issue which you mentioned which is also true in Brazil.

And because of these symmetries, these perceived differences, Telecom operators argued that their revenues are decreasing and we should therefore adjust the rules to provide an even playing field between these players.  While I do agree that there is an asymmetry, there are different rules, I think saying simply even the playing showed a simplistic manner of putting the argument.  The issue isn't discussing eliminating asymmetries but understanding why I that exist and in which cases they are justifiable in which cases they make sense and in which cases they do not.  And when discussing this there are some issues we have to keep in mind.  The first is innovation.

It is I think, common sense that if we impose a very heavy regulatory burden on startups that operate over the top, this would have a very bad affect for innovation and for competition.  So, this is one point to keep in mind when you discuss balance.

Another point is consumer issues.  And there the point is, is the consumer confused between the nature of these services?

Are they equivalent to or not equivalent?  If they are, then we should really discuss obligations such as for example, making calls to emergency services.  In Brazil this is 190.  In USA, 911.  In the case of video streaming, other obligations should be discussed such as local content obligations and we have rules in Brazil.

The third issue is competition.  The question to be answered and this has to be case‑by‑case is, is this player effectively competing in the same relevant market?  Are they effectively competitors or are their natures different?  In some cases there appears to be clear competition.  Example long distance International calls.  In Brazil this was recognized by the regulatory agencies a few years ago.  They eliminated regulation on the way these calls should be charged because they recognized that there was indeed a large loss of revenue in competition with Skype and other Voice‑Over IP services.  But this is not always the answer. 

So I do believe case‑by‑case approach is best and in Brazil this is a tricky legal question because we have a concept here called value‑added services.  I don't know if this is the same in other countries.  But if a over the top service is considered a value‑added service, this means that the regulator has no business going there.  It is immune to regulatory jurisdiction.  This is another tricky issue.

The answer is not always raising regulation for over the tops but sometimes lowering it for Telecom operators.

This is not always feasible.  It depends on the nature of the service, concrete circumstances of the country.  And there I have given you a very large answer with no concrete response because I do think it is a case‑by‑case issue.  Now, concerning the imbalance on Internet traffic.  When you look at the numbers we see that there is a large trend of going to fetch content in the USA and other Developed Countries instead of having it locally.  This is due to two factors, at least two.  One is the way the Internet created and the way the Internet was built.  So, most of the contents that we in Brazil wish to access are hosted a broad.  And this is not because Brazil is inefficient or American companies are best.  It is just simply the way the Internet developed in our country.

And the second is issue that many Developing Countries and Brazil is one of these, still face many channels in interconnectivity in connection, both regionally and Internationally.  So, how should we address this?  One approach is dealing with the content aspect of this.  And there we have necessarily policies in place to stimulate the development of local content.  I think this was discussed very much this morning.  Mr. Castle spoke about this morning.  And the idea is that countries have to have a regulatory framework that stimulates development of local content, iincentives; and it also construction of local bank centers, complementary networks.  The whole ecosystem which means we don't have to spend so much money to fetch content abroad.

The second issue is connectivity.  And in this aspect, Brazil is currently working in several initiatives.  One of them is the construction of submarine cables.  We have a project to Europe and one to Africa and the idea is we don't have to go so far to fetch content in the northern hemisphere and the second is regional connectivity.  It doesn't make sense to fetch content in a neighbor country.  We have to take a crazy route to the USA and come back.  The second point would be policies to improve connectivity between neighboring countries and in Latin America we are working on this with the idea of Optical Ring to unite our countries and facilitate connectivity.  I hope that answers your questions.

>> JUAN FERNANDEZ: Thank you.  Now we turn to Philip.  Philip, connectivity has grown in the region but the development of local contents or local Apps has not grown at the same pace.  What do you think we should do to be able to promote a more intensive, local, digital industry and what impact can have on the development of the digital ecosystem, the recent transformations within the different actors and in the system we talked about before?  A second question is, broadband deployment in Latin America relies heavily on mobile networks.  Which are the conditions required to create a framework suitable for investments according to yourself and in this context of transformations we are talking?

>> PHILIP MORA:  First, actually before answering, let me refer to the concept of the inputs that the Professor mentioned.  And I'm mentioning this because in our view, we understand that the digital ecosystem is formed as a modular number of modular platforms composed of four hardware, connectivity, applications and content.  So anything in the digital ecosystem a combination of some variation of these four inputs if you will.

So this is one side, the side of the supply and on the side of demand, we see four barriers to the growth of the digital ecosystem.  Affordability and taxation is one of them.  Network infrastructure and policy is another.  Digital literacy and skills is a third one and finally, local content.  And so that is what I'm going to be focusing on this first question as you suggested.

We understand that in the Developing World, and that of course includes Latin America, that translations, although rising is still very low compared to the Developed World.  And a lot of the applications that we have not only are in English but they seem to be in most cases very data heavy applications that require smartphones.  We have seen in some places like Africa, for example, the rise of local content and applications that utilize future phones as a base, including for simulating applications such as FACEBOOK and e‑mails.

But the risk that we see and the low penetration of smartphones and the lack of local content as of now for Latin America or the developing world in general, is we could have even if the operators in vast in networks and increase CapEx and even if the price of handsets goes down, we could have the next booming with access to Internet but an Internet that is noted so relevant to them.  In this case, I wanted to highlight the role of governments in creating an enabling environment for the whole ecosystem, no the just applications and content.

