At about 2:00 pm on Thursday, July 9, I received an e-mail saying, “we are at a store and it works!” I knew exactly what this cryptic message meant and where it was coming from: a remote rural village in Yucatan, Mexico, where many houses do not have electricity and, until that moment, access to Internet was limited only to the very few who could afford a thirty minute walk and a ME$200 taxi ride to the nearest town.
As insignificant as an eight word e-mail may seem, that short note was the first milestone in a project that began six months earlier as a joint effort between a private Mexican telecommunication company, a Mexican public agency and the Inter-American Development Bank, to successfully pilot a sustainable, market-based solution to bridge the digital gap that divides Mexico. The objective of the project was to increase access to affordable connectivity in rural Mexico through the implementation of an inexpensive and scalable wireless network solution supported by a low-tech and low-power environment. Community-owned stores located in low-income rural areas that are part of the network of a public food distribution company operate as connectivity hubs, providing voice and Internet services in underserved communities.
Indeed, Mexico is a country of widespread inequality when it comes to access to internet and communication technology (ICT) services. According to recent World Bank data for lower to middle income households, fewer than 13 out of 100 people use the Internet and only 6 of 100 subscribe to an Internet provider, indicators that are below the average for Latin America and the Caribbean region. Rural areas are mostly affected by this gap; in many cases they lack basic infrastructure and/or the appropriate incentives to encourage private sector participation in the installation and provision of connectivity services. For example, in Southeastern Mexico, less than 6% of the population has Internet access.
And yet, the market represented by rural regions is incredibly large; it is estimated that rural areas account for more than 80% of the territory and concentrate 36% of the Mexican population, 50% of which, according to World Bank data, is poor. As a result, over 15 million Mexicans have most of their basic needs unmet. The lack of access to education, health, housing, ICT and financial services, coupled with the relative distance from major urban centers, are some of the problems that deepen the development chasm that divides the country, and inhibits widespread economic opportunities in underserved communities. Although a simple and straightforward solution, access to Internet and other connectivity services can provide solutions to many of these unmet needs.
Creating a sustainable model to provide high-quality, affordable connectivity alternatives to rural Mexico means dealing with three main challenges that prevent these communities from leaping to the digital age. First, telecommunication companies face barriers in providing cost-effective services and extending their coverage to underserved rural areas at affordable prices, particularly in a country where monopolistic practices reduce incentives for private sector participation and complicate the entry of new players. Second, there is a lack of adequate distribution platforms that could be used to organize the supply and demand for connectivity services. Third, there are limited financing alternatives for low-income communities to afford basic connectivity systems.
It was evident from the beginning that bringing affordable ICT services to rural Mexico would require an innovative business model with the needed capabilities to connect, distribute and finance connectivity services in rural communities, as well as a multisectoral alliance to create maximum effectiveness.
Piloting a multi-stakeholder model proved to be as big a challenge as bringing connectivity to small Mayan villages. In this respect, the road to success largely depended on finding partners interested in piloting this initiative, not as a stand-alone project but as the true first stage of a scalable, transformative model for connecting rural villages. It took many months and meetings -- more than we might have wanted -- for the partnership to finally be set. Three players have taken on three major roles in this technological venture: a telecommunications company, Pegaso Banda Ancha, provides connectivity service, technology and equipment; a public sector agency, Diconsa, provides the distribution network and reach into rural communities; and a financial institution, the Inter-American Development Bank, provides the needed resources to finance the pilot experience, and based on the results, will structure a larger operation to expand the pilot model to reach millions of low-income beneficiaries.
With a total investment of US$ 180,000, ten rural villages in the Yucatan region were connected via satellite to Internet and VoIP phone services. For many, this was not the first time they have used Internet or a phone, but certainly for all of them, it was the first time that checking e-mail or making a phone call was just a short walk away.
Six months after I received that e-mail from the first site connected, the taste of the experience is bittersweet. We continue to confront a number of unexpected problems that have forced us to rethink the approach, adjust expectations, and face the hardships of moving from business theory into operations. These operational challenges range from difficulties negotiating and signing cooperation agreements between participants, to delays in data collection, due to the inefficient implementation of a tariff structure that placed more importance on phone usage than on Internet service.
Many of these difficulties are directly linked to coordinating private and public sector participation, and developing a sales and collection scheme with the service provider that will accommodate some of the limitations of the public distribution platform. For example, in this case we had to revisit regulatory practices to enable distribution of services and not just goods.
Working at the community level had its own set of problems as well, the original scope of the training that was originally envisioned clearly was not wide enough, minutes were not being sold and computers remained idle in the corners of the stores. In this case, we had to rethink the training approach to successfully encourage advertising and usage of the service.
With a couple of months left in the project’s pilot stage, and a new tariff model in place for increasing Internet activity, we are optimistic and confident that the experience is providing enough data to enable us to test the true potential of the pilot as a scalable, market-based business solution that will be profitable and, at the same time, have high social returns. For example, we have learned that demand for Internet is greater than for phone services, children are using the Internet to support their school work, and many stores are exceeding the expected number of minutes they are assigned to sell per week. A few days ago, I learned of a curious experience that shows how this model can encourage entrepreneurship. For some reason the computer in one of the stores stopped working, and the service provider was unable to repair it for a few days. The owner of the store decided he could not wait, and he borrowed a computer from some family members so he could continue providing Internet service. It is surprising to think that only a few months ago these communities did not have any connectivity at all.
Stories like this one are leading us to believe the rural connectivity model has the potential to truly bridge the digital divide, and prove that investing in underserved markets is good business. The end-objective is to expand the connectivity model to over 5,000 locations throughout Mexico. There are still many communities left to connect and many more e-mails to come.
