Are Governments a brake on emerging mobile societal advancements? Yes in Brazil

August 27, 2009

in general

One night in Manaus I was sitting in a nice fish restaurant (local fish is fantastic) and talking to Nokia locals about the Brazilian market. I wanted to know the usual things, share of market, how things break down, retail etc. One thing really struck me. The government in Brazil taxes mobile at a 50% tax rate. That’s minutes, SMS etc. I kept hearing that broadband rates are the most expensive in the world for a lousy speed. Plus there are import duties on phones. I was told I could sell my iPhone no trouble at a big profit (I just lacked the time to do it.).

If mobiles are driving an economic miracle in third world countries then why (other than risk of loss of revenue) would the government want to tax mobiles and thus economic progress at this rate? If I’ve learned anything by looking at India and Africa lower the rates on SMS and you get a hockey stick effect. Brazil effectively has a tax on economic innovation. That needs to change.

Let’s start at the top. These are general facts I gleaned from the conversation. They may be approximate. Brazil has a population of 200 million. Of which there are 155 million subscribers. (many have multiple SIMs). The market is staturated (80%+ replacement) with low end mobile phones. The projects before the economic meltdown were for a market of 50 millionĀ  cellphones this year. Thus this is a big and important market. It’s also fragmented. While Nokia is the leader it is by no means dominant with LG and Samsung also now active. Motorola and SonyErikson aren’t really in the play at the moment. The carrier end is also fragmented. I saw this all the time as my network swapped from one to another walking around Manaus. I understood there were also four main carriers.

I heard of “free calling on weekends” and many have bought a second SIM card to use such services. There are no dual-sim cards or China phones in Brazil currently. It is predominatly prepaid. I still don’t understand why a dual-sim phone is hard. SMS rates are excessive for an emerging market. Given import duties and data rates smart phones are a very small limited market. Others start carrying two phones etc. This makes no sense to me. Those that can afford smartphones usually import them from overseas. As a result of this fragmentation I didn’t see hoardings /signage everywhere. This may have just been Manaus rather than Brazil. The competition doesn’t have the intensity that exists in India. The second hand market apparently didn’t really exist either.

Radical changes appear to be hampered by the government. The opportunity to empower the people with a real-time future will be missed here and in many other countries if the “low end” is overtaxed. Effectively a 50% tax rate on the poor on anything won’t work. When telephony was for the rich only it may have been sustainable. No longer. I’ve never seen many comparisons of “tax rates” across countries as they apply to mobile. I’d be interested in some feedback. The tax brackets and structure also leave the carriers with little incentive to change.

Perhaps we need a “mobility favorability index”?

I also kept asking about the “Middle Class”. It is the growing middle that is fueling India’s growth. Brazil by contrast still appears to be a country of rich and poor (although I never saw poor like I’ve seen it in India). Even trying to ascertain jobs and where the growth comes from it was difficult to see or understand from which economic direction a middle class would emerge. While Manaus was in an economic zone created by the govenment it is also still limited by location (an effective island) and a population of 2 million.

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