In that, I wanted to highlight three aspects.  First one is from the business side, the aspect of freedom of business models.  As I said, the modular aspect of a digital ecosystem means you have a different combination of the four inputs I mentioned.  But even large players like Apple and Google, they cannot be the providers of the four inputs at all times for everyone.  So even they see themselves in a situation where they have to partner sometimes, compete but also partner with other players of the ecosystem.  And the reason I'm bringing that up is because we usually see the issue of OTTs and operators mobile operators, as just a competition issue but there is also partnership issue that more or less relevant depending on context in the country.

So that is the first thing.

The second thing is about the redesign of regulation from the side of the government for a new type of framework that focuses on functionality rather than types of technology and prescriptive sorts of regulations.  So as an example, if the certain goal is to ‑‑ the goal of the government is to deploy rural broadband, you can do so either by releasing more spectrum, which would benefit the mobile operators or give fiscal incentives to deploy fiber which would promote or fix the operators but not the mobile wonder.  But if you goal is to increase rural broadband, do it either way.  So perhaps incentive program for whichever side of the business that you want to invest in rural broadband would be an example of how you can focus on functionality rather than prescriptive type of regulation.

And finally, the third aspect which real relates to the government, the need for dynamic and flexible regulation, which needs to be able to overcome legacy regulation, which is something that operators and pretty much most of the ecosystem faces nowadays.  And by legacy, I mean exactly what Miriam was mentioning a few minutes ago, requirements of coverage, universalization and taxation and privacy protection and interoperability.  Those are not things we say we should not, that the operator should not be doing but they are the only ones doing it.  And the regulatory asymmetry is a big issue because it seems that the need and the difficult tow overcome the legacy systems may seem insurmountable at times but it's a necessary step to the growth of the digital ecosystem.

And so, with these three issues, we believe that the government could facilitate the creation of a new enabling environment to foster investment and foster innovation and I don't know how my time is.  So I think I'm going to keep my comments short.  Thank you.

>> JUAN FERNANDEZ: Thank you, Philip.  Alejandro, the Mexico declaration in the Fifth Minister Conference on Information Society of Latin America and Caribbean in August of this year, established the importance of recognizing this trend of the development of the Digital Economy and Ecosystem in Latin America favoring the creation of contents and application, the generation of enter prize and provision of services and digital goods from national and regional region and studied the convenience and affectability of advanced to create a digital single market in the region. 

So from the Economic Commission, what do you think that are the main policy recommendations to achieve the Digital Economy and digital development in Latin America?  And a second question related to this one, what differences or different factors you address has a different response in Latin America in cooperation with other regions about access of development or the Digital Economy?

>> ALEJANDRO ENCINAS RODRIGUEZ:  Thank you, Juan, and thank you everyone for the invitation.  First I want to say that I want to highlight obviously the digital technologies in the region in the last decade has been incredible.  Between 2003 and 2014, we have seen that Internet users have doubled.  We should now reaching up to 50% rate of Internet penetration.  We have 700 mobile connections in the region.  And many of the countries in the region are heavy users of global and social networks.

So, as I mentioned, the development of the digital technologies in the region has been incredible.  Nevertheless, there are the various speeds in regarding this development, and various differences between countries.

There are countries that are advancing a very high level of development.  And there are those that are leaving behind.  We can see that for example, in Internet penetration rates, it will compare the leading country with the last one.  You could have like up to 50 percent points of difference.  So, there are huge differences between countries in the region and obviously within the countries.  So, obviously yes, access and connectivity is still a main issue for the region and has to be addressed by policymakers.

Another issue that we have been seeing that is coming more often in the discussions is obviously trust and security.  Privacy, security and protections are becoming fundamental for both.  And other big thing is improving the necessary skills to make so people can engage in the Digital Economy.  And regarding the second question, the third thing, that is how the digital technologies are being adopted in the economy in general.

From studies, we know that the economic impact of digital technologies obviously you have a greater impact in more developed economies than in least developed economies.  But that is not only a lower impact.  That also affects differently, meaning that for example, private consumption is the larger contribution of Internet towards GDP.  This share is even higher in Developed Countries.  While in more advanced, for example, the contribution of Internet towards GDP is bigger in terms of permanent investment, public expenditure and trade.

So, it is not only about access and use of ICTs in both individuals and ‑‑ but it is also about how these technologies are going to be or are going to be adopted into other production and organizational processes.  In our reading, this is particularly important because it needs to be addressed in a strong policy and innovation systems that was mentioned before, improving RID and improving high‑tech exports and have a more leading policy towards the Digital Economy as a whole.

>> JUAN FERNANDEZ: Thank you.  Michael.  From your experience in other emerging regions, which good practices you can recommend to Latin America to be able to benefit as soon as possible, the benefits of the Digital Economy?  And the second question is, this policies should be considered according to yourself in order to promote framework suitable for investments in Latin America?

>> MICHAEL KENDE:  Thank you and a lot of what I would say on these topics has already been said so I'll try not to repeat it and excuse me if I do.  More trying to amplify what was said in this context of these questions.

So in terms of what I have been doing more work in Africa so that's the region I would refer to a bit more although I have data from Brazil.  So we are starting to think that because of mobile in the availability of mobile broadband, in many countries the availability far outpaces adoption.  There is much more broadband or mobile Internet available than has been adopted.  And it really suggests to start looking much more at the demand side.  Why aren't people taking it up?  And I'll just use some numbers from Brazil as an example and these are fairly typical for Developing Countries.  So Brazil 90% of the population according to recent numbers could have 3G.  They are living within range of a 3G network but only 50% in total of Brazilians are using the Internet.  I don't know if that is using 3G or other means.  The question you have to ask is what is stopping the rest if it's available?  It's not that expensive in Brazil.  According to recent numbers it is about 3% of average income.  The Broadband Commission of the ITU says under 5% of average income is probably pretty good and a target.  So it's not affordability for everybody that is stopping them.  And there is an answer for this. 

