Promoting Internet development: the case of Argentina

Only a few years ago Argentina had a very low Internet penetration compared with its neighbouring countries in Latin America. In 1993, for example, the country had only 0.05 Internet hosts per 10,000 people, while Chile had as many as 1.01 (Brazil had 0.27, Mexico had 0.40 and Venezuela 0.23). By July 1999, however, the situation had changed in some fundamental ways. While countries like Chile and Brazil had 25 Internet hosts per 10,000 people, Argentina was enjoying the presence of almost 39 Internet hosts per 10,000 people. The number of estimated users had climbed from some 70,000 in late 1996 to more than 900,000 in mid-1999; while the number of Internet accounts had grown almost nine fold, from 40,000 in late 1996 to some 348,000 in mid-1999. The poor market prospect that reigned in the early days of the Internet had certainly been reversed. Argentina became, by late 1999, the country with the highest Internet host density among the large economies of Latin America. A number of obvious questions come to mind when confronted with this puzzle: How can it be that in a short period of time the country reversed the situation in which it was in 1993? What happened between 1993 and 1999 that the number of connections to the Internet grew more than 255 percent a year, shooting the hosts density from 0.05 to 39 Internet hosts per 10,000 people? This case study attempts to provide some clues to the Internet growth puzzle in Argentina. Most analysts would agree that changes in market structure and profile are not the product of a single factor. This paper argues, however, that the Internet boom in Argentina lies mainly on two main policy decisions: (a) the reduction in the price of leased lines and (b) the reduction of tariffs for local calls through the creation of a special dialling scheme for Internet-related calls. The paper pays special attention to these regulatory changes, their impact on the evolution of the Internet in Argentina, and the subsequent benefits that the Net has brought to both businesses and consumers.