Brazil does these fantastic surveys every year about Internet usage.  And a key thing is that they interview non‑users.  Why aren't you online?  They do it across all sorts of demographics so you can see great detail back to 2006 as to why people aren't going online.

So when they did this survey, the most recently, 2013, and people are allowed to answer more than one question, 70% said they weren't online because of a lack of skills.  70% say it's not relevant to their lives.  They are just not interested.  And only 25% say it is availability and 25% say it is cost, which is correct given that it is available and it's relatively that expensive.

So the key is, getting people interested; looking at the demand side.  Getting people the skills they need to get online, and making it more relevant to their lives.  And of course there is some questions of content or of language; having enough content out there in the right language.  And then the local content hosting issue is quite critical actually.  And it's not just the cost of having to go to Miami and get all the content, it's also that there is significant latency from most regions who have done a study in Africa, that showed that getting content from overseas adds a significant amount of latency.  It's very slow to download.  People don't use the Internet when that is the case.  Or they'll just move on. 

So putting it local and we saw this with one of the content delivery networks put a cache of content local in Rwanda while doing a study and shared the data with us.  Within two months, because it got much, much faster, usage doubled.  Just in two months, just because nothing changed except the content was home and it loaded faster and people responded by using more of it.  So that will make it more relevant because especially for the local content that is hosted abroad bringing it back home will make it quicker and more people will use it.

And then the other way to get more local content is of course government can be an anchor tenant, create more content, but also promoting entrepreneurship which is hard but getting people to create content, they'll typically, a lot of times, make it for local uses and that will also increase the amount of local content available.  And make it more relevant for people, bring more people online.

So that is how I'd answer the first question.  Just what we have been doing on studies in Africa, and ting is largely applicable here, is to start looking more at the demand side, getting the content that makes it relevant, that brings the people online who could afford it and who have it available, and start promoting more entrepreneurship so people start creating content that will bring their neighbors and friends and others online. 

In terms of the second question, policies to promote a framework suitable for investment, I think the discussion really of the digital single market is what I would have talked about.  The Internet is intrinsically borderless but not really when every country has different regulations and I'll just talk about three levels that make it much less broader than intrinsically is.  One is getting across borders both International but also across borders between countries and I heard about this ring that is being developed in Latin America and that will certainly help.  But private investors can't be guaranteed that getting a license on one side of a border means they can get it on the other side and get through countries and then they have to start negotiating and then the government is starting to negotiate.

So, cross‑border connect activity is clearly just at the connectivity level and then there is barriers on data flows, of course.  In two directions, the data localization law is trying to keep traffic in the country and content regulations are trying to keep content out of the country.  It will also create barriers and sometimes they are not very easy to understand so even if you're willing to work with the restrictions country‑by‑country, you don't know how they are going to be implemented.

So that is always an issue.  And then the final one just to spend an extra minute on is one that is a bit more subtle but it has to do with payment flows and it has to do with some of the challenges of entrepreneurs.  So I have been doing this study on Apps but this is true for a lot of payment flows.  Apps are a great outlet for entrepreneurs; a frictionless market.  Create an App and put online through an App store and in theory everyone should be able to get ahold of it.  But in fact, because of some restrictions, that's not always true in most countries. 

If you look in Africa, using Google Play, the Android App store, only in Nigeria can someone in Nigeria register to create paid Apps and sell their Apps.  In every other country in sub‑Saharan Africa, that is not allowed.  It's roughly true, if you look at Google Play, in Latin America as well.  That's partly commercial decisions but a lot is the financial flows are so hard to figure out country‑by‑country that you just can't bring the money back in the people sold the Apps for.  That's a real restriction and it's hard to have a regional strategy as an App store.  It's hard to have a regional strategy as a content developer or an App provider because you just face these restrictions and end up having to try and work around them.

So, I'd leave it at that.  I think the challenges in both of the questions that I was answering, as you move from connectivity and infrastructure up the chain to things like financial flows, you have to get more and more of the government and more and more of the private sector involved.  You can't just insert infrastructure as one minister and a couple of companies for TeleCom infrastructure.  But you got the banks, you got the App stores, you got Paypal.  A lot of more players involved.  A lot more ministries and so it gets harder but it really has to be done to get this Digital Economy going as we have been discussing.  Thank you.

>> JUAN FERNANDEZ: Thank you, Michael.  Now, we turn to Helani to topics from the Civil Society.  How does Civil Society contribute to the development over the digital industry especially in emerging regions.  That's first question we want to address with you.  And the second one is, a key factor for development of local contents is creating local demand.  Which competing direction among different Civil Society groups and which could be its role in promoting the demand of local contents?

>> HELANI GALPAYA:  So the questions are quite related so I'll try to answer both of these and I will therefore focus on the development of Apps which is partly about local content, but also about real participation in the Digital Economy by becoming producers of digital things that we consume.

In terms of ‑‑ and I want to start out by saying that Civil Society never does anything alone.  In fact they are a small part of a multistakeholder ecosystem.  So one of the obvious things Civil Society can do is to draw attention to groups of users who would otherwise be unserved.  And make producers of content aware of existing market.  So in Sri Lanka, when the big Sri Lanka program was funded by the World Bank, they had an e‑Society Development Fund where they would give out money for the creation of Apps. 

The only groups that we are talking about disabled people are Civil Society organizations who were applying for grants and then working with the techies, to have speech to text and vice versa applications that were successfully deployed.  The Civil Society didn't have the technical capabilities but they knew their markers really well.  They knew what the people who are differently‑abled needed. 

So shedding light on a new market is one of the things that is society.  I think it is quite successful; because they know other markets.  The other thing they can do in certain situations is become a part of extending a business model.  So, for example, in India, in the payment of pension payments and ‑‑ guarantee schemes, bee rest with leakages, government officials taking money.  The money not reaching very rural poor people because the money is handed out as cash on a weekly basis and banks can easily get into this game but the know your customer requirements, KYC requirements are so onerous it's not worth it going into a tiny village and trying to open a branch or send somebody there to open up these little bank accounts that people need in order to leave out the government official. 

So, what Civil Society multiple organizations, one for example, called Zero Mass Foundation when they came into the picture and using a mobile phone, very feature phone but it has a printed that goes with it, and this is at scale.  This is over 1.5 million people receiving payments this way.  They said we will take over the Know Your Customer, KYC requirements, part of the banking law.  And we will use this mobile App.  We will have a bank account and we will build ourselves into the business model to address essentially a market failure.  So that is the second thing.  Where private sector doesn't go they can help to ease the friction in the market.

The other thing obviously is Civil Society like in Myanmar is literally a platform and by a platform, I mean like techies need a place to come.  They need a place where they can learn technology, where they can exchange ideas.  They need physical space.  They need good connectivity.  These are all things we don't take for granted in emerging economies. 

So in Myanmar, one of the success stories is Pandia, an organization that is actually donor‑funded and trying to commercialize things literally.  They provide the top floor of a big building where people come in and just hang out and they, I think they get free coffee.  That is pretty much it.  And they sit and do Apps.  Apps don't just come about.  What Pandia does gets the government census data and runs a census hack because Myanmar really had no data about its population.  So this is really local content.  People didn't know how many of each ethnicity existed.  So the moment the census was done, they did a hack. 

So instead of needing a computer, you could access really important information on your mobile phone.  So they customized it for the mobile phone.  They put the voting records off all parliamentarians which existed through a new App, on mobile phones.  So again this is really, really local content for a country that was starved of democracy.

That required funding.  They also required data from the government.  So access to data is a big part of doing local content.  So, not just Civil Society.

The last example is in Sri Lanka which is not just Civil Society but the big, big TeleCos have a huge troll play in this.  Not only are they a big part of the existing Digital Economy but in promoting Apps.  The second largest operator partly as a competitive strategy, but partly as corporate social responsibility, started running trainings open to anybody called, how to build an Android App.  Suddenly it was standing room only, thousands of people knocking on the door to get in. 

This really created a group of people who are now creating Apps.  There are local and international reports but it is not just the training.  They also then gave a run time real‑life platform which these people could test the App in to see what it would look like in network.  They asked for 40% of revenue share if they wanted to get on this particular operator's network but they were free to go market it elsewhere as well. 

So, different parts of this puzzle really need to come together if we want local content.  It has to do with connect activity and physical space people can come and work.  It had to do with funds and incubation and training.  It has to do with maybe Civil Society coming in to talk about a particular market or enable a particular business model.  The thing that hasn't happened in a lot of the countries is what Michael already referred to in Asia, just like in Africa, is payments.

A lot of these people can't make money out of this because you can't get Paypal.  Many countries are too small for Paypal to pay attention because again, banking regulation, Know Your Customer requirements are so onerous it's not worth it to move to a country like Sri Lanka.  All the banking regulation activity prohibits it or prohibited it.  Like in India, until very recently now they allowed it under very, very narrow rules.  So I see it as an ecosystem Civil Society a part of.

>> JUAN FERNANDEZ: Many well thanks Helani.  And we have some very interesting comments from each of you from different perspectives.  We are pretty okay with the time.  So before turning to the questions, I would like to each of you can have some comments, some reactions, to what the other colleagues said.  Just two minutes each of you.  We can thwart Raul.

>> RAUL KATZ:  I have been taking notes about some of the comments.  And this is my reaction to it, the issue of taxation.  Miriam said it's case‑by‑case.  She recognizes a problem.  I say we can do a case‑by‑case but we have to state a general principle.  And the fact is I wrote it in a report they wrote for the ITU recently.  If you tax the Telecom operators, two things can happen.  Either it is a pass through to the consumer so the consumer bears the burden of a tax.  Or the operator restricts the capital investment because that tax is impacting the overall pre‑tax level of investment that is going to infrastructure. 

In both cases it is a loss because you either lose infrastructure or the consumers are affected because they are paying more money.  All the analysis, well, not many analysis, but those that have been done, we have done for GSM and indicate that if you drop the taxes, what you forego on the revenues collected to the treasury on year one, are far more recovered on year 3 and 4 in terms of the economic affects that the adoption of the new technology has. 

So the equation is like, it is an obvious game.  Now obviously, then you have to convince the Ministry of Finance that holds the purse to actually do that.  But nevertheless, from a economic standpoint, that would be the general principle.  So I would agree with Miriam in the sense that the issue here is not increasing the taxes to the OTTs, but actually lowering the taxation on the providers of equipment and the service providers.

Easy said but nevertheless, I think that is a general principle.

Secondly, on the issue of the drum bopping affect, the traffic that go up north on the Internet and come down.  Actually, Brazil is not one that is so much affected for two reasons.  One, because they built an infrastructure of ISPs, interconnections points, in the territory there close to like 25, and also they have the linguistic barrier which enables a lot of Internet content stays within the country because it is written in Portuguese; but having said that, that is an issue. 

Now, I think that it is somewhat of a nonissue in the sense that everyone agrees with the notion of bringing content hosting down to Latin America.  We are in the process of setting up an ISP in Central America.  First thing, it's a co-lo.  So first thing we do is call Akamai and Netflix and say, guys, we are setting up a data centre here doing interconnection and co‑location.  Give me a week and I'll put the equipment there.  No one wants to bear the traffic cost, the transit cost.  

So, I think that there is an agreement.  Google set up their Big Data Center in Chile.  I think that that one is just a matter of naturally efficiency but it's not that we are fighting against something.  It's just a matter of getting the thing done.  And Michael has done the work.  He is working in Kenya and Nigeria so he knows about this quite well, the issue of affordability. 

I think that the problem with affordability is the bottom of the pyramid.  It is not the on average income.  If you look at bottom of the period mid, you have a problem in Latin America because the average income on the bottom of the pyramid is 300 dollars a month.  It could go to 90 a month.  So here you have an issue of affordability we need to crack in some way shape or form.  Through subsidies, government help.  The operators have been dropping prices like a ton of lead but something else has to pitch in, in order to solve these issues because I think there is a barrier.

As a side point which is fascinating, even though when you do the economic analysis of a first household, you cannot fathom the fact that they can have technology.  The national household surveys say that they do.  So how could it possibly?  It seems as if technology is taking the higher level in the hierarchy of needs of people in the region.  So even though you can say there is no way on earth they can afford a phone, they actually buying it.  So, that is something that sociologists need to think about because it is a challenge to the theory. 

The third point ‑‑ sorry. For Infrastructure incentives for deployment that was raised.  I fully agree.  I think that there is the research I'm doing right now is on a license spectrum, particularly for rural areas.  I think that it has been mentioned, licensed spectrum has been a source of like a lot of innovation and we have been able to crack a lot of issues on the divide.  Even in the United States through wisps relying on a license spectrum.  The research that we are doing right now is to what extent we could actually extend the model to Latin America or other emerging markets and combine it with a franchising structure where the operators give a franchise and many TeleCos own the infrastructure at the community level. 

They don't pay spectrum license fees because that is a free entry.  New Zealand has been doing away with spectrum parts.  I think there is something to be explored there that is worth thinking about.

I finally, I don't want to take the whole time.  I agree on Civil Society but take it a bit further.  The best examples we have of innovation in the Digital Economy in the region are local.  And even if you reap the evaluation to the core, the entity in Chile that has been Sponsoring start up Chile, one of the self criticisms they do, we have been focused on Santiago.  Everything is Santiago.  We have to decentralize.  We have to go to the communities.  The best experiences are in Columbia.  There has been a source of innovation at the local level where the government, the municipal government is participating as well as the local community.  So I would agree with you on that.

>> JUAN FERNANDEZ: Thank you, Raul.  Miriam, your comments.

>> MIRIAM WIMMER:  I just like to begin by clarifying that when I was referring to case‑by‑case analysis on OTTs and TeleCos, I was referring specifically to regulation, regulatory issues.  Because taxation of course nobody could defend raising tax.  The Ministry of Communications has over the past four years worked closely to reduce taxes in Brazil.  This is still an issue here but we have managed to provide several tax breaks associated to obligations of infrastructure, construction and so on.

One interesting tax break I'd like to mention referring also to what Helani said, is an obligation that if you have a tax incentive for Smartphones as long as along with a smartphone you have a certain number of local content applications.  So I think that say pretty interesting way of making it work.  You provide incentive that is good for the industry and good for the local content development.

I was also most interested in what miracle spoke about digital single market and when if comes to his time to speak, I'd love to hear what is still missing in Latin‑American region for this to become reality.  We have languages that are interoperable but we still have a legal framework that are quite different and a certain difficulty of coordination in the region.  I think this is an issue that most countries face so we have an Internet which is cross borders, transnational, but we have national jurisdictions with very different rules, both are regulatory aspects and also taxation across data process, and for me, this is a real challenge something we really ought to pursue here in Latin America but there doesn't seem to be a very easy path with this to happen.

>> JUAN FERNANDEZ: Thank you.  Philip, some quick reaction.

>> PHILIP MORA:  Thank you.  First I wanted to start by saying that I fully agree with the first comment.  And the rest of my comment is going to be directed towards Miriam.  I realize you might not have a chance to reply.  So, the problem that you mentioned is not just an aspect of taxation and it's not just a problem of revenue as today's problem.  It's a argument of fair competition.  As I mentioned before, the regulation should be based on functionality.  And then you can say well, but we have to assess the perception of whether the services are equivalent or not.  And then I'd be happy to say that in late last year, we conducted a survey with 8000 mobile users from over 10 countries, I think, throughout the world, to understand their perception regarding service equivalence and I'm just going to quote some of our numbers.  69% claim that messaging Apps can replace SMS in almost all circumstances and this number is almost 50% for voice services. 

So I would say that from the consumer's perspective, they are understanding that yes, they are equivalent services.  And so, there is a change in consumer behavior that we are seeing.  But, we do defend that there is an environment that can benefit the Digital Economy if we increase competition.  We increase transparency.  We level the playing field.  We offer the same rules for the same service.  We are able to build ecosystem that is based on trust and confidence, which of course en comp passes a number of issues.  But that is what I wanted to end.  Thank you.

>> JUAN FERNANDEZ: Thank you, Philip.  Alejandro you have some reaction to these statements.

>> ALEJANDRO ENCINAS RODRIGUEZ:  Nothing really specific but just to say that as long as we are going to see more integrated value change in the digital ecosystem, there is going to be some interest in having more or having less restrictions towards mobility in this value change.  And the governments and world leaders need to pay attention this and try to have a modern approach towards this integration.  And I also obviously international cooperation is another major issue.  Hopefully at some point we can have a regional strategy here in the region to have one single market.  We have a various restrictions obviously because we don't have to do to this data, really unifying market at all.  Or a super national institution that can improve this single market.

So, that is that; to improve more flexible in relations and foster International cooperation.

>> JUAN FERNANDEZ: Thank you.  Michael, your turn for some quick remark.

>> MICHAEL KENDE:  Very quick.  So just on two of Raul's comments when I have no doubt that Raul has a good sense of where or a better sense than me where the content sitting for Latin America and the region.  But I think also with respect to the affordability question, I think it really points to having more data, more measurement.  It is very hard to get these numbers.  We did a study in Africa and Rwanda on local content hosting and we had to ask one by one all the content providers and we had a minister that gave them a little push so we could dot project just to get that basic data where the content and was what the traffic flows were, same with affordability. 

The studies like in Brazil really pick out the questions of who has it and who doesn't and based on a lot of demographics including income levels.  On the digital single market, I can't really point at any specific except for just to highlight that if you look at a complete single market like the U.S., you have probably eight around the country, eight big hubs of traffic, certainly not where there is big ISPs and Big Data centers.  Not one per state.  Even within Europe, you get a couple of huge ISPs but not one in every country.  And so in most other regions of the world, you still think country‑by‑country.  This country needs an ISP and this country and sometimes they don't necessarily one if the neighbor has a good one and they don't necessarily need all the data in each country. 

So, that is really how to conceptualize it, I think.  You could with a real single market you could invest by region and be aware of the population and where there is a border.

>> JUAN FERNANDEZ: Thank you, Michael.  Helani, your turn.

>> HELANI GALPAYA:  Two quick things.  One, if ‑‑ just one point.  We have been talking about the level playing field between OTTs and TeleCos, I think that is a key one obviously and there are huge implications there as well as.  For example if these are full substitutes then what is the next step?  Okay, so OTT is the paying connection fees and all of that, but in return, what do they get?  Are we going to allow your Skype ID or your Twitter handle to be listed as a contact form in your government application for your passport? 

So there is implications of those things as well.  But my broader point is, taxation is key and again, OTT TeleCo taxation differences are important.  Just look at the sectors of the TeleCo in comparison to other sectors of the economy.

That is really key.  What we are seeing in Asia, the Telecom sector being taxed at like demerit level like tobacco and alcohol level.  And that's another thing we need to address if we think university connectivity is a good thing, what are we doing with these tax regimes?

>> JUAN FERNANDEZ: I agree with your comment.  Now we open the floor for questions from the audience.  Anybody want to ask first?

>> AUDIENCE MEMBER: Hello.  I am from Argentina.  I am talking in my personal capacity.  Thank you for explanation.  I'm a little bit concerned because we are talking about Digital Economy in Latin America and there was only a side preference to the importance of the Internet exchange points as a powerful tool for local traffic development.  In Brazil, Argentina, Chile, and other Latin‑American countries, very well developed ISPs.  Moreover, I understand that the 60% of the traffic goes out of the region; because for example in the case of Argentina, it is connected to Cabase, more than the 60% of its traffic in our Internet Exchange Point.  As for example in the lack of information, you can see that the more than 60% of the autonomous system numbers are connected to the Cabase network.  That is why I understand that it is important to consider the various piece, the ISPs, the platforms.  And also the local content providers to have the complete picture of the economic value development in the region.  Thank you.

>> JUAN FERNANDEZ: Raul wants to answer.

>> RAUL KATZ:  You're right.  The two countries I would say that have the most is Argentina and I think have you 10 or 15 at least count.  And Brazil.  I don't know about Ecuador because Ecuador is a little bit ‑‑ I think they closed one, I'm not sure.  But, what we did in order to come up with a number of the traffic, we actually built a traffic model that comprised all countries.  Obviously the percent judged by country changes primarily based on the existence of an ISP infrastructure. 

So I would refer you to read the study that we did for the calf that has in the appendix the traffic models we built on a country‑by‑country basis and then shows that clearly both in the case of Argentina and Brazil the traffic stays within the country.  Another thing that one might mention is that one of the most important affects of that and has been registering Argentina, is the lowering of the price of transit for the regional ISPs, which ‑‑ you documented that but it has also been shown in other areas.  So look, we might disagree on a number of ‑ or there but I'm fully convinced on the benefit of it. 

I'm also fully convinced that we are not fighting against anyone but ourselves in order to get these things done.  Just for the reactions that I got from Netflix and all the parties that might still have some content localized either in Miami or Dallas or Seattle.  I think that everyone is agreeing with this.  It's just we got to get it done.  And the Cabase example is definitely the, one of the leading examples for other Latin‑American countries to follow.  So I'm fully on agreement with that. 

The other thing you didn't mention which is very interesting, is the, which Michael mentioned in his study of Nigeria and Kenya, is the spill-over affect of innovation on the ISP in terms of like you put the ISP and then start getting in the sort of like the adjacent industrial park and data centered.  A lot of people developing now applications because the cost of developing them and launching them is much cheaper than if they have to go up north and back.  And that is something that deals with the topic we are talking at hand. 

So, we quantified that a little bit in that case that we did for this country in Central America.  And it was significant from innovation standpoint.  Michael in his study had more anecdotal information but clearly the affect there is important as well.  So this is a no‑brainer.  We got to get it done in every country.  And I think I saw ‑‑ trying to do this in Bolivia sponsored by ‑‑ I think this is like, we got to do it.  Let's fast forward.

>> JUAN FERNANDEZ: Thank you, Raul.  Yes Michael?

>> MICHAEL KENDE:  I want to the just stress in my answer about the demand side and the local content hosting, I mean, it is absolutely right.  There is no point no talking about local content hosting if there is not a local ISP because all the content will leave the country and will come back anyway and you're probably worse off than if the content was there and only had one trip to make and not two.; and the IS.  And that's what ISOC has been doing for years as well.  The ISP is at the centre of building out the local content hosting and as Raul pointed out creation and innovation.

>> JUAN FERNANDEZ: Thank you, Michael.  Christophe?

>> CHRISTOPHE STECK:  Thank you very much, Christophe from Telefonica.  One thing it was in the some of the comments but it is worth pointing out that for example, according to recent study by another forum, one of the infrastructures between airports and streets and all kinds of harbors and so on and infrastructures you have, the best one by far is mobile infrastructure.  So I mean, the only ranking of countries across the world and Latin‑American countries, better and worse obviously, but the only better countries showed up in the top 20 across the whole world. 

So, the only infrastructure where Latin America today can compete with the Developed World is mobile infrastructure and I think everyone might have noticed when you're here, have you good mobile connectivity.  And speeds and so on differ.  Not so much to what I get Madrid, for example.

Having said that, that would also mean that people are connecting the next billion and so on and some of them will be here as well on this continent.  Will you speak mobile infrastructure smartphones, basically the mobile Internet if you want to put it like that.  And I think that is great.  And it's great you can give out applications and all of that. 

But, there is a growing concern that this Internet, this new Internet, is actually very different.  Than what you might call the old Internet.  The old internet being basically an Internet based on the worldwide web.  Based on domain names and based on a browser.  And all of these levels I just mentioned are quite open, based on open standards, International bodies.  We know them all.  But the new Internet I just mentioned is based on application.  Applications are based on proprietary operating systems and these are linked to App stores which are proprietary as well. 

So it is a very close world, nothing to do with the old Internet.  And people don't understand.  If you click on an application of a service, this is a total different underlying system than if you're going to the worldwide web and type in domain name and lock into a website.  So, I mean, these two things together will mean that we move in Latin America and the whole world, but especially here, to a world this is much more close. 

And what I wonder is, how do you see in this new world, the role of Latin America?  Do you see Latin America regarding content on someone playing a role for an application and so on?  Do you see big companies coming out of the content can compete in this kind of really global marketplace?  Or do you see basically Latin‑American countries being consumers of services and of Big Apple indications coming from other countries, because this is a huge division in Europe.


>> RAUL KATZ:  Sorry to monopolize the microphone.

This is like 50% of the study.  I thought I might as well answer.  You see, the issue is where to compete.  I think that where some people have it wrong is like the French for instance, coming up with like the French FACEBOOK, or like Google ‑‑ I think that at the aggregator level, the network effects are so strong and the economies of scale are so strong, that it is nonsensical to compete.  Witness Microsoft trying to compete with Google on Bing and it's going nowhere.  But, at the same time, these platforms provide in a multi‑site basis, the opportunity for us to develop Apps running on them.  It's very interesting. 

You take YouTube for instance.  The number of local channels that you have running on YouTube, local channels, I mean local news channels from Latin America running on YouTube is very important.  The same thing, take Google, the number of applications ‑‑ I'm sorry, on FACEBOOK, the number of applications and games that are running generating revenues.  It's not 30/70 in terms of revenue split.  FACEBOOK gives you 100%., which is great for today Apps developers.  So, I'm saying, we'll work on the ‑‑ let's call it complimenter of these global sites. 

Secondly, there is some areas where we have a competitive advantage.  One of them is social messaging.  Take for instance WhatsApp.  It took them one hundred million dollars to develop the platform.  I think we can find one hundred million dollars somewhere.  And the network affects do not mean a barrier to entry for someone to come in to do it.  Telefonica just launched one version of that.  I think we should do it locally as well.  Two, I think that video streaming, video streaming the indirect network affects and the long tail favor local content.  If a look at Netflix catalog, there is no way on earth that Netflix will ever be able to replicate all of the wealth of catalogs in our region and my last count there are 140 video streaming sites in Latin America from Clairol video to pirates.  But there is so much activity, so much.  So I think we have an opportunity there to work and challenge that.

The third thing I think in digitization of production processes.  We need to really focus on an indication that have to with agriculture, mining, manufacturing, we have like a big to do.  Alejandro has slightly alluded to this Internet of production but that is a big challenge that we have.  So, and then the last one is e‑Commerce which is already obvious because if you look at the ranking of sites of e‑Commerce in Latin America, you have America leisure and then you get the rest.  And in the rest, the first 4 are Brazilians. 

So they are here sort of like you can see Amazon or Alibaba or Walmart, but from the Internet network affects.  So I think that we just have to choose our pick and say, where are we going to focus?  I think on those we have a strong opportunity.

>> JUAN FERNANDEZ: Thank you.  Philip?

>> PHILIP MORA:  Just to build on what the Professor said.  There are areas where we can pick our battles and where we have competitive advantages and one of these areas, not only digital commerce in which I agree but digital identity.  This is something that we have been working on quite a lot.  And we have developed a mobile connect, a single sign on solution which utilizes the handsets themselves and the mobile networks as additional layers of security and it will save you time, spare you a lot of log ins and passwords and we will add a number of layers of security to whichever digital service you want to use.

>> JUAN FERNANDEZ: Somebody else?  Michael?

>> MICHAEL KENDE:  I want to pick up on the point Christophe made about the closed App environment and I mean, that is directly relevant also to the situation for entrepreneurs because it used to be you create a website and you probable still are creating a website but then you have to create an App for, you pick one platform and then there is quite a significant cost in making it for the next one and you probably don't make it for the third, fourth and first ones and it is harder to come in as the third and fourth and fifth platform because there is not enough Apps available so not enough consumers. 

So one solution is to base the Apps on the website HTML5, and then create a mobile website to download and install like an App on any platform.  And that would be a better environment for the entrepreneurs because you have to do it once instead of two or three our 4 or 5 times.

>> JUAN FERNANDEZ: Thank you.  Philip?

>> PHILIP MORA:  I have a question, when Juan, you mentioned leveling the playing field.  You always used the terms audits.  I would like to understand what you understand about what is an OTT.  I feel that is a very flexible definition and it could be used in several ways.  So are you ‑‑ I can see that OTT could be as open as the Internet or any Internet content or platform or service that goes over the top of the telecommunication infrastructure. 

So first which is your definition of OTTs when you ask for more regulation of OTTs or more taxation?  That means more regulation to the Internet and more taxation to the Internet?  And also, you refer to level of playing field that the same service and same regulation.  Do you consider that this kind of Internet services platforms of content are the same sector at the telecommunications sector?  A

nd then also if you are going to ask for same regulation, what that is meaning?  You plan to regulate Internet Platform the same way that TeleCos are using public goods to provider services like spectrum or legacy telecommunication that has been licensed by government should be regulated in the same fashion? 

And the last one is in connection to what Philip mentioned about the GSMA survey about that people understand that SMS are going to be replaced by instant messaging.  I don't see that makes SMS ‑‑ instant messaging the same as SMS.  I think that is progress.  And I think that what it is a new kind of service that has different futures.  If you made that same question 10 years ago about fax versus e‑mail, I think that you will have the same answer.  Yes, it will be ‑‑ I don't think that anybody is missing the facts right now.  So, would like to understand better what it means.

>> JUAN FERNANDEZ: Thank you.  If somebody wants to pick the question -- In my case when I made the question I was talking about service ‑‑ Internet services or raps or specific platforms over the Internet and the question regarding level playing field was related to similar services that are substitute.  Activities related to that specific case, but if somebody wants to pick the question?

>> PHILIP MORA:  Regarding your question about the same services, same rules for same service accident one example, very clear example I can give you is about privacy and data protection.  Those of us in the room who are Brazilians will remember that not many months ago a judge in Brazil filed a court order whereby he wanted WhatsApp to open for investigation the private data of one of its users.  And so because WhatsApp doesn't have a legal entity in Brazil they forwarded request to FACEBOOK and FACEBOOK said, we are not the same guys so too bad. 

So he came back and said, operators, I want you to block WhatsApp in Brazil until they come back to us.  And the operator said, we have nothing to do with this.  This is a service.  Users want to use it, that's not what we are going to do.  And somehow the operators came out as the bad guys in this story even though they are trying to actually protect their consumer's data.  And they are willingness to use a certain service while WhatsApp was not complying with a court order. 

So, this is one example regarding data protection but when you're saying sending a text message through your mobile networks you know that ‑‑ not specifically about Brazil but in any country where you have data protection regulation and authority, you know the operator is subject to rules about how they should keep and track your data while an Internet player like WhatsApp, is not subject to the same rules.  And then the regulator, the legal authority, they face a barrier of jurisdiction.  How are we going to face a company that is not based in our country and that takes data abroad while the Telecom operator we know who they are, we know where they stay.  They pay taxes in this country. 

So they are much easier to reach.  You end up with a problem and that's what I was talking about in legacy regulation where a symmetrically you end up boy creating much more regulation and obligations and requirements for the MNOs as opposed to Internet players.  When you say it is not equivalent, it is a new kind of service.  Perhaps I would dare to say that you would follow the 30% that don't think that it is the same kind of service but 70% seem to think they do. 

So it's not an absolute figure.  And it is only a survey and surveys are limited to sampling problems and to bias of all kinds but of course in the context of the survey they conducted, that's the finding we had and we believe it is pretty conclusive.  Thank you.

>> JUAN FERNANDEZ: Thank you, Philip.  Raul?

>> RAUL KATZ:  You raised an important problem and I agree with Philip it's just a survey.  And it is very interesting.  I think Miriam alluded to it, economic sense.  I first define the relevant market and see whether there is any cross-elasticities and whether there is substitution.  We haven't done that yet.  It is tricky because one of the services is close to like the price relation is close to zero but we haven't done that.  The funny thing is like, we have been struggling with substitution between fix and mobile for a while to figure out how to deal with regulation and the only study in the world that proved the substitution was the Austrian one where the services, the mobile services were such that people were disconnecting completely. 

So, and it is a little bit of your facts and analogy.  The time will figure it out.  It will be so obvious then.  I think it a very interesting question.  I just wonder, your question reminds me of a regulator in the United States where we as academics were challenging whether they had done their homework in proving the point you're asking and they were saying, you know, guys, at some point, research informs policy but I have to jump into the pool one way or the other without a lot of data.

So I think we are navigating this murky area and unfortunately, I think ‑‑

>> JUAN FERNANDEZ: We have run out of time.  I have been told there are no remote questions.  So we can finish here.  I want to thank very much all the panelists for this very rich and interesting discussion, and for all the audience and the questions.  Thank you.